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Business Plan for E-commerce Start Up

1.0 Executive Summary

FreeDeliveryandReturn.com is a start-up company which is based on an internet

website being operated to cater to the market in terms of offering online merchants and

consumers a platform to meet each other. The purpose of the website is to be able to provide

a platform to both consumers and merchants to trade products, get them delivered and in case

of returns, be able to send the products back to the merchant without any complications or

issues. The website is able to provide a business-to-business, business-to-client and client-to-

client based business solution by consolidating the ordering and delivering of products. The

variety of products is expansive and vast and allows all types of products to be sold and

purchased. The company is able to ensure that the merchants are able to save bad sales from

taking place and increase customer satisfaction in terms of the products being sold. This leads

to better customer-merchant relationship and ensures sales in the future as well.

The consumer also gains from this relationship as they are able to carry out their

purchases in a convenient manner from the website and are able to claim their returns from

one location rather than having to visit different stores individually. The company is

providing a new service in the market which is not present as consumers are able to return

any of their online purchases through this website which gives the company a competitive

advantage as it is the first company to do so and can gain an edge over their competition.

This means that a company such as this will be able to experience rapid growth and establish
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themselves in such a market acting as a deterrent for new competition from entering the

market as well.
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2.1 Introduction

E-commerce based businesses are rapidly growing all over the world as people are

more inclined to carry out their purchases online. The trend for e-commerce based businesses

has been on the rise and there are no signs that any of this growth will stagnate or fall in the

future. Based on retail businesses, it has been seen that online revenues have doubled to

tripled through the holiday seasons alone and after Black Friday, Cyber Monday is fast

becoming the day when people carry out their holiday shopping purchases1. The e-commerce

industry is expanding at a rate that no one expected and it has been estimated that the whole

industry is worth more than $10 billion in the US alone. Companies which are catering in the

e-commerce industry are involved in apparel, music, books, home based products, groceries

and electronics and all these companies have seen rapid growth in their businesses in recent

years.

This shows that the market for online sales is growing at more than 100% on an

annual basis and the industry is expected to hit the $50 billion market in the near future.

Based on the opportunity being provided by the internet based industry, it can be seen that

new businesses should look towards e-commerce when a new start-up is being planned.

Estimates show that an annual return of 10% can be expected from such a service, however,

for start-ups providing a unique and new service, the rate of return can be astronomical. This

shows that there is a gap in the industry for a service which provides better shipping and

return based services for its customers which is not being offered currently.

2.2 Service Provided

FreeDeliveryandReturn.com is a company which will look to streamline the process

of delivering and returning of goods for the customers. The scope of the service is to build a

1
Armstrong, Gary, et al. Marketing: an introduction. Pearson Education, 2015.
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relationship between the merchant and the customer where the merchants can sell their goods

to the customers while the customers can easily return their products to the merchants. This

allows the merchants to be able to outsource part of their business where delivery and return

is handled by the company. This allows the retailers to concentrate on certain aspects of their

business and not having to worry about shipping and return of their products.

These activities can prove to be a drain on the resources of the retailers and can lead

to large amount of expenditure being carried out for little reward and value.

FreeDeliverandReturn.com will be able to limit the expenditure of the retailer by investing in

a supply chain management system which does not exist currently2. The company will be

able to improve the image of the company by carrying out the delivery and return based

services, leading to increased sales for the retailer, improve inventory management and

supply chain of the retailer. In terms of the customers, the website will allow them better

delivery of products and services and allow them to easily return the purchases they have

made in a more efficient manner.

2.3 Objectives

The goal of the company and the service it is providing is to improve the image of the

retailer in the eye of the customer and to improve the relationship between the retailer and

customer. In the modern world, customers are likely to carry out their purchases online due to

the fact that it is convenient. In addition to that, customers can be given an additive peace of

mind with a service such as this as it will guarantee them that they purchases they have made

can be returned easily. With the addition of such a service, customers will trust such a service

and will be willing to carry out more purchases online. The retailers who would be able to put

2
Phan, Dien D., and Douglas R. Vogel. "A model of customer relationship management and
business intelligence systems for catalogue and online retailers." Information &
management 47.2 (2010): 69-77.
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in place such a service will be able to add a unique selling proposition to their product and

service portfolio and will be able to venture into a new market that does not exist currently.

Being the first company to be offering such a service will allow the company to gain a

significant market share and be able to dominate their field.

This will also allow them to growth rapidly in such an environment and be able to

maximise its revenue from such a service. This trajectory of growth will continue until other

retailers realize the important of a return based service and then it will become an industry

standard. FreeDeliveryandReturn.com is a start-up company which is being set up for this

purpose as there is no competition in this field and it will be the first company providing such

a service. This will assure that the company will be able to establish itself as the market

leader in such an industry3. This leads to the fact that the company can see profitability in the

future and provide a return which is much better than being provided anywhere else.

In addition to providing such a service, the company will also be able to carry out

strategic alliances and agreements with merchants which will establish the company in the

industry and put up barriers for any competition to enter the industry as well. By providing

additional services in the future, the company will make sure that it is at the edge of

innovation, technology and development and always has an advantage over any competition

which might be developing against it.

2.4 Positioning Statement

FreeDeliveryandReturn.com is looking to develop as a strategic partner looking to

link the online merchants with the customers4. The company will look to use online portals,

shipping companies and financial technology based services in order to streamline the

3
McKeever, Mike. How to write a business plan. Nolo, 2016.
4
Finch, Brian. How to write a business plan. Kogan Page Publishers, 2016.
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relationship it has created between the customers and the merchants. As the company will

look to have a global presence, it will use aggregation of demand and supply in order to

minimize the cost of shipping and allow customers to purchase and return their products

according to their needs. The company is providing a unique selling proposition in terms of

its service by allowing any customer to return their online purchase to any of the online

retailers. This will build consumer confidence and allow them to carry out more online

purchases. In addition to that, the company will look to develop strategic alliances and offer

special offers and incentives to its customers to purchase from certain retailers which can be

seen as another revenue stream for the company5.

This means that the relationship being created between the merchant, the customer

and the company as being an intermediary all gain from such a relationship. The company

can use its website and develop a smart phone application which provides more convenience

to the customer and allows them to access the services of the company on multiple platforms.

This ease, convenience and accessibility provided to the customer will prove to be a growth

stimulator for the company in the long run.

2.5 Mission Statement

The mission of the company is to be able to enhance the service being provided by

online retailers and merchants to the customers and boost the trust of the customers in online

shopping. The company will strive to improve the image of the merchants in the eyes of the

customer and provide return services to stimulate the growth of online retail. The company

will look to increase customer satisfaction and build a long lasting relationship between the

merchant and customer by enhancing their interaction. The company will look to create a

5
Hair, Joseph F. Essentials of business research methods. ME Sharpe, 2015.
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supply chain from delivery to return of products in order to resolve any issues or problems

being faced by the customer.

2.6 Keys to Success

There are three keys to success that the website will be able to achieve which can be

considered obtainable for the e-commerce business. The first key to success is to be able to

develop a customer service application for handheld devices of the customers. This will make

sure that the company can carry out a two-way interaction with the customers and the

merchants. Direct communication will allow for a better provision of service with little

confusion between the two parties. The software will allow the customer and merchant to

gain access to all the information required and allow the customer to gain knowledge

regarding the delivery and return policy of the merchants6. It will also allow the customer and

merchant to reference the order and transaction being carried out and gain authorization from

merchant in case a purchase or return has to be processed.

