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Acknowledgement This sample business plan has been organized of Persuasive and Analytical Writing Skills class of Fall 201... Legal Page Confidentiality Agreement This business plan has been authored by Muhammad Riaz (hereafter referred to as ‘the ... Table of Contents Table of Contents.......................................................................................... 9.0 Business Model and Structure............................................................................................. SUBKUCH.com 1.0 Executive Summary SUBKUCH.COM is an e-commerce start-up company positioning itself to become the market le... SUBKUCH.com generate impressive sales. Revenue for year two will be $19 million, climbing to $59 million by year three. Ne... SUBKUCH.com 1. Develop a customer service & customer satisfaction software application that uses order number (of a mercha... SUBKUCH.com The table below outlines the start-up expenses. Chart: Start-up Table: Start-up Start-up Requirements Start-up... SUBKUCH.com Table: Start-up Funding Start-up Funding Start-up Expenses to Fund $3,000 Start-up Assets to Fund $47,000 Tota... SUBKUCH.com An exit strategy for the primary investors will be the initial public offering. The company may go public as e... SUBKUCH.com order number was assigned to a shipment that included multiple items, all items will be displayed and the cust... SUBKUCH.com As an add-on to its customer service, SUBKUCH.COM will offer an email reminder service to ship the claimed ite... SUBKUCH.com 5.2 Benefits to Consumers • Return merchandise with ease! SUBKUCH.COM provides one centralized online location... SUBKUCH.com product returns. If nothing else, SUBKUCH.COM should be viewed as an outsourcing company to online merchants w... SUBKUCH.com Secondly, and more importantly, by asking consumers during the online sequence why they want to return a parti... SUBKUCH.com Wherever possible, smaller online retailers will be personally approached by the sales force. To stimulate awa... SUBKUCH.com awareness achieved among the overall online merchant community about SUBKUCH.COM, the company plans to roll ou... SUBKUCH.com once they have processed a return online. If the product has to be shipped back before a deadline, an email wi... SUBKUCH.com Year Total Internet Retail Sales 1999 $10,800,000 2000 $17,000,000 2001 $26,000,000 2002 $40,600,000 6.4.1 Des... SUBKUCH.com Table: Market Analysis Market Analysis Year 1 Year 2 Year 3 Year 4 Year 5 Potential Customers Growth CAGR Book... SUBKUCH.com in product returns that cause additional costs to the consumers and both costs and lost revenues to the retail... SUBKUCH.com 6.6.2 New Services As more and more consumers shop online, the need to keep track of purchased products will g... SUBKUCH.com procedure that will cover all channels. It will streamline the entire process by relieving the retailers from ... SUBKUCH.com retailers, and uniform simplicity in the return process will not be achieved. Moreover, both Mail Boxes Etc. a... SUBKUCH.com order. The average shipping cost is the actual UPS ground rate for the corresponding product category on avera... SUBKUCH.com listed price (each item that has been claimed through the company's website). However, of the 12% charged per ... SUBKUCH.com Table: Sales Forecast Sales Forecast Year 1 Year 2 Year 3 Sales 1st Program Revenues $0 $7,800,000 $24,360,000... SUBKUCH.com Table: Personnel Personnel Plan Year 1 Year 2 Year 3 All Departments $200,000 $1,960,000 $4,105,000 Other $0 $... SUBKUCH.com Table: Cash Flow Pro Forma Cash Flow Year 1 Year 2 Year 3 Cash Received Cash from Operations Cash Sales $0 $4,... SUBKUCH.com 10.2 Break-even Analysis The following table shows our estimated monthly break-even point to be approximately ... SUBKUCH.com 10.3 Important Assumptions The table below contains assumptions important to the financial success of the comp... SUBKUCH.com Table: Profit and Loss Pro Forma Profit and Loss Year 1 Year 2 Year 3 Sales $0 $19,032,000 $59,438,400 Direct ... SUBKUCH.com 10.5 Projected Balance Sheet The Balance Sheet shows solid growth in both sales and net worth. Table: Balance ... SUBKUCH.com Table: Ratios Ratio Analysis Year 1 Year 2 Year 3 Industry Profile Sales Growth n.a. n.a. 212.31% 8.79% Percen... Appendix Table: Personnel Personnel Plan Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 ... Appendix Table: Profit and Loss Pro Forma Profit and Loss Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 ... Business Plan for Persuasive & Analytical Writing Business Plan for Persuasive & Analytical Writing Upcoming SlideShare Loading in …5 × 1 of 39

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Muhammad Riaz, Supervisor Billing Follow Published on Jan 24, 2017

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Business Plan for Persuasive & Analytical Writing 1. 1. SUBKUCH.com E-Commerce Business Proposal Fall 2016 Course Submission Muhammad Riaz Std ID - 15330 2. 2. Acknowledgement This sample business plan has been organized of Persuasive and Analytical Writing Skills class of Fall 2016 semester. I would like to thank Miss Tooba Kamil for supporting me and advising the detailed structure for my document and linking me to the Right Way of communicating at a Public & Professional Level. Names, locations and numbers may have been changed, and substantial portions of the original plan text may have been omitted to maintaining Course Outlines and class room instructions. You are welcome to use this plan as a starting point to create your own assignment document, but you do not have permission to resell, reproduce, publish, distribute or even copy this plan as it exists here. Copyright © SUBKUCH.com Inc., October to December 2016. All rights Un-Reserved. 3. 3. Legal Page Confidentiality Agreement This business plan has been authored by Muhammad Riaz (hereafter referred to as ‘the Authors’). The undersigned reader acknowledges that the information provided by the Authors in this business plan is confidential; therefore, reader agrees not to disclose it without the express written permission of the Authors. It is acknowledged by reader that information to be furnished in this business plan is in all respects confidential in nature, other than information which is in the public domain through other means which the reader may independently quote without mentioning the Authors. Upon request, this document is to be immediately returned to the Authors. ___________________ Signature ___________________ Name (typed or printed) ___________________ Date This is a business plan. It does not imply an offering of securities. 4. 4. Table of Contents Table of Contents.......................................................................................................................1 1.0 Executive Summary.............................................................................................................1 Chart: Highlights.........................................................................................................................................2 1.1 Objectives..........................................................................................................................................2 1.2 Positioning Statement........................................................................................................................2 1.3 Keys to Success..................................................................................................................................2 1.4 Mission...............................................................................................................................................3 2.0 Company Summary..............................................................................................................3 2.1 Start-up Summary..............................................................................................................................3 Chart: Startup.............................................................................................................................................4 Table: Startup.............................................................................................................................................4 2.2 Future Financial Predictions..............................................................................................................5 3.0 Services...............................................................................................................................6 3.1 Service Guarantee..............................................................................................................................6 4.0 Order Process.......................................................................................................................6 4.1 Order Number....................................................................................................................................6 4.2 Return Policies...................................................................................................................................7 4.3 Return Label.......................................................................................................................................7 4.4 Sequence of Process...........................................................................................................................8 5.0 Benefits Summary................................................................................................................8 5.1 Benefits to Merchants........................................................................................................................8 5.2 Benefits to Consumers.......................................................................................................................9 5.3 Benefits to Online Community..........................................................................................................9 6.0 Market Analysis Summary....................................................................................................9 6.1 Service Description............................................................................................................................9 6.2 Promotion, Sales, and Marketing.....................................................................................................11 6.3 Distribution and Information Structure............................................................................................13 6.3.1 Strategic Alliances............................................................................................................................14 6.4 Market Segmentation.......................................................................................................................14 6.4.1 Description of Items Sold.................................................................................................................15 Chart: Market Analysis (Pie).....................................................................................................................16 6.5 Market Needs...................................................................................................................................16 6.6 Service Business Analysis...............................................................................................................17 6.6.1 New Markets.....................................................................................................................................17 6.6.2 New Services....................................................................................................................................18 6.6.3 New Customers.................................................................................................................................18 7.0 Competition.......................................................................................................................19 7.1 Direct Competitors...........................................................................................................................19 7.2 Internal Competitors........................................................................................................................19 7.3 Channel Competitors.......................................................................................................................19 8.0 Strategy and Implementation Summary.............................................................................20 8.1 Pricing..............................................................................................................................................21 8.2 Sales Forecast...................................................................................................................................22 Table: Sales Forecast.................................................................................................................................23 Page 1 5. 