Illustrates the relationship between key ratios and components of a business.

Enter your data in the orange boxes to calculate the key ratios of your business.
Top of Form
Income Statement

Sales
1816
Gross
Profit
1,024.2
Other Income Earnings
before
6.9 interest EBIT
& taxes EBIT on
(EBIT) 1 2 6 .5 Assets
126.5 9.5%
COGS
798.7 Net
Profit Total
Asse
Operating Interest 7 8 .7 ts
Expenses Paid
G&A 1 ,3 3 3 .0
897.7 2.6

Sales
1 ,8 1 6 .0 Profi Return
Taxes t on Equity
Depreciation 45.2 Marg 18.7%
80.2 in
4 .3 %

Other
Expense
27.2

Assets

Cash
76.4

Sales
Asse
Receivables 1,816.0
Fixed ts
296.3 Assets Turn
over
698.8
1 .4
Total
Inventory Assets
216.4 1,333.0
Current
Assets
634.2

Other Assets Working

Capital
45.1
256.0
Current
Liabilities
378.2
Liabilities & Equity

Payables
124.1
Current
Liabilities
378.2 Total
Liabilitie
Notes s
Payables Total
780.0
53.9 1 ,2 5 1 .7
Non- Leve
Current rage
Liabilities 3 1 0 .1 %
401.8
Other
Liability
Beginni
200.2 ng
Ending
Capital Net Net
Worth Worth
26.3
471.7 4 0 3 .6

Retained
Earnings
445.4

Bottom of Form
Mission Statement
The mission statement should be a clear and succinct representation of the enterprise's purpose
for existence. It should incorporate socially meaningful and measurable criteria addressing
concepts such as the moral/ethical position of the enterprise, public image, the target market,
products/services, the geographic domain and expectations of growth and profitability.

The intent of the Mission Statement should be the first consideration for any employee who is
evaluating a strategic decision. The statement can range from a very simple to a very complex set
of ideas.

How Specific Should You Be?

Normally, the Mission Statement should represent the broadest perspective of the enterprise's
mission.

You may want to take the approach of being very specific. For instance, a Mission Statement for a
fictitious airline could be worded as follows:

Airco, Inc. will be the 'guaranteed' on-time airline. Maintaining the most efficient equipment in the
industry, we will target a customer base of mainly young businessmen and offer them the lowest
cost service on the west coast, with an objective of a 20% profit before tax and a 30% per year
revenue growth.

Or, you may want to say the same thing, but with more room for management interpretation. A
more general way of stating Airco's Mission Statement could be:

Airco, Inc. will be recognized as the most progressive enterprise in the transportation business. We
will offer our customers cost effective transportation service within geographical areas and market
segments that can benefit from our services and will insure a return on investment and growth
rate consistent with current management guidelines.

Mission Statements of Well Known Enterprises

The following are some examples of mission statements from real enterprises.
3M
"To solve unsolved problems innovatively"
Mary Kay Cosmetics
"To give unlimited opportunity to women."
Merck
"To preserve and improve human life."
Wal-Mart
"To give ordinary folk the chance to buy the same thing as rich people."
Walt Disney
"To make people happy."

These are the 'one-liners', but each is supported by a set of values that set the performance
standards and direct the implementation of the mission.

For example, Merck, a company that produces pharmaceutical products and provides insurance for
pharmacy benefits, publicly states the following values.
• Corporate social responsibility
• Unequivocal excellence in all aspects of the company
• Science-based innovation
• Honesty & integrity
• Profit, but profit from work that benefits humanity

And Walt Disney, an entertainment business states their values as follows.

• No cynicism
• Nurturing and promulgation of "wholesome American values"
• Creativity, dreams and imagination
• Fanatical attention to consistency and detail
• Preservation and control of the Disney "magic"

Should Your Grasp Exceed Your Reach?

Many believe that the Mission Statement should have a grand scale, be socially meaningful and be
measurable. The following are some examples of historical Mission Statements that were truly
grand in scale.

Ford Motor Company (early 1900's)

"Ford will democratize the automobile"
Sony (early 1950's)
"Become the company most known for changing the worldwide poor-quality image of Japanese
products"
Boeing (1950)
"Become the dominant player in commercial aircraft and bring the world into the jet age"
Wal-Mart (1990)
"Become a $125 billion company by the year 2000"

Conclusion
So, when you are preparing your Mission Statement remember to make it clear and succinct,
incorporating socially meaningful and measurable criteria and consider approaching it from a grand
scale. As you create your Mission Statement consider including some or all of the following
concepts.
• The moral/ethical position of the enterprise
• The desired public image
• The key strategic influence for the business
• A description of the target market
• A description of the products/services
• The geographic domain
• Expectations of growth and profitability

Marketing Plan
The information for this article was derived from many sources, including Michael Porter's book
Competitive Advantage and the works of Philip Kotler. Concepts addressed include 'generic'
strategies and strategies for pricing, distribution, promotion, advertising and market segmentation.
Factors such as market penetration, market share, profit margins, budgets, financial analysis,
capital investment, government actions, demographic changes, emerging technology and cultural
trends are also addressed.

There are two major components to your marketing strategy:

• how your enterprise will address the competitive marketplace
• how you will implement and support your day to day operations.
In today's very competitive marketplace a strategy that insures a consistent approach to offering
your product or service in a way that will outsell the competition is critical. However, in concert
with defining the marketing strategy you must also have a well defined methodology for the day to
day process of implementing it. It is of little value to have a strategy if you lack either the
resources or the expertise to implement it.

In the process of creating a marketing strategy you must consider many factors. Of those many
factors, some are more important than others. Because each strategy must address some unique
considerations, it is not reasonable to identify 'every' important factor at a generic level. However,
many are common to all marketing strategies. Some of the more critical are described below.

You begin the creation of your strategy by deciding what the overall objective of your enterprise
should be. In general this falls into one of four categories:
• If the market is very attractive and your enterprise is one of the strongest in the industry
you will want to invest your best resources in support of your offering.
• If the market is very attractive but your enterprise is one of the weaker ones in the
industry you must concentrate on strengthening the enterprise, using your offering as a
stepping stone toward this objective.
• If the market is not especially attractive, but your enterprise is one of the strongest in the
industry then an effective marketing and sales effort for your offering will be good for
generating near term profits.
• If the market is not especially attractive and your enterprise is one of the weaker ones in
the industry you should promote this offering only if it supports a more profitable part of
your business (for instance, if this segment completes a product line range) or if it absorbs
some of the overhead costs of a more profitable segment. Otherwise, you should
determine the most cost effective way to divest your enterprise of this offering.
Having selected the direction most beneficial for the overall interests of the enterprise, the next
step is to choose a strategy for the offering that will be most effective in the market. This means
choosing one of the following 'generic' strategies (first described by Michael Porter in his work,
Competitive Advantage).
• A COST LEADERSHIP STRATEGY is based on the concept that you can produce and market
a good quality product or service at a lower cost than your competitors. These low costs
should translate to profit margins that are higher than the industry average. Some of the
conditions that should exist to support a cost leadership strategy include an on-going
availability of operating capital, good process engineering skills, close management of
labor, products designed for ease of manufacturing and low cost distribution.
• A DIFFERENTIATION STRATEGY is one of creating a product or service that is perceived as
being unique "throughout the industry". The emphasis can be on brand image, proprietary
technology, special features, superior service, a strong distributor network or other aspects
that might be specific to your industry. This uniqueness should also translate to profit
margins that are higher than the industry average. In addition, some of the conditions that
should exist to support a differentiation strategy include strong marketing abilities,
effective product engineering, creative personnel, the ability to perform basic research and
a good reputation.
• A FOCUS STRATEGY may be the most sophisticated of the generic strategies, in that it is a
more 'intense' form of either the cost leadership or differentiation strategy. It is designed
to address a "focused" segment of the marketplace, product form or cost management
process and is usually employed when it isn't appropriate to attempt an 'across the board'
application of cost leadership or differentiation. It is based on the concept of serving a
particular target in such an exceptional manner, that others cannot compete. Usually this
 means addressing a substantially smaller market segment than others in the industry, but
because of minimal competition, profit margins can be very high.