The application will also allow the customer and merchant to track the order, maintain

records of transactions, merchants and customers and develop a relationship between the

merchant and customer through the company. Another key to success is the fact that the

company needs to build a lasting and long term relationship with the retailers, the shipping

companies and the financial technology based companies like PayPal for exchange of

relevant information. This will allow the company to be able to grow and meet the needs of

its customers and merchants and be able to expand its outreach throughout the world.

Retailers can provide better services, shipping companies can provide discounts in

bulk and financial technology based companies allow customers to pay in a variety of ways.

6
Osterwalder, Alexander, and Yves Pigneur. Business model generation: a handbook for
visionaries, game changers, and challengers. John Wiley & Sons, 2010.
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Lastly, the company will also be able to develop a website and reputation for providing the

best level of services in terms of purchasing, shipping and returning of products allowing the

customer to carry out trouble free shopping and returning.

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3.0 Company Overview

The purpose of setting up the company was to allow customers and merchants to

communicate on a common platform and allowing them to purchase and return their online

purchases in a safe and convenient manner.

3.1 Start-up Summary

FreeDeliverandReturn.com is a start-up company which is looking to get early-stage

funding at this point of time. The idea of the company has been developed and the company

is looking to develop strategic partnerships and funding in order to execute this program. The

company is looking to set up an initial website framework in Saudi Arabia and Japan as these

are two markets which are untapped in terms of their e-commerce potential. As the company

is in its early stage of funding, it is looking to raise $1 million in four rounds of financing to

be carried out at the start of each quarter. The company is also looking to get $0.3 million

initially for cash flow purposes7. The first step to be taken by the company would be to set up

the basic framework for the website and the application by setting up servers in Saudi Arabia

and Japan.

In terms of the e-commerce framework and infrastructure, multi-lingual websites and

applications will be developed for English, Arabic and Japanese in the initial stages. Once the

framework has been established, the merchants and customers will be given access to the

website and applications after beta testing. The holiday season in Saudi Arabia and Japan are

different which means that the application and website will be rolled in June to coincide with

the Eid and Shopping Festival in Saudi Arabia and in November to coincide with Christmas

in Japan.

7
Ganesh, Jaishankar, et al. "Online shopper motivations, and e-store attributes: an
examination of online patronage behavior and shopper typologies." Journal of Retailing 86.1
(2010): 106-115.
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Using conservative assumptions and estimates, it can be expected that the company

will start to become profitable in the second year as the company will be able to develop a

solid revenue stream while eliminating any downside risk attached to the company. Based on

the growth estimates, it can be expected that $10 million investment being carried out by the

fifth year will see a return of around $100 million in terms of the cash flows of the company.

Due to its business model and financial structure, the company can be taken public by the end

of the third year.

A basic understanding of the start-up expenses can be seen below

Start-Up Requirements

Legal and Consultancy $200

Stationery and Printing $100

Advertising and Marketing $500

Rent $1,000

Setting Up of Website and Application $2,000

Others $200

Total Start-up Expenses $4,000

Based on the estimates, a balance sheet can be drawn and a basic funding requirement can be

made

Start-Up Assets $300,000

Start-Up Expenses $4,000

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Start-Up Funding $304,000

3.2 Future Financial Projections

It is expected that the company will start to approach investors in February and March

and the company will look to raise $500,000 in the first round in order to cover the initial

funding required by the company. These funds will be used to procure a software program,

servers and website development for the company. These funds will also be used to rent or

set up a company headquarters in Japan and Saudi Arabia. These funds will also be used to

hire and recruit sales personnel who will look to find investors and strategic partnerships for

the future. Once these initial things have been put into place, the second round of financing

will be procured during June and July when the software and website will be rolled out in

Saudi Arabia. In this round, a funding of another $300,000 will be made in order to carry out

test marketing of the application, to market the company and application and recruit and hire

personnel to manage the website and application.

Key personnel will also be hired to make sure logistics and operations of the company

run smoothly. As the year goes on, the rest of $100,000 will be invested in September and

December to make sure that the Japanese launch of the software and website is also carried

out smoothly with setting up of servers and staff in Japan as well. Once the primary investors

have invested the initial amount of $1 million, they will be given an opportunity to exit the

company through an IPO being offered at the end of the third year8. Due to the revenue

growth expected and the cash flows being generated by the company, it can be expected that

the company can grow internally and the revenue stream can be expected to stay strong in the

8
Grewal, Dhruv, et al. "Strategic online and offline retail pricing: a review and research
agenda." Journal of Interactive Marketing 24.2 (2010): 138-154.
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future. Once the IPO has been carried out, the funds raised from it can be used to establish the

company further and even expand into other countries.

The company can also look to develop barriers of entry through innovation and

development of new technology which discourages new entrants from entering the market. In

addition to that, as the company grows in size, they can expand the structure of the company,

expand its operations and look to pay off its investors and debtors due to its sizable cash flow.

At this point of time, the company wants to grow organically which means it does not have to

acquire any businesses for expansion9. In the future, it might look to acquire other companies

set up in other regions in order to enter new markets and regions. For now, the company

wants to use its first mover status to enter, lead and dominate the market and develop itself

into a corporation by itself.

9
Turban, Efraim, et al. Electronic Commerce 2018: A Managerial and Social Networks
Perspective. Springer, 2017.
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4.0 Services Overview

The service being offered by the company looks to make it convenient for customers

to order, purchase, ship and return their online purchases. The process of the company is to

look to streamline this whole process as customers can gain access to the website or use the

application in order to purchase and return those purchases quickly. The customers can use

the application to contact a merchant through their name, order their goods, track them using

their order number and last name and return these products easily. The company also

provides extensive return services where customers can state the reason for returning the

product and choose a preferred way of resolving the issue with a refund, exchange or

replacement of the product.

The unique selling proposition of FreeDeliveryandReturn.com is the fact that it

provides a centralized and online platform to the customers which can be accessed from

anywhere and allow the customer to return their product based on the return policy of the

merchant. Once the customer lodges a request for return, it is checked against the policies of

the merchant and then authorization is taken from the merchant and the return is carried out

as soon as possible10. The company develops a strong relationship between itself and the

customer by guaranteeing the service being provided to them and does not take any personal

information of the customer which limits its possible exposure and risk factors.

4.1 Operations of the Business

The company allows the customers to purchase their goods like many of the other e-

commerce based retailer businesses which already exist. The company is able to ship the

goods that the customer orders by providing shipping services to the customers by taking the

goods from the merchant to the customer. In terms of its return based services, the customer

10
Lussier, Robert N., and Claudia E. Halabi. "A three‐country comparison of the business
success versus failure prediction model." Journal of Small Business Management 48.3
(2010): 360-377.
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only has to give the name of the merchant, the order number and his last name in order to find

the relevant order. The website and application is able to centralize all the queries of the

customer in a single place which can then be processed.

This is a unique selling point for the company as it allows for all the transactions to be

collected in one place. As online retailing grows, having one centralized location to process

shipping and return of products will gain significance. The customers gain from such a

relationship as they are able to shop with confidence that they can return these goods. The

merchants also gain from the reputation of the company as they can use the affiliation with

FreeDeliveryandReturn.com as a marketing point and use it to disseminate their return policy

to the customers and how the service can be used by the customers.

