Internet Advertising, Business Plan Example

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Business Plan

Executive Summary

New York City, New York based InAd (derived from Internet Advertising) is an advertising agency which has been founded on the conviction that internet advertising is the next big frontier and those who can offer effective marketing solutions to their clients have ample growth opportunities. InAd’s founders believe that the brands need to find ways to engage customers to build long-term relationships because the competition will only grow due to globalization.

InAd’s mission is to be a one-stop advertising solution center for its clients. The company’s objective is to provide every service from building marketing campaigns to placing ads and helping marketers interact with their customers. InAd’s management believes that InAd will be the first advertising agency with a major focus on internet advertising as compared to other media, thus, the company’s goal is to become the market leader in internet advertising solutions. The management is focused on achieving competitive advantages through better proprietary advertising platform, customer service, and better marketing returns for the clients. Instead of random marketing promotions, the company will provide focused marketing solutions to our clients.

InAd’s first key to success will be its revolutionary advertising platform codenamed IER (Interact, Engage, Relate). IER will also hold research data which will be made available to the clients to help them better understand their customers. InAd hopes to build a valuable data repository because its business model also gives incentives to the customers to interact with their favorite brands. InAd’s second key to success will be its customer service. InAd will provide satisfaction guarantee to all of its clients and will provide them tools to measure the returns on their marketing budget. InAd’s third key to success will be its first-mover advantage since it will be the first advertising agency with a major focus on the internet marketing. The company will focus on other media such as print, TV, and radio, too but most of its human and financial capital will be allocated to building capabilities in internet marketing.

Company

The advertising industry is currently undergoing a fundamental change to its business model.  The traditional mass marketing model used in the early days of television has not been relevant for years.  In the late 1990s, advertisers shifted to a targeted marketing model but are now evolving to a relevancy-based model that relies heavily on the Internet.  According to a report by Parks Associates, “The promising aspect [of this new model] is that the transition from household coverage to individual delivery allows ad dollars to be more effectively spent, and because these ads are highly relevant at an individual level, advertisers should see better response rates or brand impressions.” (Wang H. Parks Associates, 2005).

This transition is also affecting the validity of traditional media which have been slow to adapt to the advances.  As a result, advertisers are seeking an alternative method of conveying their messages.  New, focused and accountable advertising like that developed by InAd will be part of the next wave in advertising, allowing for customized, targeted marketing to specific demographic groups. GroupM, an international media-buying conglomerate projected in 2007 that 2008 U.S. advertising spending would increase by 3.7% to $168.6 billion while worldwide spending would grow by 6.8% to $479 billion (GroupM, 2007). Similarly, Carat which is Europe’s largest media-buying firm projected in 2007 that online ad spending will again grow in every county in 2008.  Carat, part of Britain’s Aegis group, forecasted 2008 global growth of 6.4%.  Online, it says, “will continue to outgrow the rest of the industry by some margin, but we would also expect to see increasing impacts from new hardware and technologies, including 3G, HD radio and multi-casting and IPTV and other forms of interactive broadcasting.” (Carat, 2007).

Almost four years later, we realize that many of the projections made in 2007 were quite on the mark. The shift towards internet advertising has only been growing if the latest reports are any indication. About two-third of the 45% mobile advertisers on the Millennial Media network targeted local audience in the third quarter of 2011 which is a 50% quarter-over-quarter increase. Jumptap reported in September that location-based targeting remained the most popular method used to reach consumers on its network (Marketing Charts, 2011). These trends confirm the company’s management convictions that internet advertising as well as local-based marketing will continue to provide ample growth opportunities.

Similarly 60% of local TV advertisers expect their digital advertising spending to grow this year as compared to last year. According to First-Half 2011 SMB Advertisers Survey, this is twice the rate of those who expect their TV advertising to grow and almost three times the rate of those who expect an increase in radio and direct mail spending (Marketing Charts, 2011). Thus, InAd is in a strong position to exploit the emerging opportunities in digital advertising by taking advantage of its proprietary IER advertising platform.

InAd will begin as a private company. The founders that will also be part of the management will retain 90% of the ownership while selling the rest 10% stake for $5 million. The company plans to avoid debt funding, at least in the early years of its existence and does plan to go public at some time in the future to fund its future growth including overseas expansion. The company’s headquarter will be located in New York City, NY but the management hopes to open branch offices in San Francisco, Chicago, and Dallas in the next ten years. The management hopes to build a data storage facility sometime in the near future but for the time being, will rent network data storage from Amazon.com to host its IER advertising platform. The management wants to have a more reliable idea of its future growth before it commits itself to the construction of company’s own data storage warehouse.