5. 9.0 Business Model and Structure............................................................................................23 9.1 Organizational Structure..................................................................................................................23 10.0 Financial Plan..................................................................................................................24 10.1 Projected Cash Flow......................................................................................................................24 Chart: Cash................................................................................................................................................24 Table: Cash Flow.......................................................................................................................................25 10.2 Break-even Analysis......................................................................................................................26 Chart: Break-even Analysis.......................................................................................................................26 Table: Break-even Analysis.......................................................................................................................26 10.3 Important Assumptions..................................................................................................................27 The table below contains assumptions important to the financial success of the company..................27 Table: General Assumptions..................................................................................................................27 General Assumptions.............................................................................................................................27 10.4 Projected Profit and Loss...............................................................................................................27 Table: Profit and Loss................................................................................................................................28 ................................................................................................................................................................28 10.5 Projected Balance Sheet.................................................................................................................29 Table: Balance Sheet.................................................................................................................................29 10.6 Business Ratios..............................................................................................................................29 Table: Ratios..............................................................................................................................................30 Table: Personnel........................................................................................................................1 Table: Sales Forecast.................................................................................................................1 Table: General Assumptions.......................................................................................................1 Table: Profit and Loss................................................................................................................2 .................................................................................................................................................. 2 Table: Cash Flow........................................................................................................................3 .................................................................................................................................................. 3 Table: Balance Sheet..................................................................................................................4 Page 2 6. 6. SUBKUCH.com 1.0 Executive Summary SUBKUCH.COM is an e-commerce start-up company positioning itself to become the market leader in offering online merchants and consumers a uniform and trouble-free way to return merchandise purchased online. The company offers a business-to-business solution to online merchants of physical, nonperishable products. The company utilizes a consolidation approach in handling all product returns that allows online merchants to instantly save bad sales, restore customer satisfaction and stimulate repeat sales, while offering consumers a convenient, centralized online location to claim returns. By creating a new service category and utilizing the firstmover advantage, SUBKUCH.COM positions itself for rapid growth and gains a strong opportunity to raise entry barriers for possible competition. The Market E-commerce continues to accelerate and the amount of money spent on purchases made through the Internet shows no sign of decline. During the past holiday season (November 20 to December 19), retailers saw online revenues quadruple, jumping 300% to about $11 billion and far exceeding expectations, according to a study by Shop.org and Boston Consulting Group. The study of 30 retailers in such categories as apparel, books and music, home and garden, specialty foods and electronics showed a 270% growth in the number of orders. The study indicated that online sales were growing at 145% annually and it projected online retailer revenues of more than $36 billion for last year. An earlier study conducted by Ernst & Young, before the holiday frenzy, already estimated that total revenues for online retail and consumer products for the calendar year just completed were around $25-30 billion. Currently, the average rate of returns for Internet-based companies is 9%. In the coming year the value of returned merchandise was $1.5 billion. This indicates an amazing opportunity. Service Offerings SUBKUCH.COM's services streamline the entire return process for retailers. They allow retailers to outsource a large part of their business, allowing the retailer to concentrate on their core competencies and not get distracted with activities that add little value. SUBKUCH.COM will reduce capital expenditures of a company that uses their services, increase customer service of the retailer, increase sales opportunities, increase revenues, and improve inventory management. Customers will benefit by having a convenient, easy way to return their purchases as well as the ability to track their returns. Keys To Success SUBKUCH.COM has three ambitious and obtainable keys to success. The first is the development of a customer service / customer satisfaction software application. This robust software will be SUBKUCH.COM's engine that ensures a seamless management of all of their business activities. Their second key is the formation of strategic relationships with online merchants, shippers, and credit card companies. The relationships with merchants will allow SUBKUCH.COM to quickly grow their customer base of retailers served. Alliances with shipping companies will be formed since the actual cost of shipping is their largest cost driver. Partnerships with credit card companies will allow SUBKUCH.COM to offer the respective cards as the preferred credit card thereby generating an additional source of revenue. Financials SUBKUCH.COM's financials are conservative yet quite promising. Once they are up and running and sign up some merchants as customers, SUBKUCH.COM will quickly gain momentum and Page 1 7. 7. SUBKUCH.com generate impressive sales. Revenue for year two will be $19 million, climbing to $59 million by year three. Net profit for these years respectively will be $4.7 million and $27.3 million. Even more impressive is SUBKUCH.COM's net profit margin. Year two will only see a net margin of 25%, but the following year will see a sustainable 45%. SUBKUCH.COM will be creating a new service category leveraging their first mover status and seizing the incredible market potential of Internet- based retailers. Chart: Highlights 1.1 Objectives The ultimate benefit of the program is that it enhances the overall image of the online merchant. Consumers demand not only convenience but a peace of mind. The proposed program offers both, and it will increase the number of online shoppers, thus causing a market expansion for online merchants. Due to lack of current competition, SUBKUCH.COM has the first-mover advantage and is well positioned to establish itself as the leader in the newly created service category. SUBKUCH.COM therefore has an enormous upside potential and is poised for rapid growth. 1.2 Positioning Statement SUBKUCH.COM strives to position itself as a strategic partnership between online merchants, Web hosting companies and portals, shipping companies, and online payment agents such as credit card issuers. Due to demand aggregation, the strategy will produce reduced or totally free shipping of returned merchandise to consumers. The software architecture and website format will be wireless-friendly thus designing the service in such a way that consumers will later be able to easily use it via cellular phones and other personal wireless devices. 1.3 Keys to Success In order for the company to operate, a number of specific ingredients are needed. Following are things to put in place before the service can be offered. Page 2 8. 8. SUBKUCH.com 1. Develop a customer service & customer satisfaction software application that uses order number (of a merchandise item) and merchant's Web address to: o Retrieve all pertinent information on a participating merchant. o Match appropriate return procedures against the returning item. o Present procedures to the consumer in the most concise format. o Provide reference to the merchant's entire return policies if requested. o Inform the merchant of the entire transaction as it occurs. o Gain authorization from the merchant to return merchandise if needed. o Present the merchant's website to consumer for selling opportunities. o Provide confirmation emails to the customer of the actions taking place if requested. o Interact with the merchant's database for further customer details if needed. o Maintain a record of the transactions for the company's own database. 2. Develop successful relationships with online merchants to facilitate exchange of information. 3. Develop strategic alliances with online merchants, shipping companies, and credit card issuers to negotiate reduction or elimination of the shipping costs to consumers on returned merchandise. 4. Design, maintain, and promote a user-friendly website, the corporate trademark, that offers an easy and trouble-free merchandise return procedure for consumers. 1.4 Mission Our mission is to enhance customer service of online merchants, boost their customer retention and increase their sales. We strive to improve the overall image of the online merchant and therefore stimulate growth of online shopping. We put our efforts to increase customer satisfaction when consumers deal with retailers, to enhance the interaction process when retailers communicate with consumers, and to streamline the problem resolution order in all possible ways. 2.0 Company Summary The vision behind the company is to provide a return service that is safe, convenient, and easy to use. 2.1 Start-up Summary SUBKUCH.COM is currently looking for early-stage funding and strategic partnerships to execute the program. The company plans to raise up to $2.6 million in two rounds of financing during Year 1, along with securing access to additional $1.4 million for the cash flow purposes, before making its program fully available to online merchants and consumers. The preliminary rollout timing is set for Thanksgiving this year. Based on conservative financial projections, the company will become profitable from early Year 2. The dual-pricing strategy generates solid net income and nearly eliminates the downside risks. By Year 5-end , the $4 million investment will produce $150 million in cash flows, all internally generated. The company can go public as early as Year 2. Should an IPO be undertaken at Year 3-end, the financial standing of the company should support a market capitalization of more than $1.4 billion. Page 3 9. 9. SUBKUCH.com The table below outlines the start-up expenses. Chart: Start-up Table: Start-up Start-up Requirements Start-up Expenses Legal $200 Stationery etc. $50 Brochures $450 Consultants $0 Insurance $100 Rent $500 Research and development $400 Expensed equipment $1,100 Other $200 Total Start-up Expenses $3,000 Start-up Assets Cash Required $47,000 Other Current Assets $0 Long-term Assets $0 Total Assets $47,000 Total Requirements $50,000 Page 4 10. 