The sequence of processes to be used by the company is given below when they wish

to return the products to the merchant. First of all, a claim is received at

FreeDeliveryandReturn.com. The next step is that the merchant is asked for authorization

regarding the return and is informed of the claim. The merchant is given an opportunity to

find a replacement for the customer or provide a refund11. The customer either carries out the

new purchase or is fine with a refund. The company then generates a return label to send the

product back to the merchant and the product is returned to the merchant through a shipping

company12. Due to the ease provided to the customer by the company, there is an increased

possibility that the customer will carry out a purchase in the future as well.

11
AlGhamdi, Rayed, and Steve Drew. "Seven key drivers to online retailing growth in
KSA." arXiv preprint arXiv:1211.3148 (2012).
12
Pfeiffer, Markus, and Markus Zinnbauer. "Can old media enhance new media?." Journal of
Advertising Research 50.1 (2010): 42-49.
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5.0 Scope of the Services

FreeDeliveryandReturn.com is able to provide an essential service to merchants,

customers and the online which does not exist currently. The service being provided leads to

a safe environment being created for the customers and the merchants and allows them to

build a long lasting relationship through the company.

5.1 Benefits to Consumers

In terms of the benefits gained by the customer, it can be seen that the service is

centred on the customer and it allows them to return their goods with ease to the merchant.

As the company is able to develop a centralized system of returning goods, the customer has

the convenience of doing so. In addition to that, the customer can purchase the goods online

and return the goods online as well. This service does not exist for customers currently as

merchants have to be emailed which takes time and merchants can even fail to respond.

Using this service, the company contacts the merchants on behalf of the customers and

processes the return for them. The return policies of all merchants are also collected in one

place and the company summarizes the key features of a merchant’s return policy which

saves time and effort on the part of a customer. The process of returning and documentation

of returning like shipping labels, follow up with the merchant and communicating with them

is handles by the company which decreases the hassle for the customer. The company is also

able to track the status of the returns for the customer and due to its strategic partnerships; it

is also able to reduce shipping costs for the customers.

5.2 Benefits to Online Community

The services being provided by FreeDeliveryandReturn.com is also beneficial for the

whole online community as the company is able to spread awareness regarding its services on

the internet. The company is able to provide a confidential relationship between the customer
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and merchant so that the two parties can contact each other discreetly with little information

being leaked. The service will also develop a database for the customers and the merchants

who can use them in order to target and search for goods and services in a more efficient

manner. Lastly, the online merchants gain a lot as the services enhances their services and

credibility. One of the biggest fears associated with online purchasing is the fact that

customers are afraid of their information leaking or ordering goods which are not up to their

standards13. This service quells both those fears as the service makes sure no information is

leaked and that in case the wrong product is delivered, it can be returned with ease. This

builds consumer confidence and leads to more people carrying out online purchases.

5.3 Benefits to Merchants

The benefits gained by the merchants due to the company are that the merchants see

increased revenue as the customers will be willing to buy more from the same merchants who

are using this service. In addition to that, the customers are more satisfied as their queries and

issues are met by the merchant which turns customers into loyal patrons for the future. The

company also makes it easy for customer to understand the process of returning and provides

guidance to the customers to carry out the return of goods they do not want. The customers

also have no hassle in terms of returning the products as the company takes the responsibility

of printing the shipping labels for the customers. This also means that customers do not have

to retain their labels which adds another convenience for the customers. The company is also

able to improve inventory management and logistics for the merchant who do not have to

focus on the supply chain of their businesses.

13
Demil, Benoît, et al. "Introduction to the SEJ special issue on business models: business
models within the domain of strategic entrepreneurship." Strategic Entrepreneurship
Journal 9.1 (2015): 1-11.
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The data collected by the company is also precious as it allows an insight into the

shopping patterns of the customers which can be analysed and improved upon by the

retailers. This allows retailers to better equip their company to meet the needs and demands

of the market as well. Lastly, the merchants gain a lot as the company enhances the image

and reputation of the merchant as being efficient and able to cater to the needs of the

customers. This shines a positive light on the merchant due to FreeDeliveryandReturn.com

and improves the reputation of the retailer.

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6.0 Market Analysis Overview

Based on research which has been carried it, it has been seen that on average an

online retail business should get a return of around 10% which means that a stable return can

be expected on the investment. FreeDeliveryandReturn.com will use two key revenue streams

in its own business. First of all, a subscription flat fee will be charged from the merchants

who become part of the company. This is being paid to the company by the merchants for

being able to promote themselves through the website. This will be around 10% of the sales

made by the merchant and will be like a commission structure built for the company. This

means that for every sale made by the merchant, the company gets to earn 10% as its own

revenue. The benefit for the merchants is that it costs them around 2% less than it would if

they tried to generate this revenue themselves and it will lead to an increase in revenue of

around 15% to 20%.

6.1 Description of Service

The success of the company is primarily based on how the merchants perceive the

service to be and how they view the company. The service which is being provided is a

business-to-business, business-to-client and client-to-client solution. The service allows the

customers to make purchases and return the goods which they do not like. Based on the

business model, it can be said that the company is offering customer satisfaction on behalf of

the merchants and allows customers to purchase and more importantly return their purchases

allowing for more opportunities to sell to the merchants14. The key part of the company is the

fact that it is not competing with anyone as this service does not exist in the market currently.

No company is allowing merchants, shipping companies and customers to be linked

in this manner and it can be considered as a strategic partner in the handling of purchases and

14
Grewal, Dhruv, et al. "Innovations in retail pricing and promotions." Journal of
Retailing 87 (2011): S43-S52.
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returns of the customers. In simple terms, it can be said that the company is allowing the

merchants to outsource the shipping and returning process to this company. This allows the

merchant to focus on their core operations while the website is able to handle the shipping

and returning of merchandise.

The service which is being provided by the company looks to enhance the experience

of the customers by offering them an opportunity to purchase and return their purchases. This

allows the company to build long term relationships between merchants and customers. The

company looks to create a lasting relationship between itself, the merchant and the customers

to allow for loyalty to be built in the system and allow for more purchases to be made by the

customers. The company brings merchants and customers on a common platform and allows

merchants to state their return policies on the website for the ease of the customer.

The customer is able to access all policies on one website rather than having to go to

each merchant individually and the company allows all customers the ease to purchase and

return their merchandise15. A centralized database will allow the customers to access their

content anywhere they would want and all procedures will be stated outright. In addition to

that, merchants will carry a banner for the website stating that returns can be made with just a

click. This will prove beneficial for customers, merchants and the company itself.

The purpose of the company is to stream the shipping process from the moment the

customer makes a purchase till the customer gets the purchase and is able to return it for a

new purchase, replacement or refund. The company will allow customers to print their return

labels in case they want to return a purchase. Currently companies dispatch a return label to

the customers but they might get lost or thrown away. Customers can print out a new return

label using FreeDeliveryandReturn.com reducing the hassle for the customer.

15
Berman, Saul J. "Digital transformation: opportunities to create new business
models." Strategy & Leadership 40.2 (2012): 16-24.
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As this service becomes popular, merchants will stop sending out a return label due to

its redundancy and lower costs of selling and shipping. In terms of shipping, the return label

will be beneficial as well as the order can be tracked using the online generated label used for

returning and customers will not have to fill out forms or check the status of their order. This

service will prove beneficial for customers, merchants, shipping companies and the partners

of the company by improving the level of customer satisfaction and will lead to more revenue

for the merchants.