As far as the management structure is concerned, InAd will be led by a Chairman/President, Chief Executive Officer (CEO), Chief Financial Officer (CFO), Chief Technology Officer (CTO), and Chief Marketing Officer (CMO). The Chairman/President has been working with the CEO in setting company’s strategic visions and building relationships with the potential clients. The Chairman/President and the CEO have extensive industry experience and will be instrumental in leading the company through the initial stages and effectively deploying its human and financial capital.

The CFO has twenty years combined experience in advertising sector as well as investment banking. The CTO has extensive software development experience, with specific project management and integration capabilities. He will be responsible for developing the company’s technologies as well as overseeing the integration of various technology suppliers. CMO will work closely with the CEO to promote the company as well as build clientele. Below is given the company’s five year personnel forecast:

Personnel Forecast

  Year 1 Year 2 Year 3 Year 4 Year 5
Personnel Count  
Chairman/President 1 1 1 1 1
CEO 1 1 1 1 1
CFO 1 1 1 1 1
CTO 1 1 1 1 1
Marketing 1 1 1 1 1
Chief Visionary 3 3 3 3 3
Consultants 3 3 3 3 3
Assistants 4 4 4 4 4
Total Personnel 15 15 15 15 15
Personnel Wages  
Chairman/President  $    120,000  $    126,000  $    132,300  $    138,915  $    145,861
CEO  $    120,000  $    126,000  $    132,300  $    138,915  $    145,861
CFO  $      80,000  $      84,000  $      88,200  $      92,610  $      97,241
CTO  $    250,000  $    262,500  $    275,625  $    289,406  $    303,877
Marketing  $    120,000  $    126,000  $    132,300  $    138,915  $    145,861
Chief Visionary  $    120,000  $    126,000  $    132,300  $    138,915  $    145,861
Consultants  $    120,000  $    126,000  $    132,300  $    138,915  $    145,861
Assistants  $      50,000  $      52,500  $      55,125  $      57,881  $      60,775
Personnel Costs  
Chairman/President  $    120,000  $    126,000  $    132,300  $    138,915  $    145,861
CEO  $    120,000  $    126,000  $    132,300  $    138,915  $    145,861
CFO  $      80,000  $      84,000  $      88,200  $      92,610  $      97,241
CTO  $    250,000  $    262,500  $    275,625  $    289,406  $    303,877
Marketing  $    120,000  $    126,000  $    132,300  $    138,915  $    145,861
Chief Visionary  $    360,000  $    378,000  $    396,900  $    416,745  $    437,582
Consultants  $    360,000  $    378,000  $    396,900  $    416,745  $    437,582
Assistants  $    200,000  $    210,000  $    220,500  $    231,525  $    243,101
Total Payroll  $ 1,610,000  $ 1,690,500  $ 1,775,025  $ 1,863,776  $ 1,956,965

The above forecasts assume that the company will not need any expansion in its personnel for the first five years and the current human capital will be able to meet any expected growth. In addition, the wages will increase by 5% each year in order to keep pace with general increases in cost-of-living. As the above table shows, InAd’s personnel cost will increase from about $1.6 million in its first year to approximately $2 million in its fifth year of operations.

InAd will be in the business of providing marketing solutions to its clients with a major focus on the internet. Though clients will have the option of buying selected marketing services, InAd believes that most clients will hire the company to develop and manage their entire marketing campaign. InAd will provide the service to its clients seeking complete advertising package in two stages: 1. Building Campaign 2. Interaction/Engagement with consumers.

Building Campaign:

InAd believes in being able to utilize various channels to deliver a message and as such will provide numerous options to clients to reach a targeted market. The solutions for the clients will be created in in four steps:

Create a campaign on IER advertising platform Client will be given access to IER to specify features that he would like to be incorporated into the campaign.

Recommend a solution to Client or let the client choose its own solution InAd will look at the client’s budget and requirements and recommend appropriate solutions including market channel that would be most effective. The final solution will of course be decided by the client.

Users will be notified of the client’s campaign The targeted audience will be informed about the new advertising campaign and invited to interact with it as well as provide feedback. The users will of course be motivated by the opportunity to earn income.

