Business Plan Tutorial

Let’s begin! Turn to Exhibits C and D, and look at the top items, “Selling Expenses.” These figures are tied to the same monthly and total sales of both Exhibits A and B. Exhibit A and Exhibit C are for the very same company. These are just two views of that company’s business plan. As you might have guessed (see, you are learning!), Exhibits B and D go together for another company. In both companies we have the same sales volume. The only difference is one company is a traditional franchise set-up (A+C) and the other is a non-franchised business (B+D). Expenses are based on the “modest’ sales scenario, reflecting a revenue start of $10,000 in month one, and ramping up fairly aggressively to $25,900 in month six, as shown on Exhibits A and B. In the examples we use here, we have assumed 37% direct cost of sales.

This means all costs incurred to make and package the product (or service). For example, the Custom Blotter Company has built a business offering “Custom Desk Blotters” (fictitious– used for illustration purposes only!) Each blotter is created from a piece of artwork or photograph supplied by a client, including custom reminders and quotes, and so the direct costs CBC incurs would include: Material Costs: Blotter paper, binding or mounting supplies, the leather or vinyl backing, glues, paper for drafts, the cardboard box used for shipping the product, etc. For our example we assume 22% of the selling price. Direct Labor Expense: Graphic artist time (employee or contracted), and your time spent actually working on or guiding the project. For our example we assume 11% of the selling price.Other Direct Costs: Charges for shipping product, printing the final blotter, and /or outside binding service charges, etc. For our example we assume 3% of the selling price. In our spreadsheet, therefore, our Total Direct Cost of Sales is 37% of the product (service) selling price. Note: Rounding up accounts for small figure discrepancies.

This 37% figure does not include our selling expenses nor our overhead, both of which come into the picture for every business! Even a “virtual company” on the web, while not necessarily incurring “rent” or even clerical overhead, will still have utilities (electric, phone / dsl / cable service) as well as hardware and software maintenance, web-hosting fees, and other overhead expenses related to that type of business.
Let’s continue to see how these two additional factors, selling expenses and overhead come into play to yield a surprising outcome!