10. SUBKUCH.com Table: Start-up Funding Start-up Funding Start-up Expenses to Fund $3,000 Start-up Assets to Fund $47,000 Total Funding Required $50,000 Assets Noncash Assets from Start-up $0 Cash Requirements from Start-up $47,000 Additional Cash Raised $0 Cash Balance on Starting Date $47,000 Total Assets $47,000 Liabilities and Capital Liabilities Current Borrowing $0 Long-term Liabilities $0 Accounts Payable (Outstanding Bills) $0 Other Current Liabilities (interest-free) $0 Total Liabilities $0 Capital Planned Investment Co-owner $25,000 Co-owner $25,000 Other $0 Additional Investment Requirement $0 Total Planned Investment $50,000 Loss at Start-up (Start-up Expenses) ($3,000) Total Capital $47,000 Total Capital and Liabilities $47,000 Total Funding $50,000 2.2 Future Financial Predictions The company anticipates to start approaching potential investors in February of this year. The first round of finance needs is estimated at approximately $600,000. The funds will be used to develop the core of the proprietary software program, begin designing the website, test-market the service, and set up corporate headquarters. Also, recruitment of the key sales representatives will begin and major strategic alliances initiated. The second round of financing is estimated at $2 million and should take place in the Summer Year 1. The funds will be used to fully cover the software, systems and website development; test- run and fine-tune the operational process; provide necessary staffing; and start the industrial marketing campaign. The company plans to offer its services right before Thanksgiving of this year. As part of the promotion, and to simplify accounting for revenues, services for the remainder of Year 1 will be offered free of charge and no revenues will be recorded during that year. According to the financial statements, the company will need to raise $2.6 million during the two rounds of financing. At the same time, the company may need to have access to additional $1.4 million to support adequate cash flows during the early stages. Page 5 11. 11. SUBKUCH.com An exit strategy for the primary investors will be the initial public offering. The company may go public as early as Year 2. According to the financial statements, however, the company is capable of supporting growth internally, as well as generating sizable cash flows. It may be prudent to go public at Year 3-end when the company will have substantial revenues that should support a market valuation of more than $1.4 billion. The funds raised during the IPO will be used to further strengthen the market leader position, raise entry barriers through continuing brand-building programs, establish a more bureaucratic corporate structure, fund expansion initiatives, and to retire any financial obligations created during the first two rounds of financing. The company has no immediate plans for acquisitions. Neither has it a preferred list of potential acquirers. Although all reasonable offers will be considered, the company plans to utilize the first- mover advantage to establish itself as the market leader and to remain a stand-along corporation for the foreseeable future. 3.0 Services The service offered by the company simplifies and streamlines the entire product return procedure. By accessing the SUBKUCH.COM website consumers can claim product returns in a quick and trouble-free fashion. The only necessary inputs are merchant's domain name, item's order number, consumer's last name (for verification only), reason for return, and preferred way to resolve the issue (refund, replacement, or exchange). SUBKUCH.COM serves as a centralized online location that matches the return policy of a given merchant against the returning item, obtains authorization if required by merchant, and assists consumers in following the return time frames. The company's website also generates and prints a return label to ease the shipping process for consumers. 3.1 Service Guarantee It is important to note that during the interaction process with consumers, SUBKUCH.COM does not ask for or tries to obtain consumer's credit card numbers. The company therefore avoids consumer security concerns and substantially limits its possible liabilities. 4.0 Order Process Only two input variables are needed to easily find the merchant and identify a particular merchandise item. The customer's last name is asked for verification purposes only. SUBKUCH.COM website serves as a centralized online location for consumers to claim and process returns for participating merchants. As online shopping continues to grow, the added convenience of one single online destination to do returns for multiple merchants will increase. At the same time, participating merchants will place SUBKUCH.COM banner on their pages under return policies so that consumers could access the service directly from there. That way the domain name of the merchant will be pre-entered and the initial step even further simplified. In case the merchandise was sent as a gift to another person who does not have access to the Internet, a toll-free telephone number will be provided to call in. An operator, with access to the Internet, will use the same exact sequence of onscreen entries and will relay options and procedures to the customer over the phone. 4.1 Order Number The order number should ensure that the right item is identified. However, it is possible that the customer has ordered a few similar items but only wishes to return one of them, or the order number included multiple items. Hence a modification option is added to address that. In case the Page 6 12. 12. SUBKUCH.com order number was assigned to a shipment that included multiple items, all items will be displayed and the customer will be asked to select those they wish to return. In case a wrong item is identified, the customer will be taken one step back and asked to re-enter the initial information. 4.2 Return Policies Once the item has been identified, the return policies that apply to that particular item will be retrieved. SUBKUCH.COM will summarize the return policy to the point of available options. This means that based on the item (regular merchandise, on-sale merchandise, etc.) different return options and procedures may apply. The customer will be given the shortest description of what needs to be done and when. While some merchants have "no-questions-asked" return policies, others require justification to return merchandise. For the purposes of uniformity and the reasons described below, the customer should courteously be asked to provide reasons for return. The answer format is quite simple (check marks and short narrative) and it eliminates much of the ambiguity. The narrative part is also a chance for consumers to "vent out" their concerns or frustrations. The customer will be given three options to resolve the issue: exchange, refund, or replacement. During this stage the merchant is informed that a particular item is claimed for return and why. In case of exchange or replacement, the merchant receives an invaluable opportunity to instantly sell another item to the customer (the merchant's website will appear onscreen for selection and shopping). Should the reason be incorrect or defective item, the merchant can send the correct/new item right away, thus instantly restoring customer satisfaction and saving the sale. The terms of the new sale are up to the merchant to decide (charge customer's credit card right away, give grace period for the returning item to arrive, etc.) An option to look up the merchant's entire return procedures will also be given to consumers. A link will be established that brings up the page containing return procedures in a separate window. Once reviewed, the window can simply be closed. 4.3 Return Label Once the merchant has authorized the return, if required, the customer will be asked to print the return label for shipping. If customer does not have access to a printer, a larger view of the label will be presented onscreen for the customer to copy down necessary information. The customer may also be given an option to make adjustments to certain information on the label before printing it. The label will have the merchant's address (destination where the returning item should be forwarded), returning item's identification (Returned Merchandise Authorization Number), the customer's return address, and possibly tracking and payment information for the shipping company. The customer will also be advised on refund, exchange, or replacement options, and when it will occur. Since some companies already include pre-printed return labels in all shipments, the printing step may be skipped. But because consumers sometimes lose or throw away enclosed labels, the online print version will always be there as a backup thus adding convenience and peace of mind. More importantly, SUBKUCH.COM will strike strategic alliances with shipping companies to take and deliver all returned items so the printing of the labels will add uniformity to the entire return process. The label can then incorporate the shipper's information, and as a consolidator and demand aggregator of all returns SUBKUCH.COM will be able to negotiate a rate reduction. Page 7 13. 13. SUBKUCH.com As an add-on to its customer service, SUBKUCH.COM will offer an email reminder service to ship the claimed item. It may also offer customers a confirmation email to record the claim. Customer's email address will then be asked for. For its own database purposes, SUBKUCH.COM will record all transactions and details thereof. Once the customer has finished the online entry process, the merchant's website will appear where the merchant will be able to approach consumers with new sales offers. This will be an additional selling opportunity for the merchant, which is part of the overall SUBKUCH.COM service. 4.4 Sequence of Process The list below describes the sequence of actions taking place during the return process. 1. Consumer claims an item through SUBKUCH.COM. 2. SUBKUCH.COM gains merchant's authorization, if required, and alerts the merchant about what is claimed for return and why. 3. Merchant tries to save the sale by offering a replacement or other products. 4. Consumer makes a new purchase, unless refund is demanded. 5. SUBKUCH.COM generates a return label for the returning item. 6. Merchant's website appears again to offer new products to the consumer. 7. Consumer makes a new purchase. 8. Consumer ships back the returning item. 9. Shipping company delivers the item to the merchant. 10. Consumer buys more from the merchant knowing that the return process is easy and trouble- free. 5.0 Benefits Summary At SUBKUCH.COM, we feel we provide a value-added service to a variety of consumers. By having a safe and easy-to-use return service, the company benefits more people than simply the average customer. 5.1 Benefits to Merchants • Increase revenues! SUBKUCH.COM turns the systemic problem of product returns into new selling opportunities. • Enhance customer satisfaction and retention with the quick and easy return process and boost repeat sales! SUBKUCH.COM provides the opportunity to instantly deal with returns, save bad sales, and turn unhappy customers into loyal patrons. • Improve customer service with a simple, trouble-free way to return merchandise! SUBKUCH.COM makes it easy for consumers to return products and follow return procedures. • Simplify the shipping hassle for consumers! SUBKUCH.COM provides the option to print a shipping label since pre-printed labels sometimes get lost or misplaced, which provides added convenience and peace of mind to consumers. • Improve inventory management and logistics! SUBKUCH.COM immediately alerts you when your customer initiates the return process so that you can act on it right then, not when the merchandise arrives at your door. • Fine-tune your internal efficiencies and product offerings! SUBKUCH.COM provides you with invaluable new data on all your product returns by customer group, product category, etc., so you can analyze your operations better. • Enhance your image! SUBKUCH.COM underscores your customer orientation, which you can use to promote your business. Page 8 14. 14. SUBKUCH.com 5.2 Benefits to Consumers • Return merchandise with ease! SUBKUCH.COM provides one centralized online location with a simple and trouble-free way to return merchandise in just a few easy steps. • Buy online, return online! No need to call in or email your merchant if authorization is required--SUBKUCH.COM does the communication for you. • No need to look up every single merchant for return policies every time! SUBKUCH.COM summarizes it for your particular item and makes sure the return time frames are followed. • Generate a shipping label! SUBKUCH.COM generates a shipping label for you so that you do not have to worry about misplacing the pre-printed label or spending extra time at a shipping company's counter if the pre-printed label is not included. • Reduce or eliminate shipping costs! Through strategic alliances, SUBKUCH.COM reduces or completely eliminates the cost of shipping. • Keep track of your returns! If you would like, SUBKUCH.COM will remind you to ship the claimed item and will maintain a file of your returns for your records. 