Detailed reporting A detailed report will be compiled for the clients, customized according to client’s requirements. The client will be able to access information including but not limited to state/province, gender, and income group.

Interaction/Engagement with Consumers:

InAd will make it possible for client’s targeted market to interact with client’s advertising campaigns. Allowing clients to be able to target their campaigns will only be the start of what InAd will do for clients. InAd will get clients’ targeted markets to interact with clients’ advertising messages and ensure that consumers engaged with their brand for extended periods of time. Consumers will interact with clients’ messages on various marketing channels including but not limited to:

Internet Direct Mail
TV Commercials In-Store Advertising
Radio Print Media
Mobile Devices Outdoor Advertising

Many major media companies deliver billions of banner ads per year and yet they cannot offer media buyers and advertisers the same results that InAd will provide. With banner ads, there is no way to tell who will view it and if clicked, how the customers will interact with the brands’ messages. The banner ads also do not provide any detailed data to the advertisers. InAd’s approach will provide detailed data, thus, ensuring a higher return on marketing budgets.

Market Analysis

InAd plans to target large companies and small businesses which focus on local markets. InAd has classified its customer base is divided into two segments: businesses and consumers.  InAd will have a unique position in the market due to its ability to serve small local merchants as well as established companies equally well.  Local or small merchants often find it difficult to compete with large advertisers and InAd will present them an attractive proposition. But InAd will primarily target major media-buying companies because it expects them to account for the bulk of the company’s expected revenues.

Businesses

Large:  InAd will target large companies which are interested in going beyond basic methods of advertising and creating a meaningful and highly targeted online and offline video commercial campaign.  The time and resources required to develop a full-scale video advertising campaign will limit InAd’s customer base to companies with large scale advertising budgets and the ability to produce high quality commercials and demographic-specific marketing material.

Small:  InAd will also target small businesses that desire to advertise their products or services to a limited geographical demographic.  These customers will have the opportunity to target their goods and services at highly specific demographic groups who reside near or close to the physical locations of the advertising business. Zip-Codes may serve as important criteria in this regard. The ability to target consumers in need of the product or service located within a short distance is the key to capturing this market.  These smaller businesses will be able to choose advertising medium that best suits their needs and requirements.

Consumers

Advertisers direct the majority of their efforts toward individuals in the age group between 18 and 49 due to this group’s discretionary spending habits and socioeconomic influences.  These individuals have participated in the technological revolution that began in the late 1970s; they are computer literate, interested in technology, and exhibit a diverse taste for a wide range of entertainment and informational content (Wang H. Parks Associates, 2005).  Within this group, today’s teenagers have been surrounded by technology since they were born and it is an integral part of their lifestyle.  Cell phones, iPods, instant messaging, text messaging, blogging, YouTube – teenagers are doing it all today.  According to Glovin, “An overwhelming 95% of today’s teenagers use instant messaging, own their own mobile phone, or have a broadband connection at home, and more than one third have all three (Golvin, 2007). These groups will be targeted for their technological savvy, since they will be most receptive to trying out new ideas, such as using their cell phones and the Internet to view ads and earn money doing so.

The Industry

Internet has changed the structure and dynamics of advertising industry. Not only has it provided marketers with more options to reach customers but has also made data collection possible in ways that would have been unthinkable even two decades ago. These greater reserves of data have played a major role in the growth of internet advertising and, thus, it is not surprising that internet advertising grew from only $6.01 billion in 2002 to $21.21 in 2007. Even more impressive is the growth in behaviorally targeted online ad spending which grew from $350 million in 2006 to $1.7 billion in 2010 (GrabStats). Jeff Hirsch, President and CEO of Audience Science estimates that behaviorally targeted online ad spending will exceed search marketing by 2020 and will account for 60% or about $30 billion of the total $50 billion total online ad spending in 2020. Audience Science expects that 85% of online advertisers will use behavioral targeting by 2020 (Walsh, 2009).

Competitors 

As far as competitors are concerned, InAd’s primary competitors will be Omnicom Group, WPP Group, Interpublic Group, and Publicis Groupe.