Another feature being promoted by the website is the fact that the company will allow

the customers to return their merchandise free of cost. This is a very important feature as it

allows the customers to return their products with little hassle and no cost being borne by

them. This will prove to be vital as it means that customers will get a free service and will get

their query resolved as well16. This will expand the online retail industry and will add to the

convenience and trust of the customer who will be willing to carry out more purchases in this

manner.

The merchants also get to benefit from the business model of the company as when a

customer will lodge a return claim, the merchant will be given an opportunity to sell another

product or return the current one. This means that even though a return is being made, the

merchant still does not lose a sale and gets to sell the customer something. This would mean

that rather than losing a sale and a customer, the merchant will be able to retain the customer

and sell to the customer a product which will lead to future sales as well.

The service which is being provided is unique due to many of the features it offers.

First of all, the merchant who carried out the sale will be alerted to the fact that a claim is

being made by the customer. This allows the merchant to think ahead on how to resolve the

16
Lakomaa, Erik, and Jan Kallberg. "Open data as a foundation for innovation: The enabling
effect of free public sector information for entrepreneurs." IEEE Access 1 (2013): 558-563.
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issue when the claim is being lodged rather than when the merchandise arrives back to them.

This allows the merchant to manage his logistics and inventory beforehand and look to

resolve the issue as soon as possible which reflects well on the merchants.

Second of all, when the return is being made, the reason for return is asked. If the

product is seen as being defective, the merchant can offer a replacement to the customer

which turns an unsatisfied customer into a satisfied one. If the wrong product has been sent

according to its specifications, the correct one can be sent allowing it to maintain customer

satisfaction as well17. The merchants also get to set the return of any refund, exchange or

replacement being made which means they get to retain their customer while reducing their

cost, maximising revenue and improving their profitability.

The gain made by the merchants through the service being offered shows that their

revenues will increase by 15% to 20%. Online shopping is expanding and customers are

slowly adapting to the idea of carrying out their purchases on the internet. The main reason

for their apprehension is the fact that they are not aware of the total cost of the shopping; they

do not trust the facility or don’t want to go through the hassle of returning their purchases. In

addition to that, the return policy of the companies made them sceptical of carrying out the

purchases over the internet. It is seen that customers want convenience and peace of mind

when they carry out their shopping. The service being provided puts both these concerns to

rest as customers can return their purchases and can look up the return policy of the

merchants18. Merchants who look to avail this service will be able to differentiate themselves

17
AlGhamdi, Rayed, Steve Drew, and Salem Alkhalaf. "Government initiatives: The missing
key for e-commerce growth in KSA." arXiv preprint arXiv:1211.2398 (2012).
18
Thamizhvanan, Arun, and M. J. Xavier. "Determinants of customers' online purchase
intention: an empirical study in India." Journal of Indian Business Research 5.1 (2013): 17-
32.
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from their competition and will be able to capture a greater market share before this becomes

the norm of the industry.

6.2 Promotional Strategy

In order to promote this service, a push a pull strategy will be used. The push strategy

will look to use direct sales and sales staff in order to introduce the company to the

merchants. In the second part, a pull strategy will be used to pull customers to the service

through an extensive advertising campaign.

In terms of the push strategy, it can be seen that direct sales efforts can be made to

online merchants and decision makers in these organisations needs to be reached. This means

that companies operating online retail stores will be targeted like Amazon.com. Once

FreeDeliveryandReturn.com is able to become a preferred choice of such a company, it will

establish itself as a recognized brand in the industry. Having a strategic partnership with such

a company will also prove to be barrier for new entrants to enter the market. A site like

Amazon.com can carry the banner allowing the customers to make easy returns which will

promote the website and its application19. Sales forces can be employed to contact these

online merchants and ask them to build a strategic partnership with the company. The sales

force will be able to spread awareness in the market and email campaigns can be carried out

to inform people about the service being provided.

The cost of the sales staff has been considered in the initial expense estimate and will

be around $500 initially. As the company progresses, it will have more of a focus on sales

program development and training of the sales force and it can be expected that a sales force

of 20 people will be developed over time. The compensation package of the sales force will

19
Chiu, Wan-Yu, Gwo-Hshiung Tzeng, and Han-Lin Li. "A new hybrid MCDM model
combining DANP with VIKOR to improve e-store business." Knowledge-Based Systems 37
(2013): 48-61.
 NAME 23

be made of a nominal salary and a progressive commission structure to incentivize the

personnel.

In terms of the pull strategy, a campaign will be carried out to target consumers who

will demand the service from online retailers. This can be done by carrying out a nationwide

TV based advertising campaign which will help the company gain market share. This will

ensure that the customers carry out their purchases from companies which are affiliated with

FreeDeliveryandReturn.com service. Participating companies will carry a banner of the

company on their websites and the TV campaign will make sure that customers ask for

merchants who are linked with the company. This will pull the demand for the company and

will make the merchants want to be affiliated with the service20. Once the objectives of the

promotional strategy are met, subsequent campaigns can be carried out on TV, radio and

internet as well.

6.3 Distribution Structure

The service being provided by the company will be made available through the

internet in the form of a website and application software for handheld devices. The name of

the company will represent the cheap and convenient manner of purchasing and returning

goods while the banners being carried by merchants will disseminate information regarding

the company and its services. The banners will allow customers to be redirected to the

website through its merchants as well. By setting up servers in its locations in Japan and

Saudi Arabia, the company will set up high speed communication lines for its websites and

software and can process the queries of the customers more efficiently. Whenever a claim is

made, the merchant will be alerted and notified and the merchants can gain access to this

information. The merchants can export the data for themselves and can use password

20
Heinemann, Gerrit, and Christoph Schwarzl. New online retailing: Innovation and
transformation. Springer Science & Business Media, 2010.
 NAME 24

protected login in order to restrict access to data related to them. In order to maintain a

database, only vital information will be taken from the customers and only those will be

shared with the merchants as an information exchange agreement.

6.4 Strategic Partnerships

Strategic partnerships will be created between the company, the merchants, the

shipping companies and the financial technology based companies. In terms of the shipping

partnership, DHL will be used due to its extensive network in Middle East and Far East and

will be used as a preferred carrier for shipping and returning of goods. Customers usually

have to pay higher prices due to their consignment size and frequency of their transactions.

FreeDeliveryandReturn.com will guarantee that shipping is cheap by aggregating their orders

and negotiating with DHL to reduce its price. This will allow the company to avail discounts

and eliminate cost by using these services in bulk21. The benefits will be passed onto the

customers. Other alliances can be created with credit card companies, PayPal, World Remit

and Skrill which will allow the merchants and customers to pay for the purchases without any

issues and returns can also be processed accordingly.

6.5 Segmentation
It has been seen that online retail industry will near $50 billion in the next few years as

companies are selling products like books, apparel, music, CDs, electronics, grocery and

household products online. These can be broken down into categories. Similarly, as

purchases are made, so are good returned and it has been estimated that around 9% of all

purchases made online are returned. This means that as the online retail industry is

expanding, so is the market for a returned merchandise based service and once it is made

21
Román, Sergio. "Relational consequences of perceived deception in online shopping: the
moderating roles of type of product, consumer’s attitude toward the internet and consumer’s
demographics." Journal of Business Ethics 95.3 (2010): 373-391.
 NAME 25

convenient, it can be expected that the figure of 9% can increase further. Figure 1 and 2 show

the breakdown of the market analysis and cumulative average growth rate of categories.