Pricing
Having defined the overall offering objective and selecting the generic strategy you must then
decide on a variety of closely related operational strategies. One of these is how you will price the
offering. A pricing strategy is mostly influenced by your requirement for net income and your
objectives for long term market control. There are three basic strategies you can consider.
• A SKIMMING STRATEGY
If your offering has enough differentiation to justify a high price and you desire quick cash
and have minimal desires for significant market penetration and control, then you set your
prices very high.
• A MARKET PENETRATION STRATEGY
If near term income is not so critical and rapid market penetration for eventual market
control is desired, then you set your prices very low.
• A COMPARABLE PRICING STRATEGY
If you are not the market leader in your industry then the leaders will most likely have
created a 'price expectation' in the minds of the marketplace. In this case you can price
your offering comparably to those of your competitors.

Promotion
To sell an offering you must effectively promote and advertise it. There are two basic promotion
strategies, PUSH and PULL.
• The PUSH STRATEGY maximizes the use of all available channels of distribution to "push"
the offering into the marketplace. This usually requires generous discounts to achieve the
objective of giving the channels incentive to promote the offering, thus minimizing your
need for advertising.
• The PULL STRATEGY requires direct interface with the end user of the offering. Use of
channels of distribution is minimized during the first stages of promotion and a major
commitment to advertising is required. The objective is to "pull" the prospects into the
various channel outlets creating a demand the channels cannot ignore.
There are many strategies for advertising an offering. Some of these include:
• Product Comparison advertising
In a market where your offering is one of several providing similar capabilities, if your
offering stacks up well when comparing features then a product comparison ad can be
beneficial.
• Product Benefits advertising
When you want to promote your offering without comparison to competitors, the product
benefits ad is the correct approach. This is especially beneficial when you have introduced
a new approach to solving a user need and comparison to the old approaches is
inappropriate.
• Product Family advertising
If your offering is part of a group or family of offerings that can be of benefit to the
customer as a set, then the product family ad can be of benefit.
• Corporate advertising
When you have a variety of offerings and your audience is fairly broad, it is often beneficial
to promote your enterprise identity rather than a specific offering.

Distribution
You must also select the distribution method(s) you will use to get the offering into the hands of
the customer. These include:
• On-premise Sales involves the sale of your offering using a field sales organization that
visits the prospect's facilities to make the sale.
• Direct Sales involves the sale of your offering using a direct, in-house sales organization
that does all selling through the Internet, telephone or mail order contact.
• Wholesale Sales involves the sale of your offering using intermediaries or "middle-men" to
distribute your product or service to the retailers.
 • Self-service Retail Sales involves the sale of your offering using self service retail methods
of distribution.
• Full-service Retail Sales involves the sale of your offering through a full service retail
distribution channel.
Of course, making a decision about pricing, promotion and distribution is heavily influenced by
some key factors in the industry and marketplace. These factors should be analyzed initially to
create the strategy and then regularly monitored for changes. If any of them change substantially
the strategy should be reevaluated.

The Environment
Environmental factors positively or negatively impact the industry and the market growth potential
of your product/service. Factors to consider include:
• Government actions - Government actions (current or under consideration) can support or
detract from your strategy. Consider subsidies, safety, efficacy and operational
regulations, licensing requirements, materials access restrictions and price controls.
• Demographic changes - Anticipated demographic changes may support or negatively
impact the growth potential of your industry and market. This includes factors such as
education, age, income and geographic location.
• Emerging technology - Technological changes that are occurring may or may not favor the
actions of your enterprise.
• Cultural trends - Cultural changes such as fashion trends and life style trends may or may
not support your offering's penetration of the market

The Prospect
It is essential to understand the market segment(s) as defined by the prospect characteristics you
have selected as the target for your offering. Factors to consider include:
• The potential for market penetration involves whether you are selling to past customers or
a new prospect, how aware the prospects are of what you are offering, competition,
growth rate of the industry and demographics.
• The prospect's willingness to pay higher price because your offering provides a better
solution to their problem.
• The amount of time it will take the prospect to make a purchase decision is affected by the
prospects confidence in your offering, the number and quality of competitive offerings, the
number of people involved in the decision, the urgency of the need for your offering and
the risk involved in making the purchase decision.
• The prospect's willingness to pay for product value is determined by their knowledge of
competitive pricing, their ability to pay and their need for characteristics such as quality,
durability, reliability, ease of use, uniformity and dependability.
• Likelihood of adoption by the prospect is based on the criticality of the prospect's need,
their attitude about change, the significance of the benefits, barriers that exist to
incorporating the offering into daily usage and the credibility of the offering.

The Product/Service
You should be thoroughly familiar with the factors that establish products/services as strong
contenders in the marketplace. Factors to consider include:
• Whether some or all of the technology for the offering is proprietary to the enterprise.
• The benefits the prospect will derive from use of the offering.
• The extent to which the offering is differentiated from the competition.
• The extent to which common introduction problems can be avoided such as lack of
adherence to industry standards, unavailability of materials, poor quality control,
regulatory problems and the inability to explain the benefits of the offering to the prospect.
• The potential for product obsolescence as affected by the enterprise's commitment to
product development, the product's proximity to physical limits, the ongoing potential for
product improvements, the ability of the enterprise to react to technological change and
the likelihood of substitute solutions to the prospect's needs.
 • Impact on customer's business as measured by costs of trying out your offering, how
quickly the customer can realize a return from their investment in your offering, how
disruptive the introduction of your offering is to the customer's operations and the costs to
switch to your offering.
• The complexity of your offering as measured by the existence of standard interfaces,
difficulty of installation, number of options, requirement for support devices, training and
technical support and the requirement for complementary product interface.

The Competition
It is essential to know who the competition is and to understand their strengths and weaknesses.
Factors to consider include:
• Each of your competitor's experience, staying power, market position, strength,
predictability and freedom to abandon the market must be evaluated.

Your Enterprise
An honest appraisal of the strength of your enterprise is a critical factor in the development of
your strategy. Factors to consider include:
• Enterprise capacity to be leader in low-cost production considering cost control
infrastructure, cost of materials, economies of scale, management skills, availability of
personnel and compatibility of manufacturing resources with offering requirements.
• The enterprise's ability to construct entry barriers to competition such as the creation of
high switching costs, gaining substantial benefit from economies of scale, exclusive access
to or clogging of distribution channels and the ability to clearly differentiate your offering
from the competition.
• The enterprise's ability to sustain its market position is determined by the potential for
competitive imitation, resistance to inflation, ability to maintain high prices, the potential
for product obsolescence and the 'learning curve' faced by the prospect.
• The prominence of the enterprise.
• The competence of the management team.
• The adequacy of the enterprise's infrastructure in terms of organization, recruiting
capabilities, employee benefit programs, customer support facilities and logistical
capabilities.
• The freedom of the enterprise to make critical business decisions without undue influence
from distributors, suppliers, unions, creditors, investors and other outside influences.
• Freedom from having to deal with legal problems.