Omnicom Group

Omnicom Group is the world’s largest advertising agency company. The Group’s revenue increased by 7% from $11.7 billion in 2009 to $12.5 billion in 2010. Organic revenue, which factors out currency changes and acquisitions, rose by $749.1 million or 6.4%.  The Group’s net income rose by 4.4% from $793 million in 2009 to $827.7 million in 2010 and diluted earnings per share jumped 6.7% from $2.53 per share to $2.70 per share.  Brand advertising accounted for 45% of the company’s 2010 revenue while marketing services accounted for the rest 55%. Similarly, U.S. accounted for 53% of the revenue while the rest of the world accounted for 47% (Omnicom Group).

WPP Group

WPP Group is ended 2010 with total revenue of approximately $7.12 billion (WPP). The Group employs over 141,000 people in 107 countries and services 300 of the Fortune Global 500, 29 of the Dow Jones 30, and 61 of the NASDAQ 100 companies (WPP). WPP generated 39.2% of its global revenues from advertising and media and the rest 60.8% came from marketing services such as consumer insight, public relations, and branding etc. (WPP).  By the first half of the year 2010, North America accounted for 35.7% of Group’s total revenue, U.K. accounted for 12.2%, Western Continental Europe accounted for 26.2%, and Asia Pacific, Latin America, Africa & Middle East and Central & Eastern Europe accounted for 25.9% of revenue (WPP).

Interpublic Group

Interpublic Group earned a total revenue of $6.53 billion in 2010. U.S. accounted for 56.8% of the Group’s total revenue, U.K accounted for 7.2%, Continental Europe accounted for 13.2%, Asia Pacific accounted for 9.8%, and Latin America and the rest of the world accounted for the remaining 13% (Interrepublic). This makes Interpublic, the most reliant on the U.S. market among the Big Four agency firms even though Omnicom Group with 53% is not much behind. The Group’s top ten clients accounted for 24% of the total revenue in both 2009 and 2010, thus, a loss of even one major client may have a material impact on the company’s financial performance. As of 31 December 2010, the company employed 41,000 people out of which 18,000 were based in the U.S. (Interrepublic).

Publicis Groupe

Publicis Groupe is the world’s fourth-largest agency company and pulled in total revenue of approximately $7.47 billion in 2010 on which it earned approximately $725 million net profit (Bloomberg BusinessWeek). The Group achieved an organic growth of 9.9% year on year in North America and 6% in Europe in 2010. Asia Pacific enjoyed an organic growth of 7%, Latin America enjoyed 13.7%, and Africa and Middle East enjoyed an organic growth of 4.8% in the same period. Of all the Big 4 agency firms, Publicis Groupe is the most dominant in digital technology as a proportion of overall operations and the Group has set a target of achieving 35% of total revenue over the next three years from digital operations. In addition, the Group also plans to boost its share of overall revenue from emerging markets to 30% over the next three years (Sweney, 2011).

Market Strategy

4Ps (Product & Place): InAd’s IER advertising platform is currently in beta trial version after going through a development period of two years. IER maintains a large database of users’ data all of whom have provided voluntary information to the company in exchange for an opportunity to earn income. Users have an opportunity to make money in several ways including incorporating advertising messages in their e-mails. Users are also invited to watch advertisements in both electronic and print media and then answer the questions about the advertisements on InAd’s website after signing-in through their user accounts. This information is made available to the advertisers who have the opportunity to find out detailed data on the viewers who watched their advertisements as well as their opinions on the advertisement. This is a more focused approach to reaching customers as compared to the present system where advertisers can only guess as to who may watch their advertisements and what they may think about the advertisements.

InAd’s IER advertising platform is one of the very few of its kind in the global advertising industry that is able to:

  • Drive targeted consumers to clients’ advertising campaigns across multiple media channels.
  • Get clients’ target market to interact with the advertising campaign and keep the consumers engaged.
  • Provide accurate measurement and accountability reporting. To further illustrate the point, InAd is able to tell a client how many minutes a certain target market spent engaged in their brand and what aspects of the advertising campaign generated the most enthusiasm.

The clients will be able to target their market according to the following one or more criteria:

Geographic Gender
Global Male
Continent Female
Country Misc.
Province/State Race Income
City Eye Color
Age Hair Color
Specific Age Hair Type
Age Range Height
Lifestyle Hobbies
Income Favorite TV Shows
Education Level Many Others

The clients are able to promote their products/services through different communication channels including Internet, TV, Radio, Print, Social Media, and Digital Communication.