Figure 1 Market Analysis Based on Categories

MARKET ANALYSIS

YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5

Potential Growth CAGR

Customers

Books/CD/Vide 25% 48,000 60,000 75,000 93,750 117,188 25.00%

o

Toys/Games 40% 76,000 106,400 148,960 208,544 291,962 40.00%

Electronics 30% 65,000 84,500 109,850 142,805 185,647 30.00%

Computer 65% 90,000 148,500 245,025 404,291 667,080 65.00%

 NAME 26

Total 45.83% 279,000 399,400 578,835 849,390 1,261,87 45.83%

7

Figure 2 Category-wise expected CAGR

6.6 Market Needs

E-commerce is fast becoming an industry which is seeing rapid growth and the

industry will not see any decline for the foreseeable future. This is true for the countries of

Japan and Saudi Arabia where customers are valuing ease and convenience as well. As trust

and confidence is building in online shopping, the number of online shoppers has increased

dramatically. Same is true for the issues faced by online shoppers who are seeing more

problems in terms of purchasing and returning their goods. People are encountering damaged

or defective products or getting the wrong items which they did not order22. These issues add

to the costs associated with the shopping and are borne by both merchants and customers. In

such an environment, no retailer or merchant is providing a return based service which allows

the customer to ship back their goods to the merchant.

Even companies like Amazon.com do not offer an easy service to their customers in

terms of returning their goods. This problem is made worse as every company has its own

return policy and these are not clearly displayed by them on their websites. This means that

not only do the customers have to find the relevant return policy but also have to read through

it in order to see the procedures and time frame applicable on their return. Due to the

cumbersome nature of this process, customers lose trust and belief in such a system. Having a

service which allows the customers to make the returns possible at minimal cost is invaluable

for online shoppers and such a service will actually be beneficial for the whole online

22
Gyrd-Jones, Richard I., and Niels Kornum. "Managing the co-created brand: Value and
cultural complementarity in online and offline multi‐stakeholder ecosystems." Journal of
Business Research 66.9 (2013): 1484-1493.
 NAME 27

community. Many people still feel that lack of such a service makes them hesitant to carry

out an online purchase in the first place.

One of the most common reasons for a return taking place is due to the fact that the

wrong product is delivered to the customer or it turns out to be defective when it is used.

When the customer tries to return the product in such a situation, they have to face delays and

issues and the procedures in place are too strenuous that none of the customer wants to go

through the whole process. A solution for such a problem does not lie with either the

customer or the retailer23. The customer has every right to get the correct product that they

ordered. On the other hand, the retailer should also have the right to analyse the issue and

complain rather than take every return back from the customer.

The task of the customer can be made easier as they would have to look up the return policy

of the company, read through all its terms and conditions, then mail back the product to the

retailer before getting it replaced. This whole process can be streamlined by a company

whose sole task is to ease this process and allow merchants and customers a fair opportunity

to return its products. Such a service will be beneficial for the merchant and the customer and

will enhance the market for future online shopping as well.

6.7 Service Analysis

Based on the research carried out, it has been seen that the market for online shopping and

returning is growing and expanding. In the face of this, it can be seen that

FreeDeliveryandReturn.com will be able to expand into new markets, target new customers

23
DaSilva, Carlos M., and Peter Trkman. "Business model: what it is and what it is
not." Long range planning 47.6 (2014): 379-389.
 NAME 28

and provide new services24. Due to the existence of such a market, it can be seen that such a

company will be viable and will see demand in the coming future.

6.7.1 Markets

Geographic expansion guarantees that the market for a company keeps on expanding

and the company can increase its revenue potential by expanding into new geographic

regions. With companies like Amazon.com expanding into Middle East and Far East, it can

be expected that setting up of a return merchandise company in Saudi Arabia and Japan will

be profitable. Once the company has established itself in these markets, it can apply the same

business model to new regions where e-commerce is growing and expanding. This will

improve the profitability potential of such a company and will help it grow from a start-up to

a corporation.

As the company goes into new regions, the company can partner with local shippers

and carriers which can create synergy for the company on a country-by-country basis. As the

company grows across borders, it can also take advantage of the global increase in e-

commerce related activities. With a global presence, the company can offer cross-border

transactions and return services which cannot be offered by other companies like

Amazon.com which have warehouses all over the world. This will allow

FreeDeliverandReturn.com to corner the global market by taking advantage of its presence

and offer a variety of services not being offered currently. Due to its global presence, the

company can also offer cheaper or free shipping and return services.

6.7.2 Customers

24
Mascull, Bill. Business Vocabulary in Use Advanced with Answers. Cambridge University
Press, 2010.
 NAME 29

The customers of the company will be merchants who offer online shopping and

customers who are involved in carrying out online purchases as well. The company will look

to target new customers like merchants by sending their catalogues and direct mail orders.

This is a service which compliments the service already being provided by the company and

will use low tech technology in order to expand the service portfolio being offered by the

company. As the company establishes itself, the merchants who are customers of the

company will benefit as the company will send out catalogues for its merchants in order to

increase the sales of the merchants25. There is a huge mail order market which has not been

tapped by online retailers and FreeDeliveryandReturn.com can capitalize on this opportunity

by themselves.

Similarly, just like there is a return in online purchases, mail orders also see return of

their goods and it is seen that returns make up a huge part of mail orders being made. This is

an opportunity for the company to expand from online purchases to mail orders being made

as mail order industry is larger than the online purchases being made. This will improve the

reputation of the retailers and mail order companies improve the revenue for the company

and streamline the supply chain in the mail order industry as well. In addition to that, many

brick and mortar retailers are now also venturing into online sales. Physical stores which used

to sell their products are realizing the importance of using the internet and are now venturing

into this field.

This means that they already have goodwill and reputation attached to their name due

to their history. FreeDeliveryandReturn.com can partner with these companies and provide

25
Gallino, Santiago, and Antonio Moreno. "Integration of online and offline channels in
retail: The impact of sharing reliable inventory availability information." Management
Science 60.6 (2014): 1434-1451.
 NAME 30

their expertise in online retailing to such companies26. The customers who used to visit these

stores can be given an opportunity to purchase and also return their products rather than

having to make extra trips to purchase and return the merchandise. By partnering with these

companies, FreeDeliveryandReturn.com can provide convenience to the customers and allow

the companies to replace the product maintain the sale and the reputation of the retailer. This

will ease the return procedure for the customer and allow them to return their products while

sitting at home.

6.7.3 Services

As the online shopping industry expands, there will be a need to keep track of more

purchases under one roof. Currently, retailers do not keep a proper log or database of all the

sales that they make and there is no evidence of the delivery process being carried out. This

means that inventory management and logistics are a disaster. Products might be showing

available on the website of the retailer themselves even though they have been sold out. In

addition to that, shipping of the product is also not documented in real time as retailers give a

range of days to the customers. This means that the customer cannot be sure when they will

actually get the merchandise that they ordered. As the online retail industry further expands,

the volume of data to be maintained and updated increases many fold.

Customers might have to check with the retailer and the carrier company multiple

times in order to be aware regarding the dispatch and status of their order. Similarly, they will

have to go through multiple emails being sent by the retailer and carrier throughout the

delivery process. It would be much better if there was a consolidation of all this information

in one place allowing the customer and merchants to inform each other and track all this

26
Bock, Gee-Woo, et al. "The progression of online trust in the multi-channel retailer context
and the role of product uncertainty." Decision Support Systems 53.1 (2012): 97-107.
 NAME 31

information27. Software can be developed which allows the customer, merchant and the

carrier companies to record all the transaction taking place, update the status of the order and

allows the customer to access this information in a user friendly manner.