Development
A review of the strength and viability of the product/service development program will heavily
influence the direction of your strategy. Factors to consider include:
• The strength of the development manager including experience with personnel
management, current and new technologies, complex projects and the equipment and
tools used by the development personnel.
• Personnel who understand the relevant technologies and are able to perform the tasks
necessary to meet the development objectives.
• Adequacy and appropriateness of the development tools and equipment.
• The necessary funding to achieve the development objectives.
• Design specifications that are manageable.

Production
You should review your enterprise's production organization with respect to their ability to cost
effectively produce products/services. The following factors are considered:
• The strength of production manager including experience with personnel management,
current and new technologies, complex projects and the equipment and tools used by the
manufacturing personnel.
• Economies of scale allowing the sharing of operations, sharing of production and the
potential for vertical integration.
 • Technology and production experience
• The necessary production personnel skill level and/or the enterprise's ability to hire or train
qualified personnel.
• The ability of the enterprise to limit suppliers bargaining power.
• The ability of the enterprise to control the quality of raw materials and production.
• Adequate access to raw materials and sub-assembly production.

Marketing/Sales
The marketing and sales organization is analyzed for its strengths and current activities. Factors to
consider include:
• Experience of Marketing/Sales manager including contacts in the industry (prospects,
distribution channels, media), familiarity with advertising and promotion, personal selling
capabilities, general management skills and a history of profit and loss responsibilities.
• The ability to generate good publicity as measured by past successes, contacts in the
press, quality of promotional literature and market education capabilities.
• Sales promotion techniques such as trade allowances, special pricing and contests.
• The effectiveness of your distribution channels as measured by history of relations, the
extent of channel utilization, financial stability, reputation, access to prospects and
familiarity with your offering.
• Advertising capabilities including media relationships, advertising budget, past experience,
how easily the offering can be advertised and commitment to advertising.
• Sales capabilities including availability of personnel, quality of personnel, location of sales
outlets, ability to generate sales leads, relationship with distributors, ability to demonstrate
the benefits of the offering and necessary sales support capabilities.
• The appropriateness of the pricing of your offering as it relates to competition, price
sensitivity of the prospect, prospect's familiarity with the offering and the current market
life cycle stage.

Customer Services
The strength of the customer service function has a strong influence on long term market success.
Factors to consider include:
• Experience of the Customer Service manager in the areas of similar offerings and
customers, quality control, technical support, product documentation, sales and marketing.
• The availability of technical support to service your offering after it is purchased.
• One or more factors that causes your customer support to stand out as unique in the eyes
of the customer.
• Accessibility of service outlets for the customer.
• The reputation of the enterprise for customer service.

Conclusion
After defining your strategy you must use the information you have gathered to determine
whether this strategy will achieve the objective of making your enterprise competitive in the
marketplace. Two of the most important assessments are described below.
Cost To Enter Market
This is an analysis of the factors that will influence your costs to achieve significant market
penetration. Factors to consider include:
• Your marketing strength.
• Access to low cost materials and effective production.
• The experience of your enterprise.
• The complexity of introduction problems such as lack of adherence to industry standards,
unavailability of materials, poor quality control, regulatory problems and the inability to
explain the benefits of the offering to the prospect.
 • The effectiveness of the enterprise infrastructure in terms of organization, recruiting
capabilities, employee benefit programs, customer support facilities and logistical
capabilities.
• Distribution effectiveness as measured by history of relations, the extent of channel
utilization, financial stability, reputation, access to prospects and familiarity with your
offering.
• Technological efforts likely to be successful as measured by the strength of the
development organization.
• The availability of adequate operating capital.

Profit Potential
This is an analysis of the factors that could influence the potential for generating and maintaining
profits over an extended period. Factors to consider include:
• Potential for competitive retaliation is based on the competitors resources, commitment to
the industry, cash position and predictability as well as the status of the market.
• The enterprise's ability to construct entry barriers to competition such as the creation of
high switching costs, gaining substantial benefit from economies of scale, exclusive access
to or clogging of distribution channels and the ability to clearly differentiate your offering
from the competition.
• The intensity of competitive rivalry as measured by the size and number of competitors,
limitations on exiting the market, differentiation between offerings and the rapidity of
market growth.
• The ability of the enterprise to limit suppliers bargaining power.
• The enterprise's ability to sustain its market position is determined by the potential for
competitive imitation, resistance to inflation, ability to maintain high prices, the potential
for product obsolescence and the 'learning curve' faced by the prospect.
• The availability of substitute solutions to the prospect's need.
• The prospect's bargaining power as measured by the ease of switching to an alternative,
the cost to look at alternatives, the cost of the offering, the differentiation between your
offering and the competition and the degree of the prospect's need.
• Market potential for new products considering market growth, prospect's need for your
offering, the benefits of the offering, the number of barriers to immediate use, the
credibility of the offering and the impact on the customer's daily operations.
• The freedom of the enterprise to make critical business decisions without undue influence
from distributors, suppliers, unions, investors and other outside influences

Issues Affecting Price

This article addresses a variety of factors that should be considered when establishing a price for
your product or service. These include pricing methods, the impact of your enterprise objectives,
the effects of competition, the influence of the prospect's perception, characteristics of your
product or service, your enterprise resources and environmental influences.

The concept of a 'price' is a worldwide concept. In fact, there are many ways to express the
concept of 'price'. Some of the terms are; assessment, bill, charge, cost, dues, duty, expense,
fare, fee, honorarium, interest, levy, premium, rate, retainer, salary, wage, tariff, tax, tithe, toll
and tuition. I'm sure if you spend a little time you can think of several more. No matter what you
choose to call the 'price' you will charge for your product or service there are a number of factors
to consider when determining exactly how much you should charge.

Types of Pricing
Let's begin with the fact that there are many ways to present the 'price' for a product or service to
the customer. Some of the more well known methods are described below.
• Cost plus a percentage of the cost. (usually service oriented)
• Breakeven, that is, whatever it costs to produce the product or provide the service.
(usually non-profit organizations, but not necessarily)
 • Target profit (eg: make a 20% profit before tax. This implies that you understand all of
your operating costs very well.)
• Perceived value (price to the consumer's expectation)
• Competitive related (price using competitive price as a base)
• Sealed bid (usually construction projects)
• Two part pricing (fixed fee plus variable usage rate eg: telephone service)
• Bundled pricing that combines multiple products and/or services under one price.
• Discounts for cash payment (when cash flow is important)
• Quantity discounts (when volume is important)
• Trade-in price (when there is some residual value for a trade-in item)
• Update price for an improvement to an existing product (this allows you to benefit from
current customer base)
• Discounted price to a reseller (to expand volume through channels of distribution)
• Seasonal discount (to even out volume which allows a consistent production process)
• Sales price(to promote demand, with volume hopefully offsetting reduced price)
• Psychological pricing (eg: to create an impression of a lower price, $199.95 vs $200)
• Geographical/sales site location (eg: varying prices for fuel in different geographical
locations)
• Price plus shipping (catalog/mail order type of sales)