4Ps (Price):

For simplicity purposes, InAd has divided its services into four categories which are General, Research, Email, and Gaming. Email and Gaming are self-explanatory while Research refers to clients’ access to data gathered by the IER advertising platform. For these three categories, InAd will charge 10 cents per consumer. All of the other services come under General and will be charged at a rate of $100 per labor hour. This means that if four employees are working on a specific project for the client, the rate charged would be $400 per hour because the work is equal to four hours if done by a single labor unit. General includes everything including customized market research for the client instead of mere access to statistical data already collected by IER advertising platform, ad development, and advising the client on appropriate marketing channels. The pricing list is presented in the table below for a quick reference:

Price List

Product Price Unit
   
General  $        100 Labor Hour
Research  $         0.1 Person
Email  $         0.1 Person
Gaming  $         0.1 Person

4Ps (Promotion):

InAd will market itself through different marketing channels including internet, TV, and Email advertising. In addition, the company will also strive to provide exemplary customer service to its clients and hopes that work-of-mouth marketing becomes its greatest promotional weapon. The marketing budget will increase each year as company’s revenue expands. From second year through fifth year, the management expects to allocate two percent of the projected revenues to advertising in order to increase brand awareness.

Sales Targets and Projections

InAd’s management comes with extensive experience in advertising industry and will spearhead the company’s initial efforts to secure clients and build relationships. In its first year of operations, the company will be more focused on marketing itself, increasing brand awareness, establishing an organizational structure, and developing competitive strategies and future objective. The specific sales’ goals for the first three years are presented in the graph below:

  Year 1 Year 2 Year 3
Goal Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Achieve $1 Million in Annual Sales          
Secure at least One Client from Fortune 500          
Secure at least Five Clients from Fortune 501          
Exceed $2 Million in Quarter Sales    
Exceed $15 Million in Annual Sales          
Exceed $50 Million in Annual Sales                        

InAd hopes to exceed $1 million in sale revenue in its first year of operations. From second year onwards, the company will be lot more aggressive in terms of sales targets and plans to earn at least $2 million revenue in the first quarter of the second year. The company expects to earn an annual revenue in excess of $15 million in its second year and exceed $50 million in its third year of operations. The sales’ targets for second and third year may appear overly aggressive as compared to the first year but the management believes that these sales targets are achievable given the expected future growth in internet advertising. First year goal is moderate because the company will just be starting and it will take time to establish clientele and build relationships. The company hopes to have secured at least one Fortune 500 client in its first year of operations because it will be a huge strategic promotion for the company. The management aims to add at least five more Fortune 500 clients in its second year of operations. The benefit of securing Fortune 500 clients is that they often have huge marketing budgets and usually operate in multiple markets. In addition, they often have a wide selection of products/services.

The sales forecast is given below. InAd expects its total revenue to increase from a little over $1.5 million in its first year of operations to nearly $196 million by the end of the fifth years. This projection is not far-stretched because internet advertising is enjoying the highest rates of any marketing medium and InAd will be in a strong position to establish itself as one of the major players if not a leader in internet marketing.

Units Year 1 Year 2 Year 3 Year 4 Year 5
General                  8,000                  40,000                120,000                240,000                360,000
Research          1,500,000            7,500,000          22,500,000          45,000,000          67,500,000
Email          2,000,000          10,000,000          30,000,000          60,000,000          90,000,000
Gaming                50,000                250,000                750,000            1,500,000            2,250,000
Total Units  $      3,558,000  $      17,790,000  $      53,370,000  $   106,740,000  $   160,110,000
   
Unit Price Year 1 Year 2 Year 3 Year 4 Year 5
General  $                  100  $                    500  $                    500  $                    500  $                    500
Research  $                   0.1  $                     0.1  $                     0.1  $                     0.1  $                     0.1
Email  $                   0.1  $                     0.1  $                     0.1  $                     0.1  $                     0.1
Gaming  $                   0.1  $                     0.1  $                     0.1  $                     0.1  $                     0.1
   
Revenue Year 1 Year 2 Year 3 Year 4 Year 5
General  $         800,000  $      20,000,000  $      60,000,000  $   120,000,000  $   180,000,000
Research  $         150,000  $            750,000  $        2,250,000  $        4,500,000  $        6,750,000
Email  $         200,000  $        1,000,000  $        3,000,000  $        6,000,000  $        9,000,000
Gaming  $              5,000  $              25,000  $              75,000  $            150,000  $            225,000
Total Revenue  $      1,155,000  $      21,775,000  $      65,325,000  $   130,650,000  $   195,975,000

Implementation Strategy

Advertising agencies, media buyers, and publishers are always on the lookout for novel and fresh ways to convey their message to their target demographic, even if that means they must pay to have their message heard.  InAd has created a convenient and easy way for advertisers and consumers to connect and exchange information through a user-friendly online platform.  The company will penetrate the market by reaching all types of advertisers, specifically online advertisers.  However, the company’s technology can cross all media formats, including print, radio, and television.