FreeDeliveryandReturn.com will be able to develop such software in the future due to its

information exchange agreements with merchants and shipping companies. This will aid the

customers and will eliminate many of the redundancies existing in the system currently.

As the company is able to develop such software, it will be able to carry out data

analytics on such information and will be able to determine the purchasing and returning

behaviour of the customers and merchants. This will allow the company to better position

itself in order to meet the requirements and needs of the customers. This data can also be

shared with partnering merchants in order to allow them to improve their operations and

reduce wastage present in the system. Even though elimination of wastage and returns cannot

be guaranteed, there is still a chance that they can be reduced and the downside risk the

company is exposed to is minimized. By constantly improving itself and meeting the needs

and demands of the market, the company can stay at the cutting edge of innovation and

technology and make sure that competition does not enter the market against it. By taking

much of the shipping and returning responsibilities, the company also allows the merchants to

focus on their core business as well improving the efficiency of the whole online retail

industry.

27
Zott, Christoph, and Raphael Amit. "Business model design: an activity system
perspective." Long range planning 43.2 (2010): 216-226.
 NAME 32

7.0 Competition

In terms of the competition that the company will face, it is expected that three types

of competition will be seen.

7.1 Direct Competition

At this point of time, there is no company which is providing any service to return

their merchandise or goods which means that there is no direct competition which can be

seen for the company. There is no single company which can be singled out as there is no

concept of having a centralized point of presence to return the goods28. The current position

of the industry allows the company to move into an empty sector and establish itself. Once

the company has established itself in such an industry, it can prop up barriers to entry to

prevent other companies from entering the industry as well.

7.2 Internal competition

One of the first competitors which can be seen by such a service are other online

retailers and merchants present in the industry. FreeDeliveryandReturn.com will have to

create strategic alliances with online merchants and retailers in order to ensure that they use

the services of the company. There is an equal and better incentive for such retailers to look

to develop a similar service by themselves which can make them internal competitors to this

company. If an online retailer thinks that they have the systems and processes in place to

create their own return service, they can start their own service with the resources they have.

One of the biggest barriers for merchants and online retailers in propping up their own

service is the fact that they will expect too few returns to take place in their daily operations

and retailers would not want to be burdened with the extra responsibility.

28
Paquette, Holly. "Social media as a marketing tool: A literature review." (2013).
 NAME 33

Due to this, the return process and procedure which exists in the industry right now is

cumbersome and tedious. If the opportunity was lucrative enough, someone else would have

already started the service a long time ago. Even online retailing giants like Amazon.com

promote that they have an easy and quick return policy; it is not able to process such requests

and queries in an efficient manner. Similarly, some of the online retailers have tried to partner

with brick-and-mortar retailers in order to use the resources and expertise of the physical

stores in order to meet customer demands29. This strategy has also seen limited success as

there is no centralized system or location for return aggregation and the time taken to process

the return and the cost associated with them are too high to warrant a company doing so in

the long run. Most of the times, customers have to travel from one physical store to another in

order to return their items and get them replaced by another one.

Lastly, online retailers have also looked to partner with carriers services like DHL and

UPS in order to process their returns. This can help the retailer and the carrier as the company

can get shipping and carrier discounts in the long run while the shipping company gains a

strategic alliance with a retailer. This agreement sees the consumer lose out in the long run as

there is no benefit of such an agreement to the consumer. The consumer does not get to enjoy

the lower cost of shipping while also not seeing quicker returns of their products. They have

to pay the shipping rates which are applied as a standard to everyone and the choice of carrier

has now become limited for the customer. In addition to that, the carrier company cannot

communicate the return of a product to the retailer in advance which means that the time

taken to replace the product is extended30.

29
Garg, Poonam. "Critical success factors for enterprise resource planning implementation in
Indian retail industry: An exploratory study." arXiv preprint arXiv:1006.5749 (2010).
30
Shankar, Venkatesh, et al. "Mobile marketing in the retailing environment: current insights
and future research avenues." Journal of interactive marketing 24.2 (2010): 111-120.
 NAME 34

FreeDeliveryandReturn.com will prove to be advantageous to the customer as it will

lead to better value for the customers and the retailers will have a chance to offer a

replacement which will qualify as a sale to the retailer rather than having to refund the

customer. Customer loyalty and satisfaction will also be maintained and everyone will benefit

from the operation structure of the company. The company will also be able to gather the

return in a centralized location and will be able to use its strategic alliance to be able to

provide free shipping to the customers and allow for speedy return of merchandise.

7.3 Channel Competition

In terms of the channel competition that the company will face, service providers like

Mail Boxes Etc. can look to develop partnerships with online retailers in order to carry out

the return processes for them. This will allow the service providers to take the responsibility

of processing returns off the hands of the company and allow it to focus on its core

operations. Even though this can be a viable option, the retailers will see that they will benefit

while their customers will see lower satisfaction, higher shopping costs and information

exchange which will impact the consumers31.

Consumers will also lose out as they will be restricted in terms of the carrier options

that they have and will have to deal with certain carriers of service providers who are part of

the retailers’ partners. As different carriers will be part of the supply chain, the consumer

experience may vary greatly from retailer to retailer as well as uniform service cannot be

guaranteed. In addition to this, companies like Mail Boxes Etc. are new and do not have the

resources in place to handle the demand which can be generated by online retailers and

merchants.

31
Ling, Kwek Choon, et al. "Perceived risk, perceived technology, online trust for the online
purchase intention in Malaysia." International Journal of Business and Management 6.6
(2011): 167.
 NAME 35

In lieu of this, carrier giants like UPS and FedEx may try to enter the industry in order

to act as the intermediaries looking to help out online retailers in terms of their returns. These

companies have established over time and have the resources and systems in place to offer

such services. The facilities, shipping experience and quality that they have will enable them

to enter the industry by themselves. Even local post office services being offered are now

looking to allow consumers to print return labels online to facilitate return of goods to online

retailers. Even though this is a small step being taken by these carriers to address the return

processes for online retailers, there is still something lacking as they cannot help the retailers

guarantee a sale and are not useful or helpful to the plight of the consumers in any manner.

This means that no single company has the resources or expertise to be able to

provide the benefits that FreeDeliverandReturn.com can provide as it can bring together the

carriers and shipping companies on board with the merchants and use a competitive analysis

to make the carrier companies decrease their prices32. The company can also ask for better

services and preferential treatment for the benefit of its clients. It can become a major player

in the industry due to the volume of transactions it can handle and it will stay a small

company making it flexible and adaptable to the needs of the customers.

32
AlGhamdi, Rayed, Steve Drew, and Osama AlFaraj. "Issues influencing Saudi customers’
decisions to purchase from online retailers in the KSA: a qualitative analysis." European
Journal of Scientific Research 55.4 (2011): 580-593.
 NAME 36

8.0 Implementation Strategy

In order to compete and raise revenue in the industry, the company will use dual

pricing strategy to complement its revenue model. The online merchants and retailers will be

charged a flat annual fee in the beginning which will be based on the volume of returns being

made and the categories of returns being made. The company will charge a fixed percentage

to the retailers for the use of its website and application. This will mean that the revenue

stream will be complimented by a fixed charge and a fixed percentage to handle the volume

of returns taking place.

8.1 Pricing Strategy

The strategy for pricing being followed is due to the fact that there are very few

retailers who are providing free shipping and returns for their products. The return

merchandising only costs when an incorrect item is shipped or it is defective. Sephora is a

cosmetic company which is providing free shipping and return for the purchases made online.

