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How to Write an eCommerce Business Plan for Your Startup

Section 1

Your Value Proposition

What is your value proposition?
Creating a short, crisp value proposition is a good gauge for how clear your idea is. Write this section as if you had one minute to explain your business to a potential investor or customer. Then practice it over and over and over again until you feel really confident in explaining it to someone. Once you write this and are happy with it, use it on your website as your company description.

Let’s say you’re looking to start a hiking company, called Atlas Hiking Co., which sells premium performance hiking shirts. A possible company description could be the following:

Atlas Hiking Co. is a lifestyle hiking company that produces high performance hiking shirts for outdoor lovers. Our proprietary SPF40 fabric is one of the lightest fabrics on the market, providing mountain lovers with maximum comfort, both from a breathability and sun-protection standpoint. Our product is made in the U.S.A. and a portion of our profits are donated to preserve national parks around the country.

Notice all the sensory words.

Section 2

Figuring Out Your Business Model

How will you make money?

Before you start diving into the weeds, it’s a good idea to first develop a framework for your business model. Once you go through the different sections of the business plan and conducted extensive research, you will definitely want to make some tweaks to your business model so no need to make this perfect.

There are a number of ways to sell a product on the internet and several different business models one could employ. Depending on what you intend to sell, it’s important to think through which business model makes the most sense for your product.

What are you selling?

  • Physical products: Clothing, shoes, home goods
  • Digital products: Software as a Service products, ecourses, ebooks
  • Services: Consulting services, home cleaning

Who are you selling to?

  • Business to Business (B2B): You are selling to organizations, corporations and non-profits rather than individual customers
  • Business to Consumer (B2C): This means you are selling to individual consumers rather than businesses
  • Marketplace: You are acting as a middleman by bringing businesses and (B2B or B2C) customers to one website.

How are you sourcing your product?

  • Manufacture In-house: You make your product or service in-house
  • Third party manufacturer: You outsource manufacturing of your product or service to a third party manufacturer
  • Dropship: You partner with a dropship manufacturer. Basically this means that they make your product, package it and ship it directly to your customer while your company handles the entire customer relationship
  • Wholesale:You buy goods or services from other companies in bulk and re-sell those products on your website
Section 3

Market Analysis

Where can you compete?

Here’s a fact you can bank on: there has never been a successful e-commerce entrepreneur that didn’t understand his/her market, cold. That’s why this section is one of the most important in the entire business plan. It will force you to understand the industry in which you operate, the overall industry outlook, the existing competition, and your target customer demographic.

there has never been a successful e-commerce entrepreneur that didn't understand his/her market, coldClick To Tweet

Before you even get started in writing this section, you need to spend several hours researching the market.

Here are some of the most efficient ways to research a particular market:

Industry reports

Google is your best friend. Look for any recent industry reports on your market of choice. This will give you a good sense of how much growth the industry is experiencing, why this growth is happening and what are the largest customer segments. In our example of Atlas Hiking Co., we should research the outdoor apparel market.

Google Trends Web Search interest outdoor apparel kids hiking hiking gear Worldwide 2004 present

Let’s say that through our research of the outdoor apparel industry, we discovered that there was a huge boom in youth hiking apparel. Perhaps parents were increasingly concerned of their kids’ exposure to UV rays while hiking so began to spend more money on their kids. We could use this valuable information to guide our business strategy.

Shopping

There’s only so much you can read online. Go to a nearby store that sells similar products to yours and interview the store representative. The store rep has interacted with hundreds of interested customers which can lead to thousands of valuable insights! It’s amazing how these insights can translate into a meaningful business opportunity.

Here’s an example:

If I was going into a Billy’s Outdoor Store to research the outdoor apparel market, I would probably ask Billy the following:

  • What are your best selling products?
  • What are your worst selling products?
  • Find products similar to yours and ask the representative his/her favorite features on products similar to yours.
  • How much are customers generally willing to spend for these types of products?
  • Do customers make repeat orders of any of these products?
  • Do you get a lot of customers that are looking to buy last minute hiking gear before they go on a hike?

Competition

Create an excel spreadsheet of all of your competitors. In your excel spreadsheet, you should have the following columns:

  • Competitor Name
  • Website
  • Price point
  • Product Description
  • Key Features (e.g. fabric, waterproof, slimfit, etc.)

What is the competition missing? Is there a gap in the offering? Where you can add some additional value?

After conducting the competitor analysis, Atlas Hiking Co. might find that the competition’s hiking shirts offer very few features at a low price point, but no one offers a luxury hiking shirt with additional features at a higher price point.

This is just an example of the types of insights one can gain from market research which can drastically alter your business model

Google Analytics

By using Google’s keyword planner and trends pages, you can get a good sense of how in demand your product is and whether it’s trending upward, or downward. Google is great for a general idea, just don’t bank on it.