Your Objectives
The objectives that you have set for your enterprise and/or a particular product or service will
have a significant impact on your decisions related to the prices you set. Some examples of
objectives and their influence on pricing decisions are:
• Does this offering require a short term or a long term commitment? IE: Is it a "pet rock"
sort of offering or is it something you can build a business around?
• Do you need to maximize cash flow? If so, are you willing to set your price high to get the
greatest return from each sale at the cost of limiting market share? If not, are you willing
to significantly under-price the competition to sell in volume, generating some cash but
destroying future market potential by lowering price expectations?
• Is it your intent to capture maximum market share or attract customers for sale of other
offerings? if so, are you prepared to take a loss on the sales of your current offering to
build a customer base that will purchase a follow on (potentially much more lucrative)
offering in the future?
• Do you want to price at some point relative to competition (higher, lower or equal) with an
intent of creating a image relative to (different than) the competition?
• Do you have excess inventory? If so, is break even or even a loss on each sale of an
offering more cost effective than having the offering sitting in inventory due to interest
payments, storage costs or time sensitive materials?
• Is it important to attract attention to the product/service? Will volume sales establish a
brand recognition and if so is this more important in the short term than concern for
whether any profit is realized?
• Do you want to price to attract distributors? If so, are you willing to accept significantly
lower profit margins to establish relationships with one or more distributors who will likely
carry future offerings once a relationship has been established?
• Do you want to price to set entry barriers? If so, you must decide whether a low price
(that still makes you some profit) will discourage the entry of new competitors.
• Do you want to price to hurt competition? If so, are you willing (or able) to lower prices
enough to insure that you will increase your market share?
• Are certain price levels necessary to retain customer base, channels of distribution? This
may be a factor if it is your intent to remain in the market over a long period of time with
 numerous offerings. In this case, it may be prudent to maintain low prices which will
encourage relationships with distributors and repeat purchases from your customer base.
• Do you want to establish an image of high value, thus high price? If so, do you have the
resources to have your offering considered the "top of the line" in quality, reliability and
durability and thus a justifiably high price?
• Do you want to establish an image of high value but a low price? If so, do you have the
resources to have your offering considered the "top of the line" in quality, reliability and
durability and still price it at a comparable or lower price than the competition?
• Do you want to maximize profit? Are immediate profit margins more important to you than
building a customer base and creating an image (enterprise, product or service) that will
sustain you in the long run?

Competition
If you are not the market leader in your industry, competitive prices will influence the pricing of
your product or service. Market leaders have often created a "pricing standard" against which
other product/service prices are compared. So if your product or service is reasonably competitive
with the market leader's offering you can set a price that is near the "standard". If you have the
ability to price lower than the competition and still be profitable, you may be able to capture a
greater market share which can benefit you over time as you offer new or complementary
products or services to your customer base.

Your decision to compete with a lower price should not be made lightly. If the competitor perceives
that your low pricing has the potential of reducing their market share or impacting their influence
in the industry, they may respond with an even lower price. Then, instead of increasing your
market share, you could be faced with no opportunity to profitably penetrate the market at all. It
is always of value to know the capabilities and tendencies of your competitors.

A different form of competition is the 'alternative solution'. The prospect's first alternative is
always, if the price is too high, a decision that they really don't need your offering or any of your
direct competitor's offerings. There may also be a variety of ways for the prospect to solve their
problem. For example, if you offer an airline service, you are really in the business of
transportation. So your prospect has the option of your service versus trains, busses, rental
vehicles, personal vehicles, hitchhiking, bicycles, walking or (back to the first alternative) staying
at home. The availability of numerous alternative solutions will usually limit your pricing flexibility.

The Market/Prospect
Understanding the characteristics of the marketplace is an essential factor in establishing a price
for your offering. You should first try to identify the general type of market you will be selling to.

Type of market
• commodity (many buyers/competitors, non-unique products) - minimal pricing flexibility
• uncontrolled (many buyers/competitors, unique products) - maximum pricing flexibility
• controlled (many buyers, few competitors, unique products) - some pricing flexibility
• vertical-low (limited # of buyers, many competitors)
• vertical-high (limited # of buyers, few competitors)
Prospect Characteristics
Then you should learn as many details as possible about the 'typical' prospect in the market you
have targeted. Examples of the kind of detail you should look for are:
• Prospect's perception of your product (positive perception = higher price)
• Prospect's awareness of your product (lack of awareness raises promotion costs)
• Whether product is for a captive audience (eg: razor blades, minimizes marketing costs)
• The criticality of the offering to the consumer (more critical = higher price)
• The ability of the consumer to pay (greater ability = higher price)
• Demand due to seasonal considerations (snow shovels priced lower in the summer)
 • Demand due to geographic considerations (snow shovels in Tahiti are unlikely to sell no
matter how low the price)
• Market trends, fads or changing consumer interests

The Product or Service

There are, of course, many characteristics of your product or service that will influence the price.
• Does your offering provide tangible versus intangible benefits/differences? Offerings with
immediate and tangible benefits will usually support higher prices.
• The uniqueness of your offering versus the competition. Uniqueness usually supports a
higher price if the offering has credibility.
• Whether your offering is one of several in a product/service line. Pricing must be
consistent with the rest of the line.
• Whether your offering is a complement to another product/service. Sales to existing
customers usually reduces marketing costs thus giving greater pricing flexibility.

Your Enterprise
A variety of factors within your enterprise will influence the pricing decision. Some examples are:
• Your cost to produce the offering is clearly the first factor in setting the price.
• The potential for learning curve benefits. That is, will sales volume and time result in lower
production costs thus creating the potential for lower prices?
• Your ability to meet demand. If you have a limited production capacity, you should price
high enough to insure that you don't create more demand than you can satisfy.
• Your cost to deliver, including shipping, warehousing and installing.
• Your cost to promote, including press releases, press tours, ads, literature, demos, etc.
• Your financial resources, giving you the ability to sustain a start-up period of losses.
• The quality and speed of your product/service delivery. If you can deliver quickly and "how
quick can I get it?" is the most critical factor to the prospect then high pricing is likely.

The Environment
In addition to characteristics of your competitors, your prospects and your enterprise there are
more general, environmental factors that can influence your pricing.
• At what point in market life cycle of your offering are you selling? If it is early in the life
cycle you can usually charge a higher price.
• What is the availability, quality and cost of channels of distribution?
• What is the status of the economy (inflation, deflation, varying interest rates)?
• What is the potential for government intervention? Is your enterprise verging on a
monopoly? is your offering important to national stability?
• Are market characteristics such that a lower price will generate a higher demand?
(Elasticity of demand)

Other
There are many other factors that can influence pricing that are difficult to place in any of the
above categories. Some of these are:
• The method of payment you want to extend to the customer. (cash, invoice for 30 day
payment, time payments, no payments until ...)
• The cost for the prospect to switch to your offering from their current solution. Does a high
switching cost imply that you need to price low to offset the switching costs or should you
price high because the prospect has already committed to a high dollar solution?
• What image is most appropriate for your offering to achieve maximum market
penetration? (often higher prices imply higher quality and vice versa)
• Are you able to define price thresholds, upper & lower, where the prospect will consider
the price unreasonable?
 • Is it reasonable to segment the market for different prices? eg: first class vs tourist air
fares, branded vs unbranded offerings, first time buyer vs existing customer.
• Are there special conditions (atmosphere/ambiance) at the time of purchase? For example,
the price for a cup of coffee in a deli is likely to be much lower than for a similar cup in a
Hilton hotel.
• How reliably can you project sales volumes? Reliable volume forecasts typically allows for
better pricing determination.

Market Segmentation
The purpose for segmenting a market is to allow your marketing/sales program to focus on the
subset of prospects that are "most likely" to purchase your offering. If done properly this will help
to insure the highest return for your marketing/sales expenditures. Depending on whether you are
selling your offering to individual consumers or a business, there are definite differences in what
you will consider when defining market segments.

Category of Need
The first thing you can establish is a category of need that your offering satisfies. The following
classifications may help.