5.3 Benefits to Online Community • Increase awareness in the community! SUBKUCH.COM serves as a "returned merchandise credit bureau," providing discrete information to consumers on merchants and to merchants on consumers. • Cross reference marketing leads! SUBKUCH.COM maintains a database of purchases that help custom-target online buyers in a more efficient way. • Improve the overall image of the online merchant! SUBKUCH.COM enhances customer service of online merchants and overall customer satisfaction by simplifying and streamlining the return process. 6.0 Market Analysis Summary Based on publicly available survey data, the average rate of online returns is 9%, meaning that in 2000 alone the value of returned merchandise will be more than $1.5 billion. The company generates revenues by utilizing a dual-pricing approach. First, it charges online merchants a flat fee for the program, which averages only 0.5% of a given merchant's total sales. Secondly, SUBKUCH.COM charges merchants a low flat 8% rate on every item's listed price that has been claimed through its website. The pricing structure reflects the benefits of the easy and trouble-free return process for consumers, restored customer satisfaction, selling opportunities created during the claim process, and all repeat sales thereafter. The program is estimated to cost merchants less than 1.5% of their total revenues, whereas it will increase sales to merchants by at least 15%. 6.1 Service Description The service positioning in the eyes of online merchants is imperative to the success of the enterprise. The service proposed by the company is a business-to-business solution offered to online merchants of physical, non-perishable products. However, because online consumers will deal directly with the company via its website, the proposed solution also incorporates some features of a business-to-consumer service. It is therefore of utmost importance to clearly define what this company offers is a customer service & customer satisfaction program for online merchants. The most unique feature is that the proposed company takes the systemic problem of product returns and turns it into new selling opportunities for online merchants. It is also important to note that SUBKUCH.COM does not try to position itself as a competitor to any incumbents with a similar service, online merchants, or shipping companies. The proposed company strives to position itself as a strategic partner to all parties participating in handling Page 9 15. 15. SUBKUCH.com product returns. If nothing else, SUBKUCH.COM should be viewed as an outsourcing company to online merchants with the core competency and focus in handling returned merchandise. The service offered by SUBKUCH.COM is designed to enhance customer retention and loyalty by offering an easy and trouble-free merchandise return process to online shoppers. According to Jupiter Communications, the goal of the 1999 holiday season was not about generating impressive sales, but rather securing long-term relationships. Retailers now need to focus on retention and loyalty. SUBKUCH.COM will help to achieve just that through establishing lasting, productive relationships with online merchants. Providing an easy, uniform, and trouble-free return process to all online shoppers will enhance the overall image of online merchants. While the number of retailers continues to grow, consumers will not have to look up every single one to find out about return policies and later keep abreast for possible changes. A centralized Internet location-the company's website--will retrieve, summarize, and present the appropriate policies. Based on product information, it will make sure the correct procedures are used. The company's banner with a notation "For an Easy, Trouble-Free Product Return Click Here" will be placed visibly on retailers' websites and will serve as a symbol of customer orientation and care. Moreover, the shipping process will be streamlined. Customers will be able to generate a shipping label on the company's website thus reducing the hassle at the shipper's counter. Although some online retailers already supply pre-printed shipping labels for sold items, customers sometimes lose, or throw away, those labels when they first see and like the products they ordered. Shortly after they may change their mind and would like to return a particular item, but the label is gone. With the proposed program, the label is always available online so that consumers can have peace of mind and also reduce the amount of documents they need to keep just in case. The service therefore offers a dual benefit to consumers. The retailers may then choose to stop including a pre- printed return label with every outgoing shipment thus reducing costs of selling. From a shipping company's perspective, the shipping process is streamlined because the online-generated label will have all the necessary information, possibly including a tracking number if it is going to be shipped by UPS. That way consumers do not have to spend time at UPS counters filling out forms--both a customer service and operations improvement for UPS. SUBKUCH.COM will be a strategic merger between online merchants, carriers, and their partners targeted at overall improvement of customer satisfaction and ultimately the bottom line of merchants. Another important feature of SUBKUCH.COM is that shipping of returned merchandise should be free of charge to consumers. (Means of achieving it are discussed in more detail in the Pricing and Revenue Generation section.) This differentiating feature will tremendously increase the consumer acceptance factor of the proposed service. The fact that products purchased online can be returned in an easy and trouble-free way, and that shipping is also free, will help expand the entire online shopping industry. The added convenience and peace of mind consumers will gain with SUBKUCH.COM will translate into more shopping with those online merchants that participate in the SUBKUCH.COM program. When customers go through the sequence of online entries on the company's website, the retailer whose product is being claimed for return will be offered at least one selling opportunity. At the end of the sequence the retailer will be able to target the consumer with any new sales offers as its website will appear onscreen. Should an exchange or replacement be preferred by the customer during the online return process, the retailer will receive an additional selling opportunity as its website will appear with offers during that step. These opportunities will translate into more sales for retailers. This will also stimulate customer retention, which means repeat sales. All in all, the program will increase customer satisfaction and generate more sales. The program has a number of unique features. First, it alerts the retailer that a particular customer is claiming a particular product for return as it happens. That way the retailer knows about it as it occurs and not when the merchandise arrives at its warehouse. This allows to plan ahead. Since 9% of all products are returned, this feature offers useful information to better handle logistics and inventory. Page 10 16. 16. SUBKUCH.com Secondly, and more importantly, by asking consumers during the online sequence why they want to return a particular item merchants gain an invaluable piece of information. If the reason for return is defective product (30% of all reported returns), the retailer can save the sale and turn an unhappy customer into a delighted one by sending a new item right away. If the reason for return is wrong color, wrong size, or wrong product altogether (28% of all reported returns), the retailer may choose to send the correct product right then, thus instantly restoring customer satisfaction and saving a bad sale. It will be up to the retailer to decide on payment and credit terms of the exchange. These benefits ultimately translate into increased customer retention, reduced costs, more sales, and improved bottom line. It is estimated that the program will generate an average sales increase for merchants of at least 15%. Online shopping is still at the early stage of consumer adoption. As stated earlier, about half the people who have not shopped online cited the cost and hassle of returns as a significant factor for not shopping online. Another recent survey found that 89% of online buyers said that return policies influenced their decision to shop with an online retailer. Consumers demand not only convenience but peace of mind. The proposed program offers both and it should increase the number of online shoppers, thus causing a market expansion for online merchants. The first retailers who implement the proposed program will also be able to differentiate themselves and capture a larger market share in their respective segments. Once embraced by the majority of online merchants, the program will become an industry standard. It is important to note that during the entire process the company will not ask for, or try to gain access to, consumers' credit card numbers. This will significantly limit possible liabilities and security/confidentiality concerns. 6.2 Promotion, Sales, and Marketing Promotion of the service will be executed through both push and pull strategies. The push strategy will call for the use of direct sales force and industrial marketing to introduce the service to online merchants. Once success has been achieved in the push strategy, the pull strategy will utilize a large-scale advertising campaign to further build up consumer demand. Push Strategy Because the company's service is a business-to-business program, it will be initially promoted to online merchants by direct sales force. Personal selling will be necessary to reach decision makers within online organizations. At first, contacts will be made with Internet service providers, such as America Online, that host online stores and shops. America Online claims to have 20% of the total Internet service provider market in the U.S. Therefore, arranging a strategic partnership where SUBKUCH.COM becomes the preferred or exclusive choice for all returned merchandise bought at AOL.com shops will be invaluable for establishing a well-recognized brand and building up entry barriers for any possible competition. Ideally, a company's banner with a notation "For an Easy, Trouble-Free Product Return Click Here" will be visibly displayed throughout the shopping section of AOL.com. Portals such as Yahoo! will be approached as well. Reportedly, Yahoo! hosts nearly 6,000 merchants where it charges each merchant at least $100 to $300 per month. Arranging a strategic partnership with Yahoo! will provide a strong leverage in negotiating return contracts with individual merchants. Similar to that of America Online, the company's banner will be displayed throughout the entire shopping section of Yahoo! Large online merchants such as Amazon.com and Buy.com will be targeted by the direct sales force during the first stage as well. Those companies have already achieved significant volumes of sales--and therefore product returns--and will find the uniform return process of much benefit to them. Strong "category killers" such as eToys and CDnow are also first sales targets. Auction houses such as eBay.com and uBid.com will be approached with a service offer for products sold to consumers by merchants and direct manufacturers. Page 11 17. 