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The financial picture is quite encouraging. We have been slow to take on debt, but with our increase in sales we do expect to apply for a credit line with the bank, to a limit of $150,000. The credit line is easily supported by assets.

We do expect to be able to take some money out as dividends. The owners don't take overly generous salaries, so some draw is appropriate.

Break-even Analysis

Our break-even analysis is based on running costs, the "burn-rate" costs we incur to keep the business running, not on theoretical fixed costs that would be relevant only if we were closing. Between payroll, rent, utilities, and basic marketing costs, we think $30,000 is a good estimate of fixed costs.

Our assumptions on average unit sales and average per-unit costs depend on averaging. We don't really need to calculate an exact average, this is close enough to help us understand what a real break-even point might be.

The essential insight here is that our sales level seems to be running comfortably above break-even.

Break-even Analysis

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Break-even Analysis
  
Monthly Units Break-even26
Monthly Revenue Break-even$40,144
  
Assumptions: 
Average Per-Unit Revenue$1,518.86
Average Per-Unit Variable Cost$383.80
Estimated Monthly Fixed Cost$30,000

Sales Forecast

Our sales forecast assumes no change in costs or prices, which is a reasonable assumption for the last few years.

We are expecting to increase sales grow from $350 thousand last year to $450 thousand this year. The growth forecast is in line with our last year, and is relatively high for our industry because we are developing new channels. In 2001 and 2002 we expect growth closer to 60% per year, to a projected total of more than $1 million in 2002.

For 2000 we plan to internally develop a company catalog, which will include some other products for the same target customers. The focus will be an executive level office catalog, with furniture, lamps, and other accessories.

Our Oregon location is a distinct advantage for local wood. We can buy higher quality oak and cherry than either of our competitors (one in California, one in New York). Since our sales increased over the last two years, we have been able to buy at better prices, because of higher volumes.

We work with three wood suppliers, all local. Bambridge supplies most of our oak, and a bit of cherry and some other specialty woods. Bambridge has been in business for as long as we have, and has given us good service and good prices. This is a good, stable supplier. Duffin Wood Products is a good second source, particularly for cherry and specialty woods. We've used Merlin supplies as well, frequently, for filling in when either of our main two suppliers were short.

We also work with a number of specialty manufacturers for furniture fittings, drawer accessories, glass, shelving accessories, and related purchases.

Although we aren't a major player compared to the largest furniture manufacturers, we are one of the biggest buyers of the custom materials we need. Most of our suppliers are selling through channels to hobbyists and carpenters, so they treat us as a major account.

We depend on our dominance of the latest in technology of ergonomics, combined with classic design elements of fine furniture. We must remain on top of new technologies in display, input and output, and communications. For example, our latest models are already assuming the desktop digital scanner as a frequent accessory, and audio for use in creating presentations, email attachments, etc.

Our assembly patents are an important competitive edge. No competitor can match the way we turn a drawback -- having to assemble the product -- into a feature. Our customer surveys confirm that customers take the interlocking assembly system as an enhancement to the sense of quality.

In 2000 we will introduce the new line based on the executive laptop computer, with docking station to connect to a network. The new variation on the executive desk line has a different configuration to assume easy access to the docking station, and better use of the space that doesn't have to be dedicated the the CPU case.

Sales Forecast

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Sales Forecast
 200020012002
Unit Sales   
Executive Desk Oak209350600
Executive Desk Cherry323540
Other Furniture Oak435050
Other Furniture Cherry71010
Custom Designed Furniture61020
Total Unit Sales297455720
    
Unit Prices200020012002
Executive Desk Oak$1,600.00$1,600.00$1,600.00
Executive Desk Cherry$1,750.00$1,750.00$1,750.00
Other Furniture Oak$900.00$900.00$900.00
Other Furniture Cherry$1,000.00$1,000.00$1,000.00
Custom Designed Furniture$2,500.00$2,500.00$2,500.00
    
Sales   
Executive Desk Oak$334,400$560,000$960,000
Executive Desk Cherry$56,000$61,250$70,000
Other Furniture Oak$38,700$45,000$45,000
Other Furniture Cherry$7,000$10,000$10,000
Custom Designed Furniture$15,000$25,000$50,000
Total Sales$451,100$701,250$1,135,000
    
Direct Unit Costs200020012002
Executive Desk Oak$400.00$400.00$400.00
Executive Desk Cherry$525.00$525.00$525.00
Other Furniture Oak$180.00$180.00$180.00
Other Furniture Cherry$300.00$300.00$300.00
Custom Designed Furniture$625.00$625.00$625.00
    
Direct Cost of Sales   
Executive Desk Oak$83,600$140,000$240,000
Executive Desk Cherry$16,800$18,375$21,000
Other Furniture Oak$7,740$9,000$9,000
Other Furniture Cherry$2,100$3,000$3,000
Custom Designed Furniture$3,750$6,250$12,500
Subtotal Direct Cost of Sales$113,990$176,625$285,500

Sales by Manager

Willamette's sales in terms of our management structure are represented in the following table. Jack and Cassidy are our strongest generators of sales because of their established relationships with past customers and channels.

We will bring on two new managers due to our progress on the Internet and through internal catalog publishing. Although the first year sales projections for Sampson and Bertha are not extremely high, their positions and customer interactions will increase exponentially with the completion of our websites and internal catalogs.

Willamette has decided to bring them on early because Peggy will be taking a leave of absence during the summer months of 2000. The overlap will also allow Sampson and Bertha to become quite familiar with our product offerings before their respective departments are online.