For businesses:
• Strategic - your offering is in some way important to the enterprise mission, objectives
and operational oversight. For example, a service that helped evaluate capital investment
opportunities would fall into this domain of influence. The purchase decision for this
category of offering will be made by the prospect's top level executive management.
• Operations - your offering affects the general operating policies and procedures. Examples
might be, an employee insurance plan or a corporate wide communications system. This
purchase decision will be made by the prospect's top level operations management.
• Functional - your offering deals with a specific function within the enterprise such as data
processing, accounting, human resources, plant maintenance, engineering design,
manufacturing, inventory control, etc. This is the most likely domain for a product or
service, but you must recognize that the other domains may also get involved if the
purchase of the product or service becomes a high profile decision. This purchase decision
will be made by the prospect's functional management.

For the individual consumer:

• Social Esteem or Pleasure - your offering satisfies a purely emotional need in the
consumer. Examples are a mink coat or a diamond ring. There are some products that are
on the boundary between this category and the Functional category such as a Rolex watch
(a Timex would satisfy the functional requirement and probably keep time just as well).
• Functional - your offering meets a functional requirement of the consumer such as a
broom, breakfast cereal or lawnmower.

Segmentation of Needs
Then you should establish what the need is and who is most likely to experience that need. Your
segmentation will be determined by a match between the benefits offered by your offering and the
need of the prospect. Some "need" categories for segmentation include:
Reduction in expenses
Prospects might be businesses that are downsizing (right sizing), businesses that have
products in the mature stage of their life cycle or individuals with credit rating problems.
Improved cash flow
Prospects might be businesses that have traditionally low profit margins, businesses that
have traditionally high inventory costs or individuals that live in expensive urban areas.
Improved productivity
Prospects might be businesses that have traditionally low profit margins, businesses that
have recently experienced depressed earnings or individuals with large families.
Improved manufacturing quality
 Prospects might be businesses with complex, multi-discipline manufacturing processes.
Improved service delivery
Prospects might be service businesses in highly competitive markets, product businesses
requiring considerable post-sale support or individuals in remote or rural areas.
Improved employee working conditions/benefits
Prospects might be businesses where potential employees are in short supply.
Improvement in market share/competitive position
Prospects might be new entrants to a competitive market.
Need for education
Prospects might be businesses or individuals looking for books on business planning, or
seminars on Total Quality Management.
Involvement with social trends
Prospects might be businesses concerned with environmental protection, employee
security, etc. or individuals who believe in say 'no' to drugs, anti-crime, etc.
Specific - relating to product/service characteristics
Prospects might be businesses or individuals interested in safety, security, economy,
comfort, speed, quality, durability, etc.
Factors that segment prospects
Having determined the more general segmentation characteristics you can proceed to a more
detailed analysis of the market. There are literally thousands of ways to segment a market, but
the following are some of the more typical segmentation categories.

For businesses:
Industry by SIC code
This is especially beneficial for vertical market offerings.
Size - revenues, # employees, # locations
In general if your offering is highly sophisticated, requires significant resources or provides
greater value based on volume, then the target should be the larger enterprises.
Job position/responsibility
Examples of offerings might be planning software for managers or cleaning agents for
maintenance managers.
Climate
Examples of offerings might be dehumidifiers in areas near the ocean or snow plows in
northern areas.
Time related factors
Some services in this category are vacation related industries in summer and tax planners
in the spring.
Language
An example of a language specific service is a Spanish TV channel.
Status in the industry
You might want to target businesses that are the technology leader or revenue leader or
employee satisfaction leader, etc.
Accessibility
To minimize promotion and sales expense you may want to target urban rather than rural
or local rather than national prospects.
Future potential
A good example is how Apple Computer supplied products to schools at all levels to
condition students graduating into the marketplace.
Ability to make a quick purchase decision
Targeting individual purchasers versus business committees can significantly reduce
marketing expense and increase the probability of a quick close.
Access (or lack of access) to competitive offerings
Cable TV business's significant investment in their service delivery system has allowed a
near monopoly for some time. IBM's service reputation insured minimal competition during
the mainframe days.
Need for customization
Offerings such as police cars, busses for municipalities and specialized computer systems
fall into this category.
Product or service application to a business function
Examples are data processing, accounting, human resources and plant maintenance.
For Individual Consumers:
Physical Size
Offerings might be big men's clothing, golf clubs for shorter players, etc.
Creation of or response to a fad
Examples are hula hoops, Jurassic Park T-shirts, pet rock, physical fitness, etc.
Geographic location
Marketers take advantage of location by selling suntan lotion in Hawaii, fur coats in Alaska,
etc.
Time related factors
You may be able to target vacationers in summer, impulse buyers during the holidays or
commuters at 7AM.
Demographics/culture/religion
Ethnic products would fall into this category.
Gender
Product examples are scarves for women, ties for men, etc.
Age
Product examples are toys for children, jewelry for women, etc.
Social status
This could include country club memberships, philanthropic contributions, etc.
Education
Product and service examples are encyclopedias, scientific calculators, learning to read
tools and financial counseling.
Avocation
This could include products for hunting, fishing, golf, art work, knitting, etc.
Special Interests
You could target cat lovers, science fiction readers, jazz music collectors, etc.
Accessibility
Because the individual is more difficult to reach you may want to segment by urban versus
rural, train commuters, people who read Wall Street Journal, etc.
Access (or lack of access) to competitive offerings
Due to high investment capital requirements or timing of market entry you may be able to
capture a significant market share in a specific geographical area. Examples might be a
trash service, emergency medical support, etc.
Need for specific information
Based on features or content of your offering you can target a market segment. A product
might be books on how to start a business or a service might be seminars on how to quit
smoking.
Need for customization
Product/service examples are home decoration, fashion wear, personal portraits, etc.
Need for quality, durability, etc.
Product examples are mountain climbing gear, carpenter's tools, etc.
Degree of a product/service ingredient
Segmentation based on prospect preferences is common. An example is dark chocolate for
some tastes, light chocolate for others.