17. SUBKUCH.com Wherever possible, smaller online retailers will be personally approached by the sales force. To stimulate awareness and service penetration among smaller players, industrial marketing techniques will be utilized. Those will include advertising in specialized publications such as Internet World and Red Herring, as well as referral fees for retailers who already use the service. Email campaigns will be used to reach decision makers at smaller companies. The email messages will have an invitation to the SUBKUCH.COM website where a specially designed presentation will explain the benefits of the new service. An invitation to be contacted by a service consultant to discuss details will be included. The company plans to offer its services right before Thanksgiving 2000. In order to stimulate a quicker adoption of the services, the remainder of the year 2000 will be offered free of charge. Sales Structure and Customer Approach It is estimated that the initial expenses to hire a sales force and a customer service unit of up to five people during the first year will be close to $400,000. Another $200,000 will be needed for sales program development, marketing activities, and training (excludes advertising). The initial compensation package for sales force will include a nominal base salary and a progressive commission structure. This should ensure that during the early stage of the company's growth not only that sales targets are met, but also that customer (customer here means merchant) satisfaction and retention are fully addressed. The sales force will initially be located at the corporate headquarters. A territorial approach will later be implemented, with sales people located in regions. After one year, sales force members will split into two distinct groups. The first group will include pure sales people, the "go-getters" who will be placed in regions and will work on pure commissions. The commission structure will become more progressive and rewarding for such individuals, including a bonus structure. The estimate for an average commission paid on sales is approximately 5-10%. The second group will include client care professionals who will concentrate on customer satisfaction and retention to ensure the continuity of the program. These individuals will remain at the headquarters and will have a base salary with a bonus structure. The base salary for client care professionals is in the mid-five figures. Industrial advertising and promotional expenses in 2000 are estimated at $250,000. It is also a possibility to sell the services to merchants via the Internet hosting service providers, portals, and software developers. Those companies will then serve as distributors and agents, compensated on commissions. This approach will eliminate the need for a large sales force. The final layout will depend on how quickly agreements with companies such as America Online and Amazon.com are negotiated, how aggressively they will be able to promote the services, and on what conditions. The following diagram describes the customer approach (customer here means merchant). Service consultants are the direct sales force that approaches prospective customers with service offers. Once a customer has been signed, a service consultant will only approach the client with new service offers and product upgrades. A client care professional is then assigned to each customer to deal with all customer service issues. Each customer will be advised to direct all service inquiries to the professional. A professional will also proactively call on customers to ensure high quality of service and customer satisfaction. The consultants and professionals will have direct communication lines between themselves to ensure open information exchange and a quick and efficient problem-resolution culture. This structure will guarantee an aggressive sales approach, client-oriented service, and efficient post-sales support. Pull Strategy It is important to gain critical mass in the number of signed retailers before a nation-wide advertising campaign targeted at consumers can start. Once major retailers have been signed and Page 12 18. 18. SUBKUCH.com awareness achieved among the overall online merchant community about SUBKUCH.COM, the company plans to roll out a nationwide TV advertising campaign. The campaign may start as early as the first quarter of 2001; however, the timing will depend on how quickly SUBKUCH.COM gains market share. The campaign should prompt consumers to make sure that online retailers they buy from have the SUBKUCH.COM service. Participating merchants will have the company's banner with a notation "For an Easy, Trouble-Free Return Click Here" visibly displayed on their websites. The banner later will become the symbol of customer orientation. Successfully executed, the TV ad campaign will prompt consumers to ask their merchants for the Easy and Trouble-Free Return process. This, in turn, will prompt online merchants to call on the company. The demand from the merchants will then be "pulled." The estimated budget for the TV campaign in 2001 is up to $5 million, all internally generated. However, the amount can be reduced if the preceding industrial marketing campaign achieves the key goals. Once the objectives of service awareness and acceptance have been achieved, subsequent marketing budgets will be used to build up and protect the brand. This will include print, radio, and TV. 6.3 Distribution and Information Structure The service will be made available to consumers via the Internet. The company will maintain a website with its Easy and Trouble-Free Return procedure. The domain name will underscore the ease and convenience of the merchandise return process. (The name SUBKUCH.COM may not be the final choice.) Also, company's banners will be placed on participating merchants' websites, most likely under return policies sections, so that consumers could access the service directly from online stores. SUBKUCH.COM will then be effectively incorporated into the customer service of participating merchants as an outsourcing partner that specializes in product returns. Consumers who do not have access to the Internet but want to return e-gifts received from friends or relatives will be provided with a toll-free telephone number. Telephone operators, with access to the Internet, will follow the same exact set of onscreen entries. They will relay options and procedures to the consumers over the phone. The shipping sequence will remain the same. Ideally, the toll-free numbers should be operated by the online retailers themselves. That way they only have to make sure their operators have access to the Web. Should a customer decide to exchange gifts or make a purchase during the return process, the retailers' operators will be best suited to handle it. Another option is a consolidated toll-free telephone service provided by SUBKUCH.COM for a fee to retailers. Such service would be outsourced. High-speed communication lines will be established between the company's software that registers and processes all returns and individual merchants. Every time a product is claimed for return by a consumer via the company's website, the corresponding merchant is advised on the transaction as it happens. This is an integral part of the entire program. The connection between the company and the merchants will be established via the Internet. The company's website will have a merchant login screen where a record of all returned items will be maintained. The merchants will be able to sort data by various categories and copy/paste it into other software packages such as MS Excel; the data format will be spreadsheet-friendly. The Internet connection will be secure and password protected. While the majority of communication will be via the Internet, company's client care professionals will routinely call on their counterparts to ensure that all information and service needs are fully met. For its own database purposes, SUBKUCH.COM will record all transactions and details thereof. While consumers are not asked to give their home addresses during the online entry process, such information should be provided by the corresponding merchant as part of the information exchange agreement. This information will be needed for the return label to be generated online. Credit card numbers and other sensitive information will not be asked for. At the end of the online authorization process the consumer will be offered a notification email to make a record of the return. Should customer decide to have a confirmation, his or her email address will be obtained. The company may offer a membership program with a consumer login, in which case all necessary information details will be obtained. The company will also offer a "reminder service" to consumers Page 13 19. 19. SUBKUCH.com once they have processed a return online. If the product has to be shipped back before a deadline, an email with a reminder will be sent prior to that. 6.3.1 Strategic Alliances For shipping and handling purposes, the company will strike strategic alliances with carriers and package service providers. Most likely, UPS will be the preferred carrier of all shipments. UPS has an extensive network, excellent track record of quality, and a number of agreements with package service providers such as Mail Boxes Etc. and PostNet. Its ground shipment option appears to be the most optimal option so far, both from the quality and price standpoints. While retailers are able to negotiate discounts with carriers for outbound shipments, most consumers are forced to pay published rates on returned merchandise because each return is viewed as a single transaction. SUBKUCH.COM will act as a demand aggregator bundling all returns claimed through its website and will negotiate discounts with carriers. Moreover, the company will join membership organizations such as National Retail Association that provides member discounts of up to 42% on published rates with Airborne Express. All that will be utilized to eliminate the shipping costs for online shoppers, which will only speed up the company's acceptance by consumers. Other possible strategic alliance companies include VISA, MasterCard, American Express, and large banks such as Citibank and Chase Manhattan. Credit cards are a preferred way of payment for online purchases. Since tens of billions of dollars are now spent online, credit card issuers can notably increase their revenues by partnering with SUBKUCH.COM. A credit card issuer can offer a partial rebate of shipping charges for returned items as long as consumer paid for the items with the credit card. This may later become a standard feature similar to certain kinds of insurance built into some credit cards. Also, an issuer can cover the interim risk when a merchant sends consumer a new item or a replacement before receiving the returned item back. This offers mutual benefits to consumers and merchants, while the credit card issuer makes its cards more superior thus attracting more customers. Co-branded promotional campaigns can be designed to promote SUBKUCH.COM along with more established companies. 6.4 Market Segmentation As stated in the previous section, the estimated online retail revenues for 1999 were around $25- 36 billion. Both sources providing the estimates indicated that only merchants selling physical products (books, CDs, electronics, apparel, etc.) were included in the breakdown by category. No mention was made of services such as online hotel reservations, news subscriptions, or online brokerage being included in the total figures. However, it would be advisable to use a more conservative approach when estimating the total revenues of online merchandise sales. Presented below are estimates for Internet retail sales made by National Retail Federation shortly after the 1998 holiday season. Page 14 20. 20. SUBKUCH.com Year Total Internet Retail Sales 1999 $10,800,000 2000 $17,000,000 2001 $26,000,000 2002 $40,600,000 6.4.1 Description of Items Sold The next step is to identify the number of items sold. According to a Jupiter Communications press release, during the 1999 holiday season 250 million online consumers spent $7 billion. This means that an average online purchase was $28 (7 billion over 250 million). However, a single purchase may have included more than one item. A study of 1999 holiday shopping conducted by WebAssured.com indicates that an average online shopper purchased 12 items, whereas the average purchase price was $1,613. Using these two extremes, the average price of an online item is therefore estimated at approximately $100 ((28+161)/2=94.5). Knowing the average price, the number of total items sold is easily calculated. Year Internet Retail Sales Total Items Sold 1999 $10,800,000 108,000 2000 $17,000,000 170,000 2001 $26,000,000 260,000 2002 $40,600,000 406,000 Of all items sold, some will be returned to retailers. A study of 1998 online holiday shopping conducted by PC Data Online indicated that 9% of respondents reported returning gifts. A slightly earlier study by the same company indicated that 12.3% of all respondents were returning items. A survey of 1999 holiday shoppers conducted by Greenfield Online confirmed the first figure by indicating that 9% of shoppers planned to return an e-gift. The 9% figure is still a conservative estimate. A recent survey of the retail industry by American Express found that 46% of all respondents typically return anywhere between one and ten holiday gifts every year. Year Internet Retail Sales Items Sold Items Returned 1999 $10.8 108,000 9,720 2000 $17.0 170,000 15,300 2001 $26.0 260,000 23,400 2002 $40.6 406,000 36,540 The table above shows that more than 15 million items will be returned to online merchants in the year 2000 alone. Total merchandise shipped back will be worth over $1.5 billion. The figures more than double in 2002. There is clearly an expanding market for a "returned merchandise" service provider. Page 15 21. 