With its brand and guiding principles established, InAd will exemplify its mission and goals, build client loyalty, and persuade advertisers and consumers to utilize its services.  Advertisers need another outlet to divulge their message and product, hence, InAd’s purpose will be to enable advertisers to receive valuable demographic information to spearhead their advertising campaign.  The company has created a comprehensive advertising campaign that will exercise a strategic fusion of online and traditional publicity channels aimed to cultivate a strong and respected corporate reputation in the marketplace.  Furthermore, as InAd becomes aware of changing market needs and trends, it will adjust its advertising campaign to reach new users.

InAd intends to achieve the following business objectives:

  • Change the way advertising is presented around the world.
  • Build a base of users that is large enough to sustain business
  • Generate enough revenue to expand operations and open more offices
  • Position itself as the premier online platform for advertisers

InAd’s management realizes that it is up against competitors with extensive experience and vast resources but the management is confident that the company will be able to carve out its own place in the intensely competitive advertising industry. This is because none of the competitors such as Omnicom, WPP Group, Interpublic, and Publicus are focused primarily on serving the online advertising community.  Although these advertising conglomerates have made a name for themselves, none of them take a novel approach at producing accurate demographic data for their clients.  InAd’s website understands the predicament faced by advertisers, and has introduced a website that promises results.  The company will capitalize on its competitors’ weaknesses by building on the following strengths:

  • Banner impressions and cost-per-click (CPC)
  • Engages advertiser and consumer
  • Promises to show real results
  • Far higher return on investment
  • Bridges gap between online and offline media
  • Narrows marketing campaigns on specific demographic
  • Can be utilized through mobile phones
  • Seamlessly integrates into other media channels

InAd will generate interest for its website and IER technology by utilizing a variety of direct and indirect advertising channels that will increase the company’s exposure among its target audience of advertisers, media buyers, and publishers. InAd will also rely on viral discussion of its advertising services to fuel business growth and bolster brand awareness.  The marketing channels to be employed are further described in detail below:

Online Marketing Channels

Website:   InAd’s website (www.InAd.com) will serve as the company’s primary platform for garnering business. The website will include a variety of features such as:

  • Internet advertising: To increase online traffic, the company will use a combination of Internet advertising including cost-per-click, Google Ad-words, tags, banner ads, and search engine optimization of its website. This approach will help increase InAd’s awareness among the online business community as well as the general public.
  • E-mail: InAd will send out regular e-mail alerts via its website. Clients will be able to sign up for free e-mail news and promotion letters by registering through the company’s website.
  • S. Stock Exchange: InAd plans to be listed on NASDAQ’s website as well as the American Stock Exchange at some point in the near future.  Its presence in the stock market will help increase overall brand awareness in the marketplace.

 Traditional Marketing Channels

  • Word of mouth: During the startup phase, InAd will heavily rely on viral marketing to boost sales in order to fuel growth. The company will strive to differentiate itself from the competition on the basis of customer service and quality of service. As businesses observe the quality of InAd’s services, they will engage in the viral discussion of its product, resulting in additional traffic on the company’s website as well as increased service inquiries.
  • Television: Television is a great marketing channel to reach a large target population on a national level. This is why InAd plans to advertise on local cable station affiliates such as CW, Fox, CBS, NBC, and ABC etc.

Radio spots:   InAd will capitalize on drive-time radio advertising spots such as early morning and early evening to promote its brand and services.

In addition to taking advantage of their own extensive experience, the management team also plans to hire outside consultants to help them identify opportunities as well as avoid potential pitfalls because the field of internet advertising is still relatively new and customers may have needs that are not being served by the current marketplace.

