The Week 3 homework assignment is to compose chapter 3 of the business plan. In chapter 3 yo

The Week 3 homework assignment is to compose chapter 3 of the business plan.  

In chapter 3 you will present an analysis of the market in which your business idea will operate.   

Note: A requirement to compute a Pro-forma Forecast of Volume is described in the instructions.  An example of how that is computed is included as an attachment at the bottom of this announcement.

Format this week’s homework using the section headings from the Business Plan Template.  Use this outline:

3.0 MARKET ANALYSIS

3.1 Industry Analysis

3.2 Market Segmentation

3.3 Target Market Size and Trends

3.4 Buyer Behavior

3.5 Competitor Analysis – Direct, Indirect and Future

3.6 Pro Forma Forecast of Annual Sales Volume

Section 3.1 Industry Analysis: Begin this chapter with a summary Industry Analysis, using the techniques for industry analysis that you learned in EMG 4005.  Describe your business’ NAICS industry code and provide market details such as those found in IBISWorld (Access is available through Evans Library – which you can access from this link  https://libguides.lib.fit.edu/c.php?g=427694&p=2919540 (Links to an external site.) ). Then proceed to “drill down” into this market, in the chapter sections that follow.

Section 3.2 Market Segmentation should draw upon the segments described in your NAICS code.  Search the information you will find in IBISWorld for facts about how your market/industry is segmented.  Indicate which segment will be the focus of your business, and why.

Section 3.3 Target Market Size and Trends should describe the expected size of your chosen market segment (the segment from those identified in Section 3.2 that is a "best fit" for your business) and the trends that the segment is experiencing to indicate the potential opportunity that your business anticipates.  This will help to justify your volume forecast, which follows further in this chapter.  

Section 3.4 Buyer Behavior should draw upon the findings from your market research that you conducted last week.  In this section, you can use a lot of the material from your week 2 homework submission.   You might say, for example, “Based on market research conducted (date) on a random sampling of (number) potential customers, the following findings describe the expected buyer behavior in our market segment.”  You should note the buyer preferences your analysis revealed with respect to your product and business model, and remark on what changes you are planning as the result of the research findings.

In addition to citing your week 2 market research, you should describe the expected buyer behavior in your chosen market segment, based on information that you may find in published sources. Do a web search and see if you can find any other research that talks about buyer behavior in general in the market segment that you are pursuing.  You can incorporate that as well.   

For example, here's a study about how buyers select mobile phone apps:  http://www.ijstm.com/images/short_pdf/1463065319_1581ijstm.pdf (Links to an external site.)    (the study was conducted in India, but the findings appear to be universal). Be sure to properly describe any research project you draw from (including your own), so the reader can assess the quality and validity of the cited findings.

Section 3.5 Competitor Analysis should describe in as much detail as possible the competitors your business will encounter.  The objective is to indicate how much difficulty your business may face from the competition, in achieving its volume objectives. 

Describe direct competitors (those that sell products that are similar to yours) and indirect competitors (those that offer alternate solutions for the business problem your product attempts to solve).  Also describe the potential for future competitors to come into existence, in terms of barriers to entry and difficulty for others to enter the market.  Describe other businesses that could potentially enter your market and explain why they might be able to enter or be blocked by barriers.  Include a Competitive Analysis Grid.

Section 3.6 – Pro Forma Forecast of Annual Sales Volume is a critically important part of your business plan and CANNOT BE SKIPPED.  “What is a Pro Forma Forecast of Annual Sales Volume?” you ask.   It is a prediction of the sales volume that your proposed business venture will experience in the future.  Yes – in the future!  The forecast is to display yearly data looking forward over the next five years.  The forecast is to presume that your expansion plan has been installed and the volume that you forecast should be based on the expanded business.  And volume means quantity, not value so don’t get caught up in predicting revenue. 

Here’s how to construct a Pro Forma Forecast of Annual Sales Volume. 

1)      Decide on the unit of measure that will describe your business’ volume.  This is a very critical step because the measure will also be used for pricing and performance measurement. Don’t default to using Sales Revenue as the unit of measure.  Sales Revenue is NOT a measure of volume, it’s the product of multiplying sales volume by unit price.   If you are selling a product, the measure of Volume is frequently “units.”    Services are frequently sold by the hour.  

2)      Create a table that shows forecast volume for a five-year future period, following the implementation of your expansion plan.  In addition show the low actual volume you have achieved so far.  The first (left) column of the table should display the actual volume you have sold so far in the past 12 months since you commenced operation. Then progressively to the right, show the volume forecast for the next five years in the next five columns.

For this classroom exercise, do you need to be scientific in creating your forecast?   No, just create a table that represents your best efforts to predict the volume with the limited data and time that you have available.   Just be sure to have a table filled with what you think are reasonable volume data for your business proposal, as you will need this as your plan develops. 

A more complete explanation of how to compute your volume forecast will be provided in an Announcement later this week.  That Announcement will also include a representative example of a volume forecast that you can replicate.

Remember these points:

1) The forecast is about the number of products you will sell – not the sales revenue you will realize.   This is critically important.

2) The volume forecast is the basis for every other forecast you will develop in this report.  It's like the foundation of a new house you are building -it will support and define the size of the rest of the construction – the walls, the roof, the windows, the doors.  In construction, all the rest of the house structure relates back to the foundation, and in this business plan your forecasts of revenues, facilities cost, equipment cost, employee cost, and all other costs will relate back to the volume forecast – they aren't independently developed.   

3) If you discover in future weeks that your volume forecast doesn't make as much sense as you thought it did, you have the flexibility to go back and modify your volume forecast.  Even in real-life situations, a future forecast can always be modified when more data becomes available.