21. SUBKUCH.com Table: Market Analysis Market Analysis Year 1 Year 2 Year 3 Year 4 Year 5 Potential Customers Growth CAGR Books/CD/Video 25% 48,000 60,000 75,000 93,750 117,188 25.00% 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% Total 45.83% 279,000 399,400 578,835 849,390 1,261,877 45.83% Chart: Market Analysis (Pie) 6.5 Market Needs Ecommerce continues to accelerate and the amount of money spent on purchases made through the Internet shows no sign of decline. During the 1999 holiday season (November 20 to December 19), retailers saw online revenues quadruple, jumping 300% to about $11 billion and far exceeding expectations, according to a study by Shop.org and Boston Consulting Group. The study of 30 retailers in such categories as apparel, books and music, home and garden, specialty foods and electronics showed a 270% growth in the number of orders. The study indicated that online sales were growing at 145% annually and it projected online retailer revenues of more than $36 billion for 1999. An earlier study conducted by Ernst & Young, before the holiday frenzy, already estimated that total revenues for online retail and consumer products for the calendar year 1999 were around $25-30 billion. While a notable amount of positive publicity about the Internet shopping has recently appeared in the media, the number of problems encountered by online shoppers actually increased more dramatically than the sales figures. According to a poll conducted by WebAssured.com, the number of complaints filed between November 25, 1999 and January 13, 2000 was up 404% over the same period last year. Over 62% of the respondents claimed they had experienced at least one problem with an online transaction. Misrepresentation/misinformation and delivering defective products each accounted for at least 22% of all complaints. In the breakdown of types of problems occurred, delivery of a wrong item accounted for 17.2%. These kind of problems ultimately result Page 16 22. 22. SUBKUCH.com in product returns that cause additional costs to the consumers and both costs and lost revenues to the retailers. Presently, not all online retailers have established simple and trouble-free return procedures. Pure e-tailers such as eCost.com have no physical presence and therefore require consumers to ship back the merchandise without offering much help in the process. Even some well-known retailers such as BestBuy.com, an extension of Best Buy, do not allow consumers to return items purchased online at their physical stores. To make things worse, the return policies are not always well displayed on retailers' websites, and customers are sometimes required an authorization prior to returning any merchandise such as in cases of Buy.com and eCost.com. Consumers may have to read through the entire return policies, including the notorious "fine print," in order to make sure they use the right procedures and that required time frames are followed. This creates additional aggravation--on top of having to return the merchandise--which all reflects in reduced customer satisfaction. The significance of an "easy return" cannot be underestimated as about half the people who have not shopped online cited the cost and hassle of returns as a significant factor for not shopping online. Moreover, a recent survey by BizRate.com, an online shopping center, found that 89% of online buyers said that return policies influenced their decision to shop with an online retailer. When a wrong, defective, or misrepresented item was delivered to a consumer, the return process often proved uneasy. According to recent findings by PC Data Online, 30% of all consumers who returned items found the return process difficult. It is apparent that existing return procedures are inadequate and sometimes irritating. The solution, however, does not lie in forcing all online retailers to establish a "no-questions-asked" return policy and to post it clearly at the top of their websites. The entire sequence a consumer has to follow, starting from looking up the procedures on the Web and then having to make a trip to UPS or the Post Office, has to be streamlined. There is clearly a need, as well as an opportunity, for a new service company to improve the overall return process for online shoppers. As a result, the consumer satisfaction will be enhanced and it will translate into increased repeat sales for online retailers. 6.6 Service Business Analysis The "returned merchandise" market is there and it is growing. Listed below are a few major expansion opportunities for the new company. 6.6.1 New Markets Geographic expansion will be needed in order to provide global return services for the online community. This will include both within-borders services and across-the-borders operations. A number of companies such as Amazon.com and eToys have already opened operations in the United Kingdom, not counting a growing local online merchant community. This in itself presents an opportunity to replicate the service in other countries for domestic online retailers. SUBKUCH.COM will partner with local carriers and shippers when operating there. A country-by- country approach may be utilized; however, there may be an opportunity to establish a centralized, consolidated operation within the European Union. As across-the-borders e-commerce keeps increasing, so does the need for a global service. Of all consumer product complaints recently registered with WebAssured.com, over 4% were about companies located outside the United States. While many domestic online retailers are limited to shipping within the U.S. only, the consumers are already buying overseas. Having to ship back overseas adds to the hassle and costs of returning a product. Once established and running in the U.S., SUBKUCH.COM will be best positioned to take advantage of the global trend and offer international services. Page 17 23. 23. SUBKUCH.com 6.6.2 New Services As more and more consumers shop online, the need to keep track of purchased products will grow. Currently, many online retailers offer an option to track a purchased item, but not always through the entire delivery process. An item itself may have an availability "window" of up to a few weeks, plus the shipping time of a few days--the customer is never quite sure when he or she will actually receive it. As more purchases are made, there will be more items to track. To do that, the customer has to look up websites of the merchants or use carriers' websites to inquire on shipping status and read through the flock of notification emails from the merchants. There is a growing need to consolidate all this information in one location for easy reference. A software that records all online purchases, tracks their status, and presents the findings to consumers in an easyto-read format will be of much value to consumers. Having developed partnership and information exchange agreements with online merchants and shipping companies, SUBKUCH.COM will be well positioned to offer such tracking services to consumers. While SUBKUCH.COM builds its core competency around product returns, it is also gaining the most knowledge why returns actually occur, what kind of online products are most frequently returned, by what kind of consumers, etc. The company will therefore be best positioned to advise and consult the online merchant community on how to improve operations and minimize product returns. Since product returns is a systemic problem of the retail industry and most likely it will not be totally eliminated, SUBKUCH.COM does not run the risk of putting itself out of business. Quite the contrary, it will secure the leadership position in that segment of consulting services and will naturally expand its core competencies of merchandise returns into advisory. 6.6.3 New Customers SUBKUCH.COM will not limit its services to the online merchants only. Direct-mail orders and catalogs also experience the same returned merchandise problem. Recent publications indicate that there are more than 8,500 consumer catalogs in the U.S. alone. According to the National Mail Order Association, U.S. mail order sales were a staggering $357 billion in 1998. Despite the growth in online shopping, the 1998 sales figure represented a 12% increase over 1997. Consumer product sales accounted for $109 billion of the total--roughly ten times that of the online merchandise sales for the same year. Based on a recent comment provided by the association, the rate of returned merchandise in this business is around 10-15%. Categories such as apparel may experience a return rate close to 20%. Reportedly, some large catalog houses have to maintain separate returned merchandise facilities just to handle the volume of returned products. A number of catalog companies, including Lands' End, have been aggressively embracing the Internet as a new distribution channel. While catalog business has a long history and experience in dealing with returns, there is definitely an expansion opportunity for the new company in offering its returned merchandise services to the catalogers. The service will further streamline their operations and enhance customer satisfaction. Many department stores such as J.C. Penney and Macy's now also use the Web to sell products. Most of them allow customers to return merchandise purchased online at physical stores. This serves as a goodwill, and customer satisfaction, builder. As an add-on to that, SUBKUCH.COM can still offer its services to the pro-Internet shoppers who do not wish to make an extra trip to the store to only return products. The company will provide at least one selling opportunity during the online return process, which will compensate for possible purchases a customer may make while at a store. This will underscore the convenience of online shopping, improve the return procedures by preventing the returned merchandise from spreading across physical stores, and enhance the image and bottom line of "click-andmortar" department stores. When dealing with multi-distribution channel retailers such as Macy's department stores, Macy's catalog and Macy's Internet store, SUBKUCH.COM will be able to offer one returned merchandise Page 18 24. 24. SUBKUCH.com procedure that will cover all channels. It will streamline the entire process by relieving the retailers from having multiple return facilities and extra work force to operate them. 7.0 Competition The company foresees three types of competition for the services we offer: 1. Direct 2. Internal 3. Channel These types of competitors are discussed in the following three sections. 7.1 Direct Competitors Based on the current intelligence, there is no independent company out there specializing in a "returned merchandise" service to online consumers. No single company is known to be employing a concept of establishing a single point of presence on the Internet for consumers to claim returns. The current situation allows the new company to gain the first-mover advantage and build entry barriers for any possible new entrants. 7.2 Internal Competitors The first competitors to the new service are the online retailers themselves. Since SUBKUCH.COM will need to strike partnerships and strategic agreements with retailers in order to offer its services, they are classified as internal competitors. Retailers may perceive that their internal return procedures are adequate and fully meet customer demands. However, the discussion under the Need Assessment section of this plan clearly indicated that there are significant drawbacks and shortcomings in the return process across the entire industry. Even companies like Amazon.com that touts a quick and easy return policy now sees its customers go to Barnes & Noble superstores to return books. Partnering with brick-and-mortar retailers may be seen as a solution by some e- tailers. However, from the consumer perspective, there still will not be a centralized location to return merchandise, no quick and easy return procedure, and no savings on shipping costs. Consumers may end up having to go from one physical retailer to another to return various items. Online retailers may try to partner with carriers and service providers such as UPS, Mail Boxes Etc., or Rite Express. Reportedly, eBay.com is working out an agreement with Mail Boxes Etc. to appoint them as a preferred/exclusive service for product returns. eBay.com may receive rebates per shipment for directing its clients to Mail Boxes Etc., but consumers again will have little or no benefit. The standard shipping rates are applied, the choice of carriers is now limited, and online merchants are not informed about product returns ahead of time so that bad sales could be saved. With SUBKUCH.COM, at least one selling opportunity will be given to retailers while consumer is on the Web--something a partnership with a carrier cannot provide. Moreover, serving as a demand aggregator SUBKUCH.COM should be able to arrange necessary agreements and provide consumers with greatly reduced, or even free, shipping for all returned merchandise. 