Sales Breakdown by Manager

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Sales by: Manager
 200020012002
Sales   
Jack78126223
Peggy3071152
Sampson5780109
Cassidy7886103
Bertha4892133
Other600
Total297455720
Average5076120

Sales by Segment

Willamette's sales by program forecasts are a direct result of past performance stemming from outside catalog marketing and market research. Our expanding markets are, by default, heavy users of the World Wide Web. With our technological integration that is key to Willamette's product offerings, it can be assumed that our target customers will find our products via the Internet (with a relatively aggressive Internet marketing scheme).

Sales Breakdown by Segment

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Sales by: Segment
 200020012002
Sales   
Corporate Executives109215362
Small Business Owners94136203
Home Offices90104155
Other400
Total297455720
Average74114180

Sales by Program

Our sales by segment show how strategically we have targeted our market segments in the past and project to continue to do so successfully. With historical experience in targeting these market segments, Willamette will only increase in its market share due to expansions in marketing programs tailored to our past success.

Sales Breakdown by Program

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Sales by: Program
 200020012002
Sales   
Outside Catalogs122134176
Internal Catalogs82152232
Websites77144207
Customer Service1325105
Other300
Total297455720
Average5991144

Expense Forecast

Our expenses occur as the result of both historically successful marketing endeavors and projected marketing programs designed to take advantage of expanding markets and improved product lines. We will be moving into the realm of Internet marketing and sales in the year 2000. The initial costs are high relative to the maintenance costs involved after the websites' creation.

Similarly, the development of an in-house catalog design and publishing department will incur higher start-up expenses than maintenance costs after the initial publication. We have chosen these two new marketing programs as areas where expenses can initially build up because research indicates that they will cause our market share to increase exponentially over time.

Marketing Expense Budget

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Marketing Expense Budget
 200020012002
Outside Catalogs$24,000$50,000$100,000
Internal Catalogs$72,000$104,000$125,000
Customer Service$30,000$40,000$50,000
Websites$30,000$30,000$40,000
Other$0$0$0
 ------------------------------------
Total Sales and Marketing Expenses$156,000$224,000$315,000
Percent of Sales34.58%31.94%27.75%

Expense by Manager

Willamette Furniture's expenses in terms of manager are directly proportionate to the managed program's potential. As our market share increases and capital is generated, we will support further marketing programs and the expansion of current programs, thus increasing our managment budgets for these specific departments and projects.

Expense Breakdown by Manager

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Expenses by Manager
 200020012002
Expenses   
Jack$36,000$46,000$61,000
Peggy$31,200$41,200$56,200
Sampson$31,200$41,200$56,200
Cassidy$24,000$34,000$49,000
Bertha$33,600$43,600$58,600
Other$0$18,000$34,000
Total$156,000$224,000$315,000
Average$26,000$37,333$52,500

Expense by Segment

Willamette Furniture's expenses in terms of marketing programs are directly proportionate to the proposed and historical success of these programs. As our market share increases and capital is generated, we will support further marketing programs and the expansion of current programs.

Expense Breakdown by Segment

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Expenses by Segment
 200020012002
Expenses   
Corporate Executives$84,000$94,000$109,000
Small Business Owners$48,000$58,000$73,000
Home Offices$24,000$34,000$49,000
Other$0$38,000$84,000
Total$156,000$224,000$315,000
Average$39,000$56,000$78,750

Expense by Program

Willamette Furniture's expenses in terms of market segment are directly proportionate to the segment's potential. As our market share increases and capital is generated, we will support further marketing programs and the expansion of current programs.

Expense Breakdown by Program

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Expenses by Program
 200020012002
Expenses   
Outside Catalogs$24,000$34,000$49,000
Internal Catalogs$72,000$82,000$97,000
Customer Service$30,000$40,000$55,000
Websites$30,000$40,000$55,000
Other$0$28,000$59,000
Total$156,000$224,000$315,000
Average$31,200$44,800$63,000

Linking Expenses to Strategy and Tactics

Willamette's growth in sales revenue will happen as a result of the implementation of new marketing programs in accordance with market growth. The expenses generated by these new marketing strategies will be greater in the initial design and implementation stages than in later maintenance stages. For example, it is proven that an Internet presence will increase our sales anywhere from 3-10%.

Therefore, it is worth an initial expenditure of $30,000 for design and staffing in order to maintain the websites. Website expenses increase as website importance increases. We will use our increased capital to make wise infrastructure purchases such as internal catalog publishing capabilities and additional design and manufacturing tools.

Contribution Margin

Willamette's sales will increase as a result of market growth, market share increase, and Internet presence. Our gross margin will remain steady at approximately 75%. The contribution margin will steadily increase as a result of the initial expenses involved with starting marketing programs such as internal catalog publication and website development. These second year expense decreases will offset the increases in retained customer expenses, custom product line development, and outside catalog expansion.

Contribution Margin

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Contribution Margin
 200020012002
Sales$451,100$701,250$1,135,000
Direct Costs of Goods$113,990$176,625$285,500
Other Variable Costs of Sales$0$0$0
 ------------------------------------
Cost of Goods Sold$113,990$176,625$285,500
    
Gross Margin$337,110$524,625$849,500
Gross Margin %74.73%74.81%74.85%
    
Marketing Expense Budget200020012002
Outside Catalogs$24,000$50,000$100,000
Internal Catalogs$72,000$104,000$125,000
Customer Service$30,000$40,000$50,000
Websites$30,000$30,000$40,000
Other$0$0$0
 ------------------------------------
Total Sales and Marketing Expenses$156,000$224,000$315,000
Percent of Sales34.58%31.94%27.75%
    
Contribution Margin$181,110$300,625$534,500
Contribution Margin / Sales40.15%42.87%47.09%

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