Purchase decision influencers

Once you have isolated a specific segment of the market on which to focus, then you can consider
more subtle influences on the purchase decision. Some of these are:
Preference for channel of distribution
Many prospects prefer to buy through a specific distributor or wholesaler. For individuals
this may be due to subtle, as well as, economic reasons. For example, an individual
prospect may immediately think of Wal-Mart or Home Depot when considering an offering
like yours. A business often has a preference so they can have a single communication
point for all purchases. This also often results in lower purchase prices.
Number of decision makers
When selling to consumers or businesses, the more individuals or groups involved in the
purchase decision, the more difficult the sale. Marketing costs for selling bread can stay
low because one person normally makes the purchase decision. Car purchases are more
complex because the purchase decision normally involves a husband and wife. Business
sales to committees often require months to achieve a decision.
Financial strength of the prospect
Less affluent prospects may desire time payments versus a cash purchase and Chevrolets
instead of Cadillacs.
Quantity/volume requirements
 Restaurants will want large jars of pickles while individuals want small jars. Businesses use
large amounts of electricity at predictable times.
Ability to use the offering
Trying to sell to a prospect who lacks either the knowledge or resources to properly benefit
from your offering will result in a 'no sale' situation or an unhappy customer. The prospect
should have knowledge and resources such as time, equipment, facilities, personnel and
complementary products/services.
Commitment required
If the offering requires a high commitment in terms of time, resources or money by the
customer then the target should be prospects who 'really need' the offering rather than
prospects who get some, but not a lot, of benefits.
Brand awareness/users
Examples are prospects who ask for IBM compatible PC's or Pitney Bowes mailing
machines or Winnebago R.V.s
Attitude toward a personality or enterprise
Reputation helps sell AT&T long distance service, IBM computers, Michael Jordan tennis
shoes, etc.
Attitude toward price versus value
For example, purchasers of collectors items aren't price sensitive while purchasers of
commodity items are price sensitive.
Experience with other products/services your enterprise has offered
You are looking for a reaction like "I liked your first product so I'll try your second."
Prospect bias
Examples are, 'Buy USA', I want a car with a 'solid' feel, fast cars, sweet wines, large print
playing cards, etc.
Affiliation with other organizations
Such as the U.S. Chamber of Commerce, AMA, IEEE, doctors, attorneys, pastors,
franchisors, entrepreneurs, etc.
After sale support expectations
It is often beneficial to target prospects who have enough expertise that they will require a
minimum of after sale support.
Seller Characteristics that can influence purchase decision:
Another form of influence is how the prospect perceives your offering and/or enterprise. If you can
determine the characteristics your prospects most value in an enterprise they purchase from, you
can identify those your organization possesses and promote them to the prospect.
Unique employee skills, knowledge
Extensive experience with a specific market segment or field of scientific inquiry can be a
powerful promotional tool. For example if an enterprise could sat, "Our scientists knows
more about corn silk genetic structures than anyone in the world" they would have a
strong sales statement.
Special relationships with distribution channels
Product or service accessibility is a critical factor in sales success. If an enterprise could
say, "Due to a unique relationship, the XYZ video stores give us more shelf space than any
competitor" prospects will likely respond positively.
Customer service capabilities
Prospects like to know that they can depend on post sale support from the product or
service provider. A statement like, "We have more service outlets in New Hampshire than
any competitor" will help secure sales.
Unique product forms
Credible uniqueness such as, "Our product is the only one that offers dynamic digi-
whirling" is appealing to the market.
Manufacturing expertise
The market is always interested in purchasing from the "best". If an enterprise can
confidently state, "We are the only enterprise that can manufacture molecular engineered
widgets", they have created an image of being the "best".
Longevity
Reliability is important. A statement like, "We have been in business for 50 years, so you
can count on us to be there when you need us" is usually a strong selling point.
Purchase Decision Makers
Finally, a point to consider is, given the characteristics of your offering, what type of decision
maker will most likely be interested in purchasing from you. It may be beneficial to rank your
prospects based on the following classifications. While you may not be able to make this
classification of the prospect prior to the first contact, if your sales personnel are sensitive to these
characteristics it can strongly influence your sales strategy.

Ultra Conservative - don't rock the boat, whatever they purchase must be consistent with their
current way of doing things.
• They are most likely interested in products/services that are improvements to existing
offerings rather than something new.
• Once established as a customer they are seldom inclined to review alternatives.
• Very negative to technically complex offerings or offerings requiring extensive user
education.
• Cost effective offerings are only of interest if they don't disturb the status quo.
• They are likely to react positively to any volume purchasing opportunities.
Conservatives - are willing to change, but only in small increments and only in a very cost
effective manner.
• Will consider new products/services but only if related concept has been proven to be
effective. More likely to purchase improvements to existing offerings.
• Will probably want to review competitive offerings, but will gravitate to best known
offering with lowest risk decision.
• Negative to neutral when considering technically complex offerings or offerings requiring
extensive user education.
• Strongly influenced by cost effective offerings and/or 'best price' opportunities
Liberals - regularly looking for new solutions, willing to make change (even major change) if the
benefit can be shown.
• Will usually consider new products/services even if the related concept has not yet been
proven to be effective, but only if the potential benefits can be specified and understood.
• Wants offerings that make effective use of technology, but is not interested in offerings
just because they use a certain technology.
• Will always want to review competitive offerings, but will usually choose the one offering
the greatest benefit, even if there is some risk involved.
• Neutral to positive when considering technically complex offerings or offerings requiring
extensive user education.
• Usually concerned with keeping employees informed and educated, so will often consider
educational offerings.
• Strongly influenced by offerings that most closely deliver the 'end results' desired, even if
they are not the most cost effective.
• Often are on social trend bandwagons so react positively to offerings that address these
needs.
Technical Liberals - enamored with the benefits provided by high tech solutions and any
purchase decision will be biased by the technical content of the offering.
• Usually consider new products/services even if the related concept has not yet been
proven to be effective.
• Often consider just because they use a certain technology.
• Will always want to review competitive offerings, but will usually choose the one offering
the most hi-tech features, even if there is some risk involved.
• Consider themselves technically competent and will expect leading edge use of technology.
• Positive to fanatic when considering technically complex offerings even when requiring
extensive user education.
• Conversion costs usually not a major concern if technical benefits are there.
• Not particularly concerned with keeping employees informed and educated, so educational
offerings are not of great interest.
 • Strongly influenced by offerings that most closely deliver the 'end results' desired, even if
they are not the most cost effective.
Self Helpers - consistently defines/designs solutions to their problems, likes to acquire tools that
help in the innovation process.
• Will usually consider new products/services, but the related concept must have been
proven to be effective.
• Often consider just because they use a certain technology that is relevant to the
development program they have underway.
• Will always want to review competitive offerings, but will usually choose the one offering
the most effective 'do it yourself' features.
• Usually consider themselves technically competent and will expect very effective use of
proven technology.
• Not especially inclined toward technically complex offerings, would rather have user
friendly, but thought provoking, offerings.
• Conversion costs usually not a major concern if offering promises potential for innovation.
• Usually concerned with keeping employees informed and educated, so educational
offerings are of interest.

Income Statement
The following is an example of a Profit & Loss Statement also known as an Income Statement.
Click on any line item label and an explanation will be shown. This is a five year statement,
however, your first year's projections should show monthly figures, the second year, quarterly and
years three through five should show annual figures.
2011 2012 2013 2014 2015
Revenue:
Product/service sales 1,760,000 2,636,000 3,425,000 4,706,000 6,139,000
Maintenance 0 0 0 0 0
Consulting Services 0 0 0 0 0
Royalties 0 0 0 0 0
Interest 0 0 0 0 0
Other 0 0 0 0 0
Total revenue $1,760,000 $2,636,000 $3,425,000 $4,706,000 $6,139,000

Expenses:
Cost of Goods Sold
Salaries 600,000 0 0 0 0
Production Expense 190,000 0 0 0 0
Other 0 0 0 0 0
Gross margin $970,000 $1,496,000 $1,980,000 $2,974,000 $3,914,000
Salaries 755,000 830,000 974,000 1,345,000 1,805,000
Operating Expense 288,000 448,000 580,000 755,000 985,000
Bad debt 0 0 0 0 0
Contributions 0 0 0 0 0
Depreciation 0 0 0 0 0
Loan Interest 0 33,308 27,086 20,280 12,835
Other 0 0 0 0 0
Total Oper. Expenses $1,043,000 $1,311,308 $1,581,086 $2,120,280 $2,802,835
Pre-Tax Income $(73,000) $184,692 $398,914 $853,720 $1,111,165
Pre-Tax (%) -4.15% 7.01% 11.65% 18.14% 18.10%
Tax Provision 0 46,173 99,729 213,430 277,791
Net Profit $(73,000) $138,519 $299,186 $640,290 $833,374

Cash Flow Statement

The following is an example of a Cash Flow Statement. Click on any line item label and an
explanation will be shown. This is a five year statement, however, your first year's projections
should show monthly figures, the second year, quarterly and years three through five should show
annual figures.