7.3 Channel Competitors Thinking in reverse to the previous paragraph, service providers such as Mail Boxes Etc. and PostNet may try to forge strategic partnerships with numerous online retailers to simplify the return process. But as it was described, online retailers will be shortchanged in overall customer satisfaction, information exchange, total costs, and additional selling opportunities. Consumers, on the other hand, will lose out on the limited number of "exclusive" carriers for particular Page 19 25. 25. SUBKUCH.com retailers, and uniform simplicity in the return process will not be achieved. Moreover, both Mail Boxes Etc. and PostNet combined do not have sufficient physical presence in the market. Carriers such as UPS and FedEx may try to enter the arena. Those organizations have extensive networks of facilities, experience in shipping, and a track record of quality. The U.S. Postal Service has recently started a TV advertising campaign of a service for online merchants that allows consumers to print return labels online. This is a step towards addressing the shipping end of the return problem, but it falls short of saving bad sales and creating new selling opportunities for merchants. No single shipping company can fully provide the range of benefits the proposed company can. SUBKUCH.COM will be able to arrange strategic alliances with numerous carriers and even play one against the other in negotiating rate reductions and preferential service terms for both merchants and consumers. Being a smaller company with a focus on the e-commerce community, it will also have a greater degree of flexibility in adjusting to customer needs. 8.0 Strategy and Implementation Summary The company will utilize a dual-pricing approach to ensure a recurring revenue model. Online retailers will be charged a flat annual or quarterly program fee based on their sales volume, product categories, and specific return conditions ("no-questions-asked" or prior authorizations required, etc.). The company will also collect payments in a form of a fixed percentage charge on all items claimed for return through its website. Before getting into details about pricing, an important perception issue needs to be discussed. Presently, only few online retailers offer free shipping with purchases. For the returned merchandise, in most cases the retailers reimburse shipping costs only if an incorrect or defective item was delivered. (Sephora, a retailer of beauty products, offers free returns on all online purchases regardless.) In many instances shipping and handling costs represent a large percentage of the selling price. Most retailers therefore may not see free shipping of returned merchandise economically possible. However, it is financially feasible to offer free returned merchandise shipping to consumers at a nominal cost to retailers. The following table displays four sample companies in different product categories that differentiate in average price per unit sold and average shipping cost. Book/CD/Video Toy/Game Electronic Computer Total Sales $10 million $10 million $10 million $10 million Avg Price/Item $12 $35 $180 $1,000 Items Sold 833,333 285,714 55,556 10,000 Returned Item Rate 9% 9% 9% 9% Items Returned 75,000 25,714 5,000 900 Avg Shipping Cost $4.50 $6.00 $15.00 $60.00 Total Shipping Cost* $337,500 $154,286 $75,000 $54,000 TSC as % of Sales 3.38% 1.54% .75% .54% Markup Per Item $.40 $.54 $1.35 $5.40 *Total Shipping Cost (TSC) The amount of total sales is set at $10 million for each company and any change in the amount would not influence the important percentage and absolute figures. The average price per unit is based on general observations and is a simple representation of various prices in an increasing Page 20 26. 26. SUBKUCH.com order. The average shipping cost is the actual UPS ground rate for the corresponding product category on average. According to the previous table, for online retailers that sell books, CDs and videos to cover shipping costs of all returned merchandise will only cost 3.38% of their total sales. For a toy company, the cost will only be 1.54%. Companies such as Beyond.com and eToys were recently spending over 80% of total revenues on sales and marketing programs alone. Even if most of the marketing budget is dedicated to customer acquisition, a customer satisfaction and retention program can still be easily allocated for. Even if an online toy merchant decides not to allocate any of the marketing budget money to this program, to fully cover the shipping costs it will only have to raise the average price of an item by 54 cents. An online computer retailer with an average unit price of $1,000 will only have to add $5.40 to the list price. Or it only has to allocate an equivalent of 0.54% of total sales to cover the total shipping costs. In the majority of cases the retailers will have to reimburse the shipping costs to consumers anyway. According to a study conducted by PC Data Online, 30% of all returns were due to the item being broken, 28% because of an incorrect item was shipped, and only 22% because the customer did not want the item. 8.1 Pricing The following table presents the proposed allocations to cover the shipping costs so that consumers could enjoy free returned merchandise shipping. Books/CD/Video Toys/Games Electronics Computers Average Price Per Item (API) $12 $35 $180 $1,000 Average Shipping Cost (ASC) $4.50 $6 $15 $60 Merchant's Share of ASC, 65% $2.93 $3.90 $9.75 $39 Shipping Company's Share of ASC, 20% $.90 $1.20 $3 $12 Credit Card Company's Share of ASC, 5% $.23 $.30 $.75 $3 Total Shares of ASC, 90% $4.05 $5.04 $13.50 $54 SUBKUCH.COM Rebate, 4% of API $.48 $1.40 $7.20 $40 Total Allocations $4.53 $6.80 $20.70 $94 ASC Coverage Ratio 101% 113% 138% 157% SUBKUCH.COM will strive to eliminate the shipping costs to consumers by means of strategic agreements with online merchants, shipping companies, and credit card companies. As stated in the last quote, 58% of all product returns were due to merchants' faults, hence merchants will have to reimburse shipping costs to consumers in those cases. SUBKUCH.COM therefore proposes that 65% of a given shipping cost should be allocated to corresponding merchants. Due to demand aggregation, the company will be able to negotiate a shipping rate discount with companies such as UPS or FedEx. Hence 20% of shipping costs should be allocated to shipping companies in a form of a discount. Credit card issuers such as Chase and BancOne currently offer a 5% rebate to consumers on purchases with selected online merchants. It is therefore feasible to arrange an agreement with credit card companies and/or issuers to include a 5% shipping cost rebate on all returned merchandise. Since product returns are only 9% of all purchases, it will not represent a large cost to credit card companies to add this differentiating feature to their products. These allocations in total will cover 90% of the shipping cost. The remaining 10% will be absorbed by SUBKUCH.COM via a special "instant rebate." SUBKUCH.COM will charge merchants a program fee that will average only 0.5% of a given merchant's total sales. Also, the company will charge a low per-claim fee of 12% of each item's Page 21 27. 27. SUBKUCH.com listed price (each item that has been claimed through the company's website). However, of the 12% charged per item, up to 4% will be instantly given back to merchants to cover the remaining portion of the shipping cost. The previous table indicates that the 4% rebate is sufficient to cover the remainder of the shipping cost in the first product category. It is actually far more than sufficient in other product categories (refer to ASC Coverage Ratio). SUBKUCH.COM can then decide whether to offer merchants a reimbursement of the remaining portion of shipping costs only or a flat 4% "instant rebate" regardless of shipping costs. For the purpose of this business plan and financial projections, a flat 4% "instant rebate" was used thus reducing the per-claim fee from 12% to 8% across the board. As it was stated in a prior chapter, retailers should see an average sales increase of at least 15% due to the service offered by the company. On the other hand, based on the proposed pricing structure the service should not cost merchants more than 1.5% of their total revenues. The cost- benefit ratio of 10 will be a strong promotional point for SUBKUCH.COM. While it is a possibility to charge merchants commissions on all sales made through the company's website (when consumers claim their returns), it would not capture all sales stimulated by the company. The program will increase consumer satisfaction and loyalty. However, when consumers start buying more due to the program's effect but dealing directly with the merchant, the company will not receive any commissions and will in effect be giving its services away for free. Hence both fees charged should fully reflect the benefits of the easy-return procedure, early information on all returning items, restored customer satisfaction, selling opportunities created during the claim process, and all repeat sales thereafter. The company also plans to draw revenues from advertising on its website, but for the purpose of this business plan advertising revenues will be considered negligible. A fee/rebate agreement may be arranged with such companies as UPS and Mail Boxes Etc. for bringing customers to them for shipping needs. Other revenue generating activities such as affiliate programs with VISA, American Express, or Citibank can be arranged to promote certain credit cards as a preferred method of payment online. Those revenues will also be omitted in the financial projections. Once the company has generated a sufficient customer database, it may also market information to retailers and other organizations for a fee. Any fees and payments SUBKUCH.COM could generate from consulting activities in the field of product returns will not be included in the financial projections either. 8.2 Sales Forecast The table and chart below outline the company's projected sales volume in FY2000-2002. • 1st Program Revenues: represent the flat program fee assessed on annual or quarterly basis. The average fee charged by the company is 0.5% of a given merchant's total sales. The program is estimated to increase merchandise sales by at least 15% for a given merchant. The dollar figure in this line is based on the conservative estimates of total online sales provided by National Retail Federation (one third of the most optimistic current estimates provided by Shop.org) and the market share gained by the company. From 2002 to 2004, the growth of total online merchandise sales is estimated at 145% annually, which is in line with the growth figure for 1999. • 2nd Program Revenues: represent the per-claim charges of 8% (net of 12% charged less the 4% "instant rebate") of each item's listed price (each item claimed by consumers through the company's website). The company plans to make its services available just prior to Thanksgiving 2000. The programs will be offered to the online merchants for free for the remainder of 2000, therefore, we will not generate any revenue from sales for the year 2000. Page 22 28. 28. SUBKUCH.com Table: Sales Forecast Sales Forecast Year 1 Year 2 Year 3 Sales 1st Program Revenues $0 $7,800,000 $24,360,000 2nd Program Revenues $0 $11,232,000 $35,078,400 Total Sales $0 $19,032,000 $59,438,400 Direct Cost of Sales Year 1 Year 2 Year 3 1st Program Revenues $0 $0 $0 2nd Program Revenues $0 $0 $0 Subtotal Direct Cost of Sales $0 $0 $0 9.0 Business Model and Structure The company plans to locate its headquarters in a metropolitan area that can provide access to a large pool of high-tech labor force, current e-commerce intelligence, and sources of financial capital. The location should ensure the best logistics when reaching existing and potential clientele, as well as strategic partners. Operations in which the company cannot develop core competencies should be outsourced. A close proximity to outsourcing companies should be maintained. The headquarters will initially host the entire executive team, sales force, and staff. As company progresses through its growth stages, sales regions will be assigned for various parts of the U.S. and either in-field sales representatives be placed or distributors assigned. Presently, SUBKUCH.COM is headquartered in Bala Cynwyd, Pennsylvania. The company will initially be a privately-held corporation. The state of incorporation will mainly depend on the location of corporate headquarters. The company plans to raise two rounds of venture capital financing before going public. 