InAd’s management has set up certain objections that the company intends to meet in the near and distant future. The objectives have been categorized as short term and long term. Short term goals are those that the company intends to achieve in their first five years of its operations and long term goals extend beyond the first five years. These are the founding goals and of course, the management will modify and possible add additional goals over time. The short term and long term goals have been presented in tabular form below:

Objectives First 5 years Beyond 5 Years
   
Annual Growth Rate At least 5 times the industry rate At least 10% more than the industry
Client Retention Rate 85% 90%
Client Satisfaction Rate 95% 99%
Advertising Industry Share 5% and Increase
Internet Advertising Share 5% 15% and Increase
Legal Form Private Company IPO not before 10 years

It’s easier for a business to achieve high growth rates in its early years which may explain management’s aggressive growth ambitions in the early years. The management believes that the target is achievable because in addition to the company being a new entrant, the advertising industry and particularly, internet advertising will also enjoy explosive growth rates in the near future. In the long term, management hopes to achieve growth rates that are at least 10% higher than the industry average. Similarly, the management hopes to achieve 85% client retention rates and 95% client satisfaction rates in its early years and hope to improve them as it learns through experiences and is better able to understand its clients’ needs. The management has not set a particular target in terms of short term general market share because the management is still learning about the competitors and a more reliable estimate could only be generated once the company has been in business for a while. But in the long term, the company is targeting a minimum market share of 5% and will work to improve it over time. Since internet advertising will be the company’s primary focus and in addition the internet advertising sector is still in infancy, management hopes to achieve at least 5% market share of internet advertising in the short term. The company’s ultimate goal is to become a leading market player in the long term with at least 15% market share. Going public does have its advantages but it also has its fair share of distractions. This is why the management has decided to keep the company private for at least a decade and work upon improving its operations and solidifying its position in the market instead of being distracted by market’s expectations regarding earnings and stock price. The management is also focused upon maintaining low debt level which is why most of the future expansion will be funded by company’s retained earnings.

The management has established certain guidelines in order to closely monitor the company’s performance over the years. These include comparing company’s performance in areas such as client satisfaction rates, client retention rates, profit margins, and efficiency measures like asset utilization rates and comparing them with the industry leaders including Omnicom Group, WPP Group, and Interpublic Group, and Publicis Groupe. The goal will be to at least equal the performance of industry leaders in the short term and exceed them in the long term. Wide deviations will be investigated by investigation committees and the reporting communicated to all the relevant parties. Similarly, impressive performance in one or more of the above mentioned areas will also be studied to determine company’s strengths and take further advantage of them. The company’s performance will be compared with the competition on a monthly basis by the management and additional reviews could be arranged if required by the existing circumstances.

Financial Projections

1st Year Revenues and Expenses

  Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Revenues  $                    –  $                    –  $       50,000  $       75,000  $        100,000  $        150,000  $        130,000  $        130,000  $        130,000  $        130,000  $        130,000  $        130,000
   
   
Operating Expenses  
Data Storage  $       10,000  $       10,000  $       10,000  $       10,000  $           10,000  $           10,000  $           10,000  $           10,000  $           10,000  $           10,000  $           10,000  $           10,000
Legal & Accounting  $          2,000  $          2,000  $          2,000  $          2,000  $              2,000  $              2,000  $              2,000  $              2,000  $              2,000  $              2,000  $              2,000  $              2,000
Advertising  $          2,000  $          2,000  $          2,000  $          3,000  $              3,000  $              3,000  $              4,000  $              4,000  $              4,000  $              5,000  $              5,000  $              5,000
Utilities  $          1,000  $          1,000  $          1,000  $          1,000  $              1,000  $              1,000  $              1,500  $              1,500  $              1,500  $              1,500  $              1,500  $              1,500
Repairs & Maintenance  $               250  $               250  $               250  $               250  $                  250  $                  250  $                  250  $                  250  $                  250  $                  250  $                  250  $                  250
Insurance  $               400  $               400  $               400  $               400  $                  400  $                  400  $                  400  $                  400  $                  400  $                  400  $                  400  $                  400
Office Supplies  $               150  $               150  $               150  $               150  $                  150  $                  150  $                  150  $                  150  $                  150  $                  150  $                  150  $                  150
Rent  $          4,000  $          4,000  $          4,000  $          4,000  $              4,000  $              4,000  $              4,000  $              4,000  $              4,000  $              4,000  $              4,000  $              4,000
Depreciation  $               500  $               500  $               500  $               500  $                  500  $                  500  $                  500  $                  500  $                  500  $                  500  $                  500  $                  500
Payroll Taxes  $       20,000  $       20,000  $       20,000  $       24,000  $           24,000  $           24,000  $           28,000  $           28,000  $           32,000  $           32,000  $           35,000  $           35,000
Personnel  $    100,000  $    100,000  $    100,000  $    120,000  $        120,000  $        120,000  $        140,000  $        140,000  $        160,000  $        160,000  $        175,000  $        175,000
Other  $          5,000  $          5,000  $          5,000  $          5,000  $              5,000  $              5,000  $              5,000  $              5,000  $              5,000  $              5,000  $              5,000  $              5,000
Adshare  $               500  $               500  $               500  $               600  $              1,000  $              2,000  $              2,000  $              2,000  $              3,000  $              3,000  $              4,000  $              4,000
Total Oper. Expenses  $    145,800  $    145,800  $    145,800  $    170,900  $        171,300  $        172,300  $        197,800  $        197,800  $        222,800  $        223,800  $        242,800  $        242,800