The video below is a good guide on how to use Google Trends and Google Keywords

Trade shows

Are there nearby trade shows that you can go to? Again, creating connections with other people in your industry is a sure-fire short-cut to countless hours of reading on the internet. Trade shows are also a great opportunity to talk to competitors, meet manufacturers, and better understand where things are heading in your industry.

Once you finish researching the relevant industry, you should summarize your findings by answering the following questions:

General Industry

  • How big is the overall industry?
  • How big is the specific sub-industry in which you intend to operate?
  • Where has most of the historic growth in the market come from?
  • Why is this the right time to enter this market?

Opportunities

  • What are the sub-segments that are poised for future growth (e.g. youth apparel)?

Competition

  • How crowded is the product category with competition?
  • How is your competition distributing their product (online, retail, wholesale etc.)?
  • What’s missing from the competition’s product offering?

Customer

  • Who is your target customer (population size, age, geography, education, ethnicity, income level)?
  • Are consumers comfortable with buying your product category online?
Section 4

Marketing and Sales

How will you reach customers?

So, now you’ve concluded that you have a great business idea and it’s in a growing market. That’s great – but how are you going to drive traffic to your website and get customers buy it? And how much can you afford to spend on your product?

If you don't know your customer, your business will fail.Click To Tweet

In order to come up with a marketing strategy, you need to first know your customer inside out. You should be able to answer such questions as:

  • How old is your customer?
  • Where does your customer live?
  • What is the population of your customer base?
  • What is their education level?
  • What is their income level?
  • What are your customers’ pain points?

With so many channels to reach your customer, which one is best for you?

Once we know pretty much everything there is to know about our target customer, we can shift focus to our marketing strategy. What channels should you use to grab the attention of your customer demographic? Some of the key marketing channels include:

Paid Marketing

  • Pay-per-click – this typically involves using Google Shopping campaigns and managing a product data feed.
  • Affiliate sale networks – Allowing other blogs and websites to sell your product for a cut of the revenue. List the different affiliate sale networks that you plan to promote through.

Organic Marketing

  • Social media (Facebook, Instagram, Pinterest etc.): Which is your strategy for social media and where will you dedicate your attention?
  • Search Engine Optimization – Create and promote awesome content so people find your product organically through search.
  • What is your content marketing strategy? Come up with a content roadmap that lists the next 10-15 articles you want created as well as your strategy for creating such content (in-house vs. outsource). How will you persuade people to buy your product once they get to your site?
  • Blogger networks – could be organic or paid through affiliate sale programs.
  • Develop a list of the key bloggers in your product category. For Atlas Hiking Co., this might be an influencer that blogs about the best hiking trails in America.

Finding the optimal mix of these advertising tools depends 100% on your customer segment as well as your product type. For example, a SaaS product targeting millennials will require an entirely different marketing strategy than an e-commerce physical product targeting baby boomers. Perhaps that should be a post on its own for another day!

How much should you spend to acquire a customer?

In order to understand this, we need to first discuss a concept known as Lifetime Value of Customer or LTV. In essence, this is a formula that helps you better understand how much an average customer will spend over time.

Here’s a good read on how to calculate LTV.

It’s important to remember that for new businesses, you don’t have a lot of data on customer purchase habits so it’s a good idea to be more conservative with your assumptions in calculating LTV.

Let’s say, for Atlas Hiking Co., I determine that the average LTV per customer is $300. This means that over time, the average customer will spend $300. Let’s say on average, if I receive $300 in revenue, $100 of that will translate to gross profit before I factor in my marketing costs (basically I’m just subtracting out the cost making the shirts).

Knowing that my gross profit is $100 per shirt is a critical piece of information because it tells me that I can spend up to $100 in marketing to acquire a customer and still be profitable!

Section 5

Choosing the Right Technology

What ecommerce platforms will you use?

With so much technology and SaaS products out there, it’s important to understand the various moving parts and diagram how they all integrate with one another.

Some of the different elements include:

Come up with a detailed list of the different products and services you need to run your business as well as the monthly and per transaction cost of each of them. This will be important in understanding the impact of these services to your margins.

Section 6

Products and Services

What other products can you grow into?

So we know we want to sell hiking shirts, that’s great!

But for some of us, we’re not quite sure as to what we should sell. To succeed in online retail, you need a product that is trending upwards in a growing niche.

Existing products

Come up with detailed specifications for each product or service you intend to sell. If it’s a hiking shirt we’re selling, we would want to have:

  • Detailed sketches of the shirt
  • Fabric weight, materials, type
  • Key features (e.g. pre-shrunk, water-proof, SPF 40)

Future product pipeline

What are other products that you have in the pipeline? Perhaps once you’ve successfully sold hiking shirts, you’re able to leverage your manufacturing relationships to sell hiking socks and shorts. Include that information in this section.