9.1 Organizational Structure Those activities that are not crucial to the corporate success (i.e. payroll) will be outsourced or subcontracted. Below are brief summaries of major responsibilities for corporate officers. • Board of Directors: oversees the overall strategic direction and progress of the company. Specific areas include operational soundness, financial stability, and long-term well-being of the corporation. • President: responsibilities include strategic guidance of the enterprise, exploration of expansion opportunities, and strategic alliance facilitation and management. • Chief Executive Officer: the main responsibility is to maintain a strategic fit between the corporate resources and external factors. Responsibilities include running of the overall day-to- day operations, technological and operational soundness, and financial stability. • Director of Finance and Operations: responsibilities include financial oversight, safeguarding of assets, and human resources management. • Director of Information Technology: responsibilities include overall technological efficiency, software development, and information control. • Director of Sales and Marketing: responsibilities include sales generation, marketing programs development, and public relations. Page 23 29. 29. SUBKUCH.com Table: Personnel Personnel Plan Year 1 Year 2 Year 3 All Departments $200,000 $1,960,000 $4,105,000 Other $0 $0 $0 Total People 5 40 80 Total Payroll $200,000 $1,960,000 $4,105,000 10.0 Financial Plan The statements incorporate two rounds of venture capital investments of $2.6 million total, plus access to additional $1.4 million for cash flow purposes. The statements do not include any funds raised during the proposed IPO. Any revenues from advertising, affinity, consulting, and partnership programs were omitted. Year-end is December 31. 10.1 Projected Cash Flow The following chart shows monthly cash balance and cash flow. The table shows the expected cash flow for the first twelve months of operation, with yearly estimates thereafter. Capital expenditures include computer equipment and technology & software investment: • Computer Equipment: represents 20% of the current fixed corporate costs. In 2000, it represents $80,000 from the fixed corporate costs. • Technology & Software Investment: represents 50% of the current fixed technology costs. In 2000, it represents the $1.3 million of the fixed technology costs. Chart: Cash Page 24 30. 30. SUBKUCH.com Table: Cash Flow 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 Receivables $0 $14,274,000 $44,578,800 Subtotal Cash from Operations $0 $19,032,000 $59,438,400 Additional Cash Received Sales Tax, VAT, HST/GST Received $0 $0 $0 New Current Borrowing $0 $0 $0 New Other Liabilities (interest-free) $0 $0 $0 New Long-term Liabilities $0 $0 $0 Sales of Other Current Assets $0 $0 $0 Sales of Long-term Assets $0 $0 $0 New Investment Received $4,110,000 $0 $0 Subtotal Cash Received $4,110,000 $19,032,000 $59,438,400 Expenditures Year 1 Year 2 Year 3 Expenditures from Operations Cash Spending $200,000 $1,960,000 $4,105,000 Bill Payments $2,149,150 $11,445,858 $26,737,688 Subtotal Spent on Operations $2,349,150 $13,405,858 $30,842,688 Additional Cash Spent Sales Tax, VAT, HST/GST Paid Out $0 $0 $0 Principal Repayment of Current Borrowing $0 $0 $0 Other Liabilities Principal Repayment $0 $0 $0 Long-term Liabilities Principal Repayment $0 $0 $0 Purchase Other Current Assets $0 $0 $0 Purchase Long-term Assets $1,380,000 $323,544 $653,822 Dividends $0 $0 $0 Subtotal Cash Spent $3,729,150 $13,729,402 $31,496,510 Net Cash Flow $380,850 $5,302,598 $27,941,890 Cash Balance $427,850 $5,730,448 $33,672,338 Page 25 31. 31. SUBKUCH.com 10.2 Break-even Analysis The following table shows our estimated monthly break-even point to be approximately $222,000 Chart: Break-even Analysis Table: Break-even Analysis Break-even Analysis Monthly Revenue Break-even $222,417 Assumptions: Average Percent Variable Cost 0% Estimated Monthly Fixed Cost $222,417 Page 26 32. 32. SUBKUCH.com 10.3 Important Assumptions The table below contains assumptions important to the financial success of the company. Table: General Assumptions General Assumptions Year 1 Year 2 Year 3 Plan Month 1 2 3 Current Interest Rate 10.00% 10.00% 10.00% Long-term Interest Rate 10.00% 10.00% 10.00% Tax Rate 25.42% 25.00% 25.42% Other 0 0 0 10.4 Projected Profit and Loss The table below shows the profit and loss statement for SUBKUCH.COM. The itemized costs for fixed technology, corporate and advertising are reflected in the sales and marketing row in the table: • Fixed Technology Costs: represents a percentage of revenues allocation for all fixed computer and Internetrelated developments and charges. In 2000, $800,000 is allocated for the proprietary software development, $300,000 for the website design, and $200,000 for systems integration. • Fixed Corporate Costs: represent a percentage of revenues allocation for all fixed corporate cost associated with office related charges. In 2000, $200,000 is allocated for initial sales force hire, $50,000 is allocated for hiring and training expenses, and another $150,000 is allocated for the office setup and purchase/lease of necessary computer equipment and infrastructure. • Advertising: represents a percentage of revenues allocation for advertising in all media. In 2000, $250,000 is allocated for the industrial marketing campaign. In the subsequent years, the much larger budgets include allocations for TV advertising. • Sales & Marketing: represents a percentage of revenues allocation for marketing and selling activities, including commissions paid on sales. In 2000, $200,000 is allocated for the initial sales and marketing related activities. • Research and Development: represents a percentage of revenues allocation for R&D activities. In 2000, $200,000 is allocated for testing and fine-tuning of the computer systems and programs. • General & Administrative: represents a percentage of revenues allocation for expenses associated with running a corporation. In 2000, $20,000 is expensed against the initial set-up, legal and accounting fees, etc. • Depreciation: represents a depreciation on all capital investment; straight-line depreciation over 20 years. Page 27 33. 33. SUBKUCH.com Table: Profit and Loss Pro Forma Profit and Loss Year 1 Year 2 Year 3 Sales $0 $19,032,000 $59,438,400 Direct Cost of Sales $0 $0 $0 Other $0 $0 $0 Total Cost of Sales $0 $0 $0 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 Other Expenses $2,170,000 $9,355,520 $16,379,882 Depreciation $69,000 $85,177 $117,868 Research & Development $200,000 $951,600 $1,783,152 Payroll Taxes $30,000 $294,000 $615,750 Other $0 $0 $0 Total Operating Expenses $2,669,000 $12,646,297 $23,001,652 Profit Before Interest and Taxes ($2,669,000) $6,385,703 $36,436,748 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 Net Profit/Sales 0.00% 25.16% 45.72% Page 28 34. 34. SUBKUCH.com 10.5 Projected Balance Sheet The Balance Sheet shows solid growth in both sales and net worth. Table: Balance Sheet Pro Forma Balance Sheet Year 1 Year 2 Year 3 Assets Current Assets Cash $427,850 $5,730,448 $33,672,338 Accounts Receivable $0 $0 $0 Other Current Assets $0 $0 $0 Total Current Assets $427,850 $5,730,448 $33,672,338 Long-term Assets Long-term Assets $1,380,000 $1,703,544 $2,357,366 Accumulated Depreciation $69,000 $154,177 $272,045 Total Long-term Assets $1,311,000 $1,549,367 $2,085,321 Total Assets $1,738,850 $7,279,815 $35,757,659 Liabilities and Capital Year 1 Year 2 Year 3 Current Liabilities Accounts Payable $250,850 $1,002,538 $2,304,640 Current Borrowing $0 $0 $0 Other Current Liabilities $0 $0 $0 Subtotal Current Liabilities $250,850 $1,002,538 $2,304,640 Long-term Liabilities $0 $0 $0 Total Liabilities $250,850 $1,002,538 $2,304,640 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 Liabilities and Capital $1,738,850 $7,279,815 $35,757,659 Net Worth $1,488,000 $6,277,277 $33,453,018 10.6 Business Ratios The following table presents important business ratios for the business services industry, as determined by the Standard Industry Classification (SIC) Index code 7389, Business Services, nec (not elsewhere classified). Page 29 35. 35. SUBKUCH.com Table: Ratios Ratio Analysis Year 1 Year 2 Year 3 Industry Profile Sales Growth n.a. n.a. 212.31% 8.79% Percent of Total Assets Accounts Receivable 0.00% 0.00% 0.00% 28.12% Other Current Assets 0.00% 0.00% 0.00% 44.18% 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% Long-term Liabilities 0.00% 0.00% 0.00% 13.60% 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% Selling, General & Administrative Expenses 0.00% 74.84% 54.02% 82.68% Advertising Expenses 0.00% 1.00% 0.50% 1.66% Profit Before Interest and Taxes 0.00% 33.55% 61.30% 1.37% Main Ratios Current 1.71 5.72 14.61 1.59 Quick 1.71 5.72 14.61 1.22 Total Debt to Total Assets 14.43% 13.77% 6.45% 60.22% Pre-tax Return on Net Worth -179.37% 101.73% 108.92% 3.09% Pre-tax Return on Assets -153.49% 87.72% 101.90% 7.76% Additional Ratios Year 1 Year 2 Year 3 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 Receivable Turnover 0.00 0.00 0.00 n.a Collection Days 0 0 0 n.a Accounts Payable Turnover 9.57 12.17 12.17 n.a Payment Days 27 19 22 n.a Total Asset Turnover 0.00 2.61 1.66 n.a Debt Ratios Debt to Net Worth 0.17 0.16 0.07 n.a Current Liab. to Liab. 1.00 1.00 1.00 n.a Liquidity Ratios Net Working Capital $177,000 $4,727,910 $31,367,697 n.a Interest Coverage 0.00 0.00 0.00 n.a Additional Ratios Assets to Sales n.a. 0.38 0.60 n.a Current Debt/Total Assets 14% 14% 6% n.a Acid Test 1.71 5.72 14.61 n.a Sales/Net Worth 0.00 3.03 1.78 n.a Dividend Payout 0.00 0.00 0.00 n.a Page 30 36. 36. Appendix Table: Personnel Personnel Plan Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 All Departments 0% $16,666 $16,666 $16,666 $16,666 $16,667 $16,667 $16,667 $16,667 $16,667 $16,667 $16,667 $16,667 Other 0% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Total People 5 5 5 5 5 5 5 5 5 5 5 5 Total Payroll $16,666 $16,666 $16,666 $16,666 $16,667 $16,667 $16,667 $16,667 $16,667 $16,667 $16,667 $16,667 Table: Sales Forecast Sales Forecast Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 Sales 1st Program Revenues 0% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 2nd Program Revenues 0% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Total Sales $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Direct Cost of Sales Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 1st Program Revenues $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 2nd Program Revenues $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Subtotal Direct Cost of Sales $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Table: General Assumptions General Assumptions Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 Plan Month 1 2 3 4 5 6 7 8 9 10 11 12 Current Interest Rate 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% Long-term Interest Rate 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% Tax Rate 30.00% 25.00% 25.00% 25.00% 25.00% 25.00% 25.00% 25.00% 25.00% 25.00% 25.00% 25.00% Other 0 0 0 0 0 0 0 0 0 0 0 0 37. 37. Appendix Table: Profit and Loss Pro Forma Profit and Loss Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 Sales $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Direct Cost of Sales $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Other $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Total Cost of Sales $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Gross Margin $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Gross Margin % 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Expenses Payroll $16,666 $16,666 $16,666 $16,666 $16,667 $16,667 $16,667 $16,667 $16,667 $16,667 $16,667 $16,667 Sales and Marketing and Other Expenses $20,500 $46,000 $86,000 $121,500 $237,000 $237,000 $237,000 $237,000 $237,000 $237,000 $237,000 $237,000 Depreciation $500 $1,500 $3,000 $4,000 $7,500 $7,500 $7,500 $7,500 $7,500 $7,500 $7,500 $7,500 Research & Development $5,000 $10,000 $10,000 $15,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 Payroll Taxes 15% $2,500 $2,500 $2,500 $2,500 $2,500 $2,500 $2,500 $2,500 $2,500 $2,500 $2,500 $2,500 Other $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Total Operating Expenses $45,166 $76,666 $118,166 $159,666 $283,667 $283,667 $283,667 $283,667 $283,667 $283,667 $283,667 $283,667 Profit Before Interest and Taxes ($45,166) ($76,666) ($118,166) ($159,666) ($283,667) ($283,667) ($283,667) ($283,667) ($283,667) ($283,667) ($283,667) ($283,667) EBITDA ($44,666) ($75,166) ($115,166) ($155,666) ($276,167) ($276,167) ($276,167) ($276,167) ($276,167) ($276,167) ($276,167) ($276,167) Interest Expense $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Taxes Incurred $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Net Profit ($45,166) ($76,666) ($118,166) ($159,666) ($283,667) ($283,667) ($283,667) ($283,667) ($283,667) ($283,667) ($283,667) ($283,667) Net Profit/Sales 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

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