2011 2012 2013 2014 2015

Source of Funds
Beginning cash 0 -11,767 143,765 416,274 924,480
Sales/Svcs Income 1,366,986 2,662,548 3,416,123 4,565,616 5,981,959
Sale of Assets 0 0 0 0 0
Customer deposits 0 0 0 0 0
Loans 0 0 0 0 0
Contributed Capital 400,000 0 0 0 0
Available Cash $1,766,986 $2,650,781 $3,559,888 $4,981,890 $6,906,439

Use of Funds
Salaries 1,355,000 1,676,000 2,044,000 2,557,000 3,355,000
Other operating expenses 423,753 759,933 900,245 1,187,340 1,533,432
Loan payments 0 24,910 99,640 99,640 99,640
Capital Expenditures 0 0 0 0 0
Tax Payments 0 46173 99729 213430 277791
Total Cash Out $1,778,753 $2,507,016 $3,143,614 $4,057,410 $5,265,863
Net Cash Flow ($11,767) $143,765 $416,274 $924,480 $1,640,576

Balance Sheet Statement

The following is an example of a Balance Sheet Statement. Click on any line item label and an
explanation will be shown.
2011 2012 2013 2014 2015
Current Assets:
Cash 0 543,765 816,274 1,324,481 2,040,576
Accounts Receivable 393,014 366,466 375,342 515,726 672,767
Inventories 129,863 187,397 237,534 284,712 365,753
Total Current Assets $522,877 $1,097,628 $1,429,151 $2,124,919 $3,079,097
Fixed Assets:
Buildings & Equipment 0 0 0 0 0
Less Accum Deprec. 0 0 0 0 0
Total Fixed Assets 0 0 0 0 0
Total Assets $522,877 $1,097,628 $1,429,151 $2,124,919 $3,079,097

Current Liabilities:
Accounts Payable 54,247 69,621 151,462 259,402 398,805
Short Term Loans 0 72,554 79,361 86,805 94,948
Other short term liabilities 141,630 228,819 251,871 278,769 346,975
Total Current Liabilities $195,877 $370,995 $482,693 $624,976 $840,728
Long-term Liabilities 0 261,114 181,753 94,948 0
Total Liabilities $195,877 $632,109 $664,446 $719,924 $840,728

Stockholder's Equity:
Contributed Capital 400,000 400,000 400,000 400,000 400,000
Retained Earnings -73,000 65,519 364,705 1,004,995 1,838,369
Total Stockholder's Equity $327,000 $465,519 $764,705 $1,404,995 $2,238,369
Liabilities + Equity $522,877 $1,097,628 $1,429,151 $2,124,919 $3,079,097

Financial Ratios
There are many ratios that can be determined from the balance sheet. They are used by bankers,
investors and venture capitalists as indicators of the strength and health of your enterprise. Some
of the more popular ratios are:
Cash Ratio - a measure of the amount of cash available to offset current debt (Cash / Total
Current Liabilities). A ratio below .5 may mean you are having cash flow problems, possibly
because of a significant backlog in accounts receivable.
Quick Ratio - a measure of the amount of liquid assets available to offset current debt (Cash +
Accounts Receivable / Current Liabilities). A healthy enterprise will always keep this ratio at 1.0 or
higher.
Current Ratio - a measure of the degree to which current assets cover current liabilities (Current
Assets / Current Liabilities). A high ratio indicates a good probability the enterprise can retire
current debts. A ratio of 2.0 or higher is a comfortable financial position for most enterprises.
Current Liabilities to Net Worth - a measure of the extent to which the enterprise is using
creditor funds versus their own investment to finance the business (Current Liabilities / Liabilities
+ Equity). A ratio of .5 or higher may indicate inadequate owner investment or an extended
accounts payable period. Care should be taken not to offend your vendors (creditors) to the extent
it affects your ability to conduct day to day business.
Total Liabilities to Net Worth - a measure of the extent that the net worth of the enterprise can
offset the liabilities (Total Liabilities / Liabilities + Equity). A ratio greater than 1.0 should be
avoided, since it indicates the creditor's have a greater stake in the business than the owners.
Fixed Assets to Net Worth - a measure of the extent of an enterprise's investment in non-liquid
and often over valued fixed assets (Fixed Assets / Liabilities + Equity). A ratio of .75 or higher is
usually undesirable as it indicates possible over-investment and causes a large annual depreciation
charge that will be deducted from the income statement.
Fixed Assets to Total Assets - a measure of the extent to which fixed assets are financed with
owners equity (capital) (Fixed Assets / Total Assets). A high ratio, .5 or higher, indicates an
inefficient use of working capital which reduces the enterprise's ability to carry accounts receivable
and maintain inventory and usually means a low cash reserve. This will often limit your ability to

respond to increased Business Term Glossary

The following is a glossary of business terms used in the various software products offered by
Business Resource Software, Inc. If you do not find the term you are looking for in this list you
may find it in a glossary offered by The Washington Post.

Accessory Goods - products required by Licensing agreement - an agreement between two

