ZiWatches - Business Plan for an e-Commerce Watch Shop

Business Plan for An Online Watch Shop (ZiWatches)
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14.       Financial Plan

The pro forma income statements for the first 3 years of operations for ZiWatches are attached. Although the price range is US$50-US$200, most of the watches are priced between US$50-US$100. Therefore in this financial projection, the average price of each order is around HK$500 inclusive of p+p.  The cost of goods sold in the financial projection means the actual cost of the watch to ZiWatches, the actual p+p, and the credit card charges (around 5.5% including the fraud guarantee). In general, there will be a 20-30% gross profit from each order.

In the beginning, visitors to the site will mainly be drawn from classified advertisements and pay per click search engines. There will be a substantial sale growth after the site being listed on major search engines after around 3 months. However, although extremely important, search engines can only produce a certain number of visitors and sales. In order to generate further exposure and sales, one would have to resort to banner and pop-up advertising. These are relatively ineffective methods but are essential in order to gain massive exposure throughout the Internet.

ZiWatches will also rely increasingly on sending promotional e-mails to opt-in members and also affiliate program. One of the most unpredictable components would be the response to banner advertising. For this reason ZiWatches will advertise using a Pay Per Click model rather than Pay Per Ad impression model. ZiWatches will have to gradually increase its budget on advertising as time goes on which may eat into its profit margin. However, as the volume of sales increase, so will be the discount on goods offered by the supplier. As the sales volume increase, more staff would have to be hired mainly in order to handle the shipping.

As the initial cost for e-business is very low compared to the conventional businesses, break-even point can be achieved from the 3rd month onwards depending on whether the site is listed and ranked well in search engines and directories. Profit will then be made from this month onwards. There won抰 be that much profit on the first year as the capital cost will be deducted from this year and money will be spent on different advertising campaigns. After the consolidation period, there should be a substantial growth in sales from the second year onwards.

 

Although there is a good prospect of this business and the risks are minimal provided that one is not too aggressive with advertising, one should always prepare for the worse scenario. The fallback planning will be that there will be a mid-year assessment of the company progress. If the break-even can not be made in the first 6 months, a substantial change in the strategies will be required. If the business is still not profitable in one-year抯 time, or that the profit remains very low, then perhaps one should consider ending the business. 

 

15.   Monitoring and Evaluation

 

Monitoring is an on-going process required for each stage for the business. One needs to measure the performance from time to time in order to project the future direction of the company. Each advertising campaign will be scrupulously monitored for effectiveness so that advertising can be finely tuned. Response to each new product will be evaluated in order to target advertising effectively. Other aspects such as the return rate, lost shipments, credit card fraud will also be monitored so that the overall risks can be more clearly assessed. The countries where the orders originate from will be monitored so that better targeting may occur. At the same time, competitor抯 sites will be monitored for movements in prices. At the same time, the ranking of the ZiWatches Web site and competitor抯 Web sites will be monitored for different search terms so that if necessary, further search engine optimization may be carried out.

 

16.   Summary and Conclusion

What is proposed in this business plan is a low investment, low risk business with the prospect of a high return. ZiWatches intend to target the young and fashion-conscious. To this end, it intends to offer a full customer management service. It also intends to promote that image by offering a club, together with a forum so that recurrent traffic can be generated. Although ZiWatches will be a small and new start-up, it does have an advantage of having a partner with experience in running a successful retail e-business that knows the ins and out of web design and promotion. Since the start-up cost is relatively small compared to other businesses, the break-even point could be achieved within a short period of time. Even if one decides to end the business for any reason, there will be very little in terms of liabilities e.g. unused lease. Conversely, e-business is expected to grow at a fast rate for the next decade and therefore there is an opportunity to start an exciting business with a high growth potential.