This means that the price of the product adds the shipping and handling costs and free

shipping and return of products is not an economically sound decision33. It is possible to offer

free return of merchandise to retailers by charging them a small fee for processing the return

of the products.

The following table can be used to illustrate the fact that if the return of products does

take place, it is too nominal and small in terms of the price of the product and can be borne

by the retailer. The cost of returning the products and replacing them is too minimal as

compared to the benefit where the retailer sees a rise in revenue and sales potential in the

long run.

33
AlGhamdi, Rayed, Ann Nguyen, and Vicki Jones. "A study of influential factors in the
adoption and diffusion of B2C e-commerce." arXiv preprint arXiv:1302.0272 (2013).
 NAME 37

Electric
Music/Books Toys Computer
Appliances

Sales 10 million 10 million 10 million 10 million

Price per item $11 $32 $165 $980

Sales Made 909,091 312,500 60,606 10,204

Returns 10% 10% 10% 10%

Items Returned 90,909 31,250 6,061 1,020

Shipping Cost on
$4.25 $5.86 $14.77 $58.85
Average

Total Shipping
$386,364 $183,063 $89,515 $60,051
Costs

Total Shipping
Costs as a
3.86% 1.83% 0.90% 0.60%
Percentage of
Sales

Mark Up Per Item $0.43 $0.59 $1.48 $5.89

It is considered that every item has sales of $10 million for each of the categories of

goods being sold and based on that per item mark-up is being calculated. The prices of goods

are taken as an average and an estimate in order to carry out a rough working for mark-up

needed per item. The shipping costs taken for the purpose of calculation are the standard

carrier costs and they are taken for each category of item being considered.

The calculations show that for books and music, the average return cost is around

3.86% which comes to around $0.43 per unit sold. For a company selling toys, it is going to

be around 1.83% and around $0.59. It has been seen that companies like Toys ‘R’ Us carry
 NAME 38

out an extensive marketing and sales campaign in order to promote its products and by some

estimates it is around 75% to 80% of their total revenues. In line with this, it will be

beneficial for such a company to carry out this additional cost of 1.83% in order to retain

many of its customers and this will have a higher advertising elasticity as compared to its

marketing budget being spent.

Even for toy retailers who are not carrying out any substantial marketing, raising

average unit price by 59 cents will not drive away its customer but will actually attract more

customers to purchase their toys online due to ease and convenience of return that the

customers will have. Similarly, a company selling electronics or computers online will also

benefit from initiating a return program through FreeDeliveryandReturn.com as they will

only have to raise their prices by 0.9% and 0.6% respectively. Considering the average price

per unit of these goods, it will only mean a hike of $1.48 and $5.89 respectively which is

little to no cost doe the retailers and customers.

The pricing applied by FreeShippingandReturn.com will be as follows in order to

allow customers to enjoy free shipping and return shipping on their purchases made.

Music/Books Toys Electronics Computers

Average Price Per Item $11 $32 $165 $980

Shipping Cost on
$4.25 $6 $15 $59
Average

Merchant's Share $2.76 $3.81 $9.60 $38.25

Shipping Company's
$0.85 $1.17 $2.95 $11.77
Share
 NAME 39

Credit Card Company's

$0.21 $0.29 $0.74 $2.94
Share

Total Allocation $3.83 $5.27 $13.29 $52.97

FreeDeliveryandReturn
$0.44 $1.28 $6.60 $39.20
.com Rebate

Total Allocations made $4.27 $6.55 $19.89 $92.17

Average Shipping Cost

100% 112% 135% 157%
Coverage

The company works to make sure that all the shipping costs of the purchases are

covered by having strategic alliances with the merchants, its shipping companies and the

financial technology based companies. The shipping costs will be apportioned based on the

fact that merchants, shipping companies and credit card companies have to bear some of the

cost of the purchase being made. As most of the returns taking place are due to fault of the

merchant, 65% of the costs will be allocated to the merchant. The company will also be able

to get discounts for carriers and shipping companies due to the volume of returns taking place

due to which 20% of the cost is attributed to shipping companies. As credit card companies

give a rebate, 5% of rebate will be taken from credit card and financial technology based

companies. This means that 90% of the shipping cost will be taken into account by the

merchants, the shipping companies and the credit card companies. This will mean that the

remaining 10% will be absorbed by FreeDeliveryandReturn.com as a rebate to the customer.

 NAME 40

8.2 Business Model

The company will look to develop its headquarters initially in Saudi Arabia and Japan

as these can be considered markets which have the highest growth potential to expand in the

future. Based on that, these headquarters will be set in the metropolitan areas of Riyadh and

Tokyo which will form the backbone of the company going forward. By being able to set up

in a hustling bustling area, the company will be able to get access to a large pool of high-tech

labour force and financial capital34. In addition to that, e-commerce infrastructure of the

countries will also be available and the company will be able to connect as it will be a

communication hub.

The location chosen for setting up of the headquarters will also allow good logistics to

be put into place in order to connect to existing and future clients and customers of the

company while also being able to connect to the strategic partners of the company. In regards

to operations which cannot be executed by the company itself, expertise can be gained

through consultancy and outsourcing to gain special insights into the operations of the

company. This would mean that close proximity to clients, merchants, outsourcing facilities

and strategic partners will be sought.

The headquarters will be able to host the executive team of the company, the newly

hired sales staff and core workers who will allow the company to function and prosper. As

the company looks to expand, some of the specialized workers can be sent to other places and

regions in order to stimulate growth in those regions while new staff can be hired to

supplement them. The company will be incorporated in Saudi Arabia and Japan and will be

privately held initially. Once the company becomes a corporation, IPO can be offered and the

34
Healy, Paul M., and Krishna G. Palepu. Business analysis valuation: Using financial
statements. Cengage Learning, 2012.
 NAME 41

company can be listed in Saudi Arabia and Japan simultaneously in order to gain access to

additional capital and public funds.

9.0 Organizational Structure

In order to staff the company, executives will be present in order to guide the

company. As this is an e-commerce based company, all operations are not carried out in a

centralized location which means that activities which are not integral to the company can be

outsourced or given out in the form of sub-contracts. The crucial activities for the company

would be a dedicated sales staff, executives and core workers who are able to handle the key

jobs and day to day operations at the company35. Menial jobs like call centres for feedback

and guidance can be outsourced to cheap labour markets like India in order to minimize cost

and focus on the core responsibilities of the company.

Some of the integral bodies and personnel within the company will be as follows.

 Board of Directors: The board will be tasked with the role of overseeing the strategic

direction the company is taking and how it is achieving goals in order to achieve its

mission and vision statement. In terms of specific areas, the operations, financial

stability and long term viability of the company will be under the eye of the board of

directors.

 President: The president of the company will be responsible for giving a strategic

direction and guidance to the company, look how to expand into new markets and create

strategic alliances for the betterment of the company.

35
Casadesus-Masanell, Ramon, and Joan Enric Ricart. "From strategy to business models and
onto tactics." Long range planning 43.2 (2010): 195-215.
 NAME 42

 Chief Executive Officer: The CEO of the company will have to make sure that the

resources and personnel available at the company are being used in the best manner

possible and the goals being set meet the strategic direction that the company wants to

take. The CEO has to make sure that the internal resources are able to take advantage of

and counter the external influences and forces present in the market and has to make sure

that the company is being competitive in the industry it is operating in.