commercial operations to conduct business, enterprises allowing one to sell the other's products or
such as: office copiers, automobile wheel services and to use their name, sales literature,
balancers, auxiliary power supplies, air trademarks, copyrights, etc. in a limited manner.
compressors, etc.
Liquidity - the percentage of an enterprise's assets
Accounts Payable - short term debts incurred that can be quickly converted into cash.
as the result of day-to-day operations.
Long Term Assets - (sometimes called fixed assets)
Accounts Receivable - monies due your these are usually non-liquid assets that are integral to
enterprise as the result of day-to-day the enterprise's day to day business operations such
operations. as plants, equipment, furniture and real estate.
Accrual Based Accounting - an accounting Long Term Liabilities - all debts that are not current
method that enters income and expenses into liabilities, that is, debts that are not due until at least
the books at the time of contract versus when one calendar year in the future.
payment is received or expenses incurred.
Market Life Cycle - the period of time that a
Assets - all real or intellectual property owned substantial segment of the buying public is interested
by the enterprise that has a positive financial in purchasing a given product or service form.
value.
Market Penetration Pricing Strategy - if near term
Balance Sheet - a statement of assets and income is not critical and rapid market penetration for
liabilities. eventual market control is desired, then you set your
prices very low.
Barriers to Entry - conditions that create
difficulty for competitors to enter the market. Market Share - the percentage of the total sales
For example, copyrights, trademarks, patents, (from all sources) of a service or product represented
dedicated distribution channels and high initial by the sales made by your enterprise. i.e. your sales
investment requirements. divided by total sales
Break-Even Point - the point at which Material Goods - normally raw or processed
revenues are equal to expenses. materials such as coal or steel that will become part
of the purchaser's end product.
Business Services - services offered to
commercial enterprises, such as: equipment Net Profit - total revenues less total expenses.
maintenance, supplying of part time personnel,
Net Worth - assets minus liabilities.
engineering, design and management
consulting, etc. On-Site Sales Method - selling directly to the end
user using a sales force that calls on the prospect at
Capital - the financial investment required to
their home or place of business.
initiate and/or operate an enterprise.
Partnership - a legal relationship between two or
Cash Based Accounting - an accounting
more individuals to conduct a specifically defined
method that enters income and expenses into
business.
the books at the time when payment is
received or expenses incurred. Parts/Sub Assembly Goods - products that will
normally become a part of the purchaser's end
Cash Flow - the transfer of monies into and
product. Examples are screws, bolts, transistors,
out of an enterprise.
printed circuits, electric motors, forgings, castings,
Collateral - assets that can be pledged to etc.
guarantee a loan.
Personal Service at Customer's Site - this service
Convenience Goods - goods often used by can be a one-to-one or one-to-many relationship
the consumer, but the consumer is unwilling to
spend "shopping time" to acquire them. This
covers a broad spectrum of products including
candy, cigarettes, drugs, newspapers,
magazines and most grocery products.
Corporate Image Advertising - a "corporate
image" ad is designed to primarily promote the
enterprise and secondarily promote the
products or services of the enterprise.
Cost of Goods - the direct costs involved in
producing a product or service which usually
includes labor and materials.
Cost of Sales - the cost of goods plus the
expenses involved in selling and delivering the
product or service.
Current Assets - Assets that can be converted
quickly to cash.
Current Liabilities - All debts incurred in the expectations.
normal day-to-day business and due within one
calendar year.
Debt Service - the regular payments required strengths of the product or service and the benefits
to keep a loan current.
Depreciation - The gradual erosion of the
usability and value (possibly due to
obsolescence) of an enterprise's fixed assets.
In some cases depreciation can be declared as
a tax deduction.
Direct Sales Method - selling direct to the
end user with promotional efforts using
advertising, direct mail or telephone sales.
Distributor - an enterprise that purchases
your products for resale to their customers who after they buy they will not be locked into a single
are usually retail outlets. The distributor
expects to receive a significant price discount
for providing the distribution service.
Distribution Channel - the path your product current resources.
follows to be delivered to the end user. This
may be through distributors, retail outlets, self
service outlets, vending machines, telephone
sales, direct mail sales, etc.
Equity - a percentage ownership of an
enterprise, usually in the form of stock.
Fashion Goods - goods where style is
important and price is secondary. These
products could include clothing, jewelry,
furniture, draperies, and dishes, but can
sometimes be stretched into other areas such
as umbrellas, walking canes, cigarette holders,
etc.
Fixed Assets - (sometimes called long term
assets) these are usually non-liquid assets that
are integral to the enterprise's day-to-day
business operations such as plants, equipment,
furniture and real estate.
Fixed Costs - The day-to-day cost of doing
business that is pre-committed, such as
between the servicer and customer, sometimes
dealing with factors that the customer deems
confidential. The service is traditionally provided at
the customer's enterprise. Examples of this type of
service would be: tutoring, consulting, etc.
Personal Service at Servicer's Site - this service is
usually a one-on-one relationship between the
customer and servicer, often dealing with factors the
customer deems confidential. The service is
traditionally provided at the servicer's enterprise.
Examples of this type of service would be: doctor,
lawyer, accountant, educational institution, etc.
Personal Service, Volume - some services deal with
very high volumes but still require the "personal
touch". Examples are airline services or a parcel
delivery service like Federal Express.
Pro forma - financial forms (invoices, P&L
statements, balance sheets, etc.) based on future
Product Benefits Advertising - a "product benefits"
ad is designed to acquaint the prospect with the
resulting from those strengths.
Product Comparison Advertising - a "product
comparison" ad compares the features of your
product or service with those of one or more
competitive products or services with the intent of
showing yours to be more feature rich than the
competition.
Product Family Advertising - a "product family" ad
is designed to convince the prospect that they have a
wide range of functionality to choose from today and
product or service environment in the future.
Production Capacity - the volume of products or
services that can be produced by an enterprise using
Profit Margin - total revenues less total expenses
Proprietary Technology - technology that is unique
and legally owned by an enterprise. The technology
may be integral to the product or service being
offered or it may be used in the production of the
product or service.
Pull Promotional Strategy - a process that requires
direct interface with the end user of the product or
service. Use of channels of distribution is minimized
during the first stages of promotion and a major
commitment to advertising is required. The objective
is to "pull" the prospects into the various channel
outlets creating a demand the channels cannot
ignore.
Push Promotional Strategy - a process of
maximizing the use of all available channels of
distribution to "push" the product or service into the
marketplace. This usually requires generous discounts
to achieve the objective of giving the channels
incentive to promote the product or service, thus
salaries, insurance, lease expenses, utilities, minimizing your need for advertising.
etc.
Retained Earnings - profits retained by the
Full Service Retail Sales Method - selling enterprise rather than disbursing to the shareholders.
from a sales outlet directly to the end user at Retained earnings are used to improve the value of
retail prices with sales personnel who can the enterprise through development and /or
explain the purpose and value of the product or promotional programs.
service.
ROI - (Return on Investment) Net Profit divided by
Gross Profit - revenues less cost of sales. Net Worth. A financial ratio indicating the degree of
profitability.
Impersonal Service at Customer's Site -
this service usually involves working with the Service/Product Mix - this business, while involving
customer's property and seldom deals with both service and product, is distinct in that the quality
factors that the customer deems confidential. of the service is often more important than the
Examples of this type of service would be: lawn product received. Examples of this type of service
service, typewriter repair, office cleaning, would be: fast food, catering, telephone, etc.
trucking service, etc.
Self-Service Retail Sales Method - selling from a
Impersonal Service at Servicer's Site - this sales outlet directly to the end user, usually at prices
service usually involves working with the lower than full retail price. There are usually no sales
customer's property and seldom deals with personnel to explain the purpose and value of the
factors that the customer deems confidential. product or service.
The service is traditionally provided at the
Service Goods - goods viewed by the consumer as
servicer's enterprise. Examples of this type of
competitive products offering a standard "service"
service would be: auto mechanic, TV repair,
and are basically similar, so they will "shop" to get
etc.
the best price. This would include such products as
Impersonal Service, Volume - this type of lawnmowers, refrigerators, television sets,
service is usually designed such that the same automobiles, etc.
service will satisfy the needs of all customers.
Skimming Pricing Strategy - if you desire quick
It is often the case that the servicer and the
cash and have minimal desires for significant market
customer never meet. Examples of this type of
penetration and control, then you set your prices very
service would be: classified ads, storage
high (this is sometimes called "skimming").
lockers, money changers, etc.
Sole Proprietorship - an enterprise that is owned by
Income Statement - (sometimes called Profit
a single individual.
& Loss statement) a statement of revenues and
expenses. Specialty Goods - goods that appeal to a large
segment of the buying public and are considered
Installation Goods - products requiring large
"special" enough that the consumer will specifically
and expensive capital investments that will
ask for the product. For instance, if you invented a
have a long life. This could include homes,
cigarette that tasted good and was also proven to be
office buildings, manufacturing facilities, and
good for your health, people would probably ask for
other types of commercial facilities or
the "healthy cigarette" (even if they didn't know the
equipment such as tractors, printing presses,
name). The type of product is not the issue, but
cranes and robotic assembly line processors.
rather whether the product is "special" enough that
Intangible Assets - non-physical assets such the consumers will "seek it out."
as patents, trademarks, a customer base,
Strategic Relationships - an agreement between
brand recognition of your products, etc. This is
two or more enterprises to conduct specified business
sometimes called goodwill.
processes in a joint manner. Usually related to
Inventory Turnover - a ratio for evaluating technology development and/or marketing and
sales effectiveness. For a given accounting distribution efforts.
period divide total revenue for the product by
Supplies Goods - production support products that
the average retail value of the product
will not become a part of the purchaser's end product.
inventory.
Examples are drill bits, machine lubricants, wiping
rags, etching chemicals, pencils, paper, paper clips,
etc.
Trademark - the name of a product or service that
has been legally registered as the property of an
enterprise.
Unsought Goods - products that are usually
purchased due to adversity rather than desire. For
example, coffins, crutches, and medicine are all
 unsought goods. Another form of unsought goods are
products such as life insurance and encyclopedias.
They are products that the consumer seldom goes out
looking for, therefore, a constant, aggressive selling
process is required.
Vertical Integration - the potential within an
enterprise to incorporate all aspects of management,
production, sales and distribution into their business
operations. In theory, the greater the vertical
integration, the less vulnerable an enterprise is to
outside forces.
Wholesale Sales Method - selling to distributors at
significantly discounted prices who in turn sell to full
service or self service retail outlets.
Working Capital - the cash available to an
enterprise for day-to-day operations.

demand for your products or services.