Section 7

Financial Management

 How will you stay profitable

The financial section is used to forecast sales, expenses and net income of the business. Ideally, you’ll want to create a monthly excel schedule showing the following:

  • Projected revenue: first come up with your projected number of units sold and then come up with your projected revenue (Projected Revenue = # of Units Sold * Average Sales Price).
  • Fixed expenses:  these are expenses that are fixed no matter how much you sell. Typically, these relate to monthly SaaS subscriptions, employee salaries or rent.
  • Variable expenses – these expenses change in direct proportion to how much you sell. Common examples include cost of goods sold and payment processing fees.

This helps business owners better understand what they need to achieve to hit their profit goals. In reality, projections are usually always off the mark, but it’s good to give yourself some measurable goals to strive for.

This section should aim to answer the following questions about your product offering:

  • How much product do you need to sell per year to meet your income goals for the business?
  • What are the margins on your product? If you sell 1 hiking shirt for $50, how much do you make after paying your supplier, employees and marketing costs?
  • What is the lifetime value of a customer (see marketing section)?
  • How much can you spend to acquire customers? If you conservatively project that the average customer will spend $300 over time on your shirts, then you can afford to spend an amount less than $300 to acquire that customer using the paid marketing channels described previously
  • Do you have any big capital expenditures early on that would require you to need to bring in investors?
  • Can you improve gross margins by making bigger orders from your suppliers?
Section 8

Wrapping Up

Careful planning is crucial to get your e-commerce business from the planning phase to the launch phase, and to ensure its successful future.

Going through the exercise of writing a business plan will cement your own understanding of your business and your market. It will also position you to take advantage of lucrative opportunities while mitigating harmful threats to your business down the line.

Your turn! Have you written a business plan for your e-commerce website? Do you have anything to add? Tell us about it in the comments below!

Reader Interactions

Comments

  1. Awesome post, Sameer. And quite frankly, this is what every Ecommerce business needs to have.

    Speaking to the marketing side of this post specifically, have a few comments.

    – I really appreciate you adding in that one should create a roadmap of content. From experience this kept me from scrambling to know what to do each week. Take some time, figure out the first month or two worth of emails and blog content. Hire someone that’ll do a great job on it in terms of design and copy.

    – Then next I’d have to add a focus on growing an email list as one of the top priorities. Email conversion is STRONG and shouldn’t be overlooked. Start building a list as early on as possible. Get with a service to start up with like MailChimp (like you mentioned above) so you can grow on the cheap, but if you’re more established, checkout something like HubSpot for it’s advanced features. Email can be a HUGE game changer for Ecommerce and also for non-Ecommerce businesses!

    Finally… 🙂 I came across this post from Fizzle. Not only do they provide you with a simple one-page business plan template for free, they also have some solid advice on making a plan that fits your business… check it out here: https://fizzle.co/sparkline/simple-business-plan

    Again. Awesome post, Sameer!
    Darren recently posted…Launching Our New Website Part 1 – A Look Under The HoodMy Profile

  2. Darren,

    Thanks for the kind words and the super thoughtful response. Couldn’t agree more with your thoughts on email marketing. It’s a phenomenal way to validate your idea and gain customers before you even have a product. Mailchimp is very user friendly and a cost-effective option to start.

    Also, along those lines, Instagram is a really simple and fun way to build an engaged audience before you even have a product. We’ve seen brands due this time and time again. Outerknown is a good example of this. They had 30k+ IG follower (and I’m sure many email addresses) before they even sold their first product. With an audience like, they’re guaranteed to hit the market with a big splash.

  3. I agree coming up with a business plan even for an e-commerce site is important. It really is a business and you should treat it as such, you wouldn’t start a brick and mortar business without a well thought out plan. I write business plans and grants, and it amazes me how people are not prepared to start a business.

    If you need any help or advice on starting a business, funding or with a business plan just let me know. Good article
    Sherin recently posted…Check Your Aipgmee 2016 ResultsMy Profile

    • Totally agree, Sherin. The reality is there are no barriers to entry for an online ecommerce business (as compared to traditional brick and mortar), so it can be tempting for entrepreneurs to jump right in without a well thought out plan. Planning is never the fun part but it forces folks to really think about their vision and how to practically implement it.

  4. Thank you for such a detailed post about what I should consider! I really am the “just dive in” type and it’s hard for me to write out plans. I’ve always just kind of done things on the fly.

  5. Thank you for the detail and startup-newbie-friendly guide. It’s a very useful help for Indonesian market where most people still believe that online thing is so magical that it does not need such plan as offline business does.

  6. Thanks so much for your advice. I became frustrated trying to find info on writing a business plan for an e-commerce business. There’s ‘mountains’ of info from ‘mountains’ of sites on ‘How to make money online’ – unfortunately there’s practically ‘No’ info on how to put together a business plan to make all this ‘money online !!!’ Youve certainly found a gap in the subject and I sincerely thank you for doing so. You’d think some of these money making Gurus out there would’ve thought to cover such an important topic but …? So Cheers matey. Job well done ?

  7. Thanks for writing something about e-commerce business plans. I’m still struggling to relate the e-plan with the traditional plan – what models (views) do I use?

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