 Director of Finance and Operations: There will be two people employed in order to

make sure that the financial standing of the company is strong and the company has

access to additional financial resources. The director of operations will make sure that

human resource, physical capital and the operations of the company are being managed

in an efficient manner.

 Director of Information Technology: The company relies on the use and capitalization

of information technology available at the disposal of the company due to which there

needs to be a director who makes sure that the fruits of information technology are being

used efficiently and the company is operating at the edge of innovation and technology

 Director of Sales and Marketing: The Company is also driven by marketing and

advertising and a director has to be responsible to make sure that sales are being

generated by the sales personnel while advertising is being carried out with the use of

marketing tools, promotional strategy and public relations.

10.0 Financial Plan

Once the basic understanding of the company has been developed, the next step is to

see how the future of the company is expected to be based on its financial outlook. In order to
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do so, the projected cash flow, income statement and balance sheet will be considered for the

next three years.

10.1 Projected Cash Flow

The cash flow being projected looks at the next three years where the outlook of the

company is seen.

PRO FORMA CASH FLOW

YEAR 1 YEAR 2 YEAR 3

Cash
Received

Cash from
Operations

Cash Sales $0 $4,758,000 $14,859,600

Cash from $0 $14,274,000 $44,578,800

Receivables

SUBTOTAL $0 $19,032,000 $59,438,400

CASH FROM
OPERATIONS

Additional
Cash Received

New $4,110,000 $0 $0
Investment
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Received

SUBTOTAL $4,110,000 $19,032,000 $59,438,400

CASH
RECEIVED

Expenditures Year 1 Year 2 Year 3

Expenditures
from Operations

Cash $200,000 $1,960,000 $4,105,000

Spending

Bill $2,149,150 $11,445,858 $26,737,688

Payments

SUBTOTAL $2,349,150 $13,405,858 $30,842,688

SPENT ON
OPERATIONS

Additional
Cash Spent

Purchase $1,380,000 $323,544 $653,822

Long-term
Assets

Dividends $0 $0 $0

SUBTOTAL $3,729,150 $13,729,402 $31,496,510

CASH SPENT
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Net Cash $380,850 $5,302,598 $27,941,890

Flow

Cash Balance $427,850 $5,730,448 $33,672,338

10.2 Projected Profit and Loss

In terms of the profit and loss statement, the revenues are weighed with the expenses.

The primary expenses for the company would be technology costs, corporate costs and the

advertising costs incurred.

PRO FORMA PROFIT AND LOSS

YEAR 1 YEAR 2 YEAR 3

Sales $0 $19,032,000 $59,438,400

TOTAL COST OF $0 $0 $0
SALES

Gross Margin $0 $19,032,000 $59,438,400

Gross Margin % 0.00% 100.00% 100.00%

Expenses

Payroll $200,000 $1,960,000 $4,105,000

Sales and Marketing and $2,170,000 $9,355,520 $16,379,882

Other Expenses
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Depreciation $69,000 $85,177 $117,868

Research & $200,000 $951,600 $1,783,152

Development

Payroll Taxes $30,000 $294,000 $615,750

Other $0 $0 $0

Total Operating $2,669,000 $12,646,297 $23,001,652

Expenses

Profit Before Interest ($2,669,000) $6,385,703 $36,436,748

and Taxes

EBITDA ($2,600,000) $6,470,880 $36,554,616

Interest Expense $0 $0 $0

Taxes Incurred $0 $1,596,426 $9,261,007

Net Profit ($2,669,000) $4,789,277 $27,175,741

10.3 Projected Balance Sheet

The Balance Sheet of the company is going from strength to strength due to profitability and

growth potential
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PRO FORMA BALANCE SHEET

YEAR 1 YEAR 2 YEAR 3

Assets

Current Assets

Cash $427,850 $5,730,448 $33,672,338

TOTAL $427,850 $5,730,448 $33,672,338

CURRENT ASSETS

Long-term Assets

Long-term Assets $1,380,000 $1,703,544 $2,357,366

Accumulated $69,000 $154,177 $272,045

Depreciation

TOTAL LONG- $1,311,000 $1,549,367 $2,085,321

TERM ASSETS

TOTAL ASSETS $1,738,850 $7,279,815 $35,757,659

Liabilities and Year 1 Year 2 Year 3

Capital
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Current Liabilities

Accounts Payable $250,850 $1,002,538 $2,304,640

SUBTOTAL $250,850 $1,002,538 $2,304,640

CURRENT
LIABILITIES

Long-term $0 $0 $0
Liabilities

TOTAL $250,850 $1,002,538 $2,304,640

LIABILITIES

Paid-in Capital $4,160,000 $4,160,000 $4,160,000

Retained Earnings ($3,000) ($2,672,000) $2,117,277

Earnings ($2,669,000) $4,789,277 $27,175,741

TOTAL CAPITAL $1,488,000 $6,277,277 $33,453,018

TOTAL $1,738,850 $7,279,815 $35,757,659

LIABILITIES AND
CAPITAL

Net Worth $1,488,000 $6,277,277 $33,453,018

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10.4 Business Ratios

Lastly, the business ratios of the company will be seen to see how it is performing over time.

RATIO ANALYSIS

YEAR 1 YEAR 2 YEAR 3 INDUST

RY
PROFILE

Sales Growth 0.00% 0.00% 212.31% 8.79%

Total Current Assets 24.61% 78.72% 94.17% 76.27%

Long-term Assets 75.39% 21.28% 5.83% 23.73%

TOTAL ASSETS 100.00% 100.00% 100.00% 100.00%

Current Liabilities 14.43% 13.77% 6.45% 38.61%

Total Liabilities 14.43% 13.77% 6.45% 52.21%

NET WORTH 85.57% 86.23% 93.55% 47.79%

Percent of Sales

Sales 100.00% 100.00% 100.00% 100.00%

Gross Margin 0.00% 100.00% 100.00% 100.00%

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Selling, General & 0.00% 74.84% 54.02% 82.68%

Administrative
Expenses

Advertising Expenses 0.00% 1.00% 0.50% 1.66%

Profit Before Interest 0.00% 33.55% 61.30% 1.37%

and Taxes

Main Ratios

Current 1.71 5.72 14.61 1.59

Quick 1.71 5.72 14.61 1.22

Total Debt to Total 14.43% 13.77% 6.45% 60.22%

Assets

Pre-tax Return on Net -179.37% 101.73% 108.92% 3.09%

Worth

Pre-tax Return on -153.49% 87.72% 101.90% 7.76%

Assets

Additional Ratios Year 1 Year 2 Year 3

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Net Profit Margin 0.00% 25.16% 45.72% n.a

Return on Equity -179.37% 76.30% 81.24% n.a

Activity Ratios

Accounts Payable 9.57 12.17 12.17 n.a

Turnover

Payment Days 27 19 22 n.a

Total Asset Turnover 0 2.61 1.66 n.a

Debt Ratios

Debt to Net Worth 0.17 0.16 0.07 n.a

Current Liab. to Liab. 1 1 1 n.a

Liquidity Ratios

Net Working Capital $177,000 $4,727,910 $31,367,697 n.a

Interest Coverage 0 0 0 n.a

Additional Ratios
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Assets to Sales n.a. 0.38 0.6 n.a

Current Debt/Total 14% 14% 6% n.a

Assets

Acid Test 1.71 5.72 14.61 n.a

Sales/Net Worth 0 3.03 1.78 n.a