 

Projected Income Statement
  Year 1 Year 2 Year 3 Year 4 Year 5
Revenue  $        1,155,000  $  21,775,000  $    65,325,000  $  130,650,000  $  195,975,000
Cost of Revenue  $                       –  $                   –  $                     –  $                      –  $                      –
Gross Margin  $        1,155,000  $  21,775,000  $    65,325,000  $  130,650,000  $  195,975,000
   
Operating Expenses  
Data Storage  $            120,000  $        240,000  $          480,000  $          960,000  $       1,920,000
Legal& Accounting  $              24,000  $          26,400  $            29,040  $             31,944  $             35,138
Advertising  $              42,000  $        435,500  $      1,306,500  $       2,613,000  $       3,919,500
Utilities  $              15,000  $          18,000  $            21,600  $             25,920  $             31,104
Repairs & Maintenance  $                3,000  $            3,300  $              3,630  $               3,993  $               4,392
Insurance  $                4,800  $            5,280  $              5,808  $               6,389  $               7,028
Office Supplies  $                1,800  $            1,980  $              2,178  $               2,396  $               2,635
Rent  $              48,000  $          50,400  $            52,920  $             55,566  $             58,344
Depreciation  $                6,000  $          14,100  $            25,035  $             25,035  $             25,035
Payroll Taxes  $            322,000  $        338,100  $          355,005  $          372,755  $          391,393
Personnel  $        1,610,000  $    1,690,500  $      1,775,025  $       1,863,776  $       1,956,965
Other  $              60,000  $          66,000  $            72,600  $             79,860  $             87,846
Adshare  $              23,100  $        435,500  $      1,306,500  $       2,613,000  $       3,919,500
Total Oper. Expenses  $        2,279,700  $    3,325,060  $      5,435,841  $       8,653,634  $    12,358,881
   
Profit (Loss) Before Interest & Taxes  $      (1,124,700)  $  18,449,940  $    59,889,159  $  121,996,366  $  183,616,119
Interest Expenses  $                       –  $                   –  $                     –  $                      –  $                      –
Profit (Loss) Before Tax  $      (1,124,700)  $  18,449,940  $    59,889,159  $  121,996,366  $  183,616,119
Corporate Taxes (30%)  $                       –  $                   –  $    17,966,748  $    36,598,910  $    55,084,836
   
Net Profit (Loss)  $      (1,124,700)  $  18,449,940  $    41,922,411  $    85,397,456  $  128,531,283

 

Projected Cash Flow
  Year 1 Year 2 Year 3 Year 4 Year 5
Cash Received  
Revenue  $        1,155,000  $  21,775,000  $    65,325,000  $  130,650,000  $  195,975,000
Current Borrowing  $                       –  $                   –  $                     –  $                      –  $                      –
Long Term Liabilities  $                       –  $                   –  $                     –  $                      –  $                      –
Sale of Current Assets  $                       –  $                   –  $                     –  $                      –  $                      –
Sale of Long-Term Assets  $                       –  $                   –  $                     –  $                      –  $                      –
New Investment Received  $                       –  $                   –  $                     –  $                      –  $                      –
Subtotal Cash Received  $        1,155,000  $  21,775,000  $    65,325,000  $  130,650,000  $  195,975,000
   
Expenditures  
Exp. From Operations  
Personnel  $            750,000  $    1,610,000  $      1,690,500  $       1,775,025  $       1,863,776
All Other (Exclud. Depreciation)  $            675,700  $    1,648,660  $      3,685,851  $       6,814,893  $    10,426,951
Subtotal Operations Expenditure  $        1,425,700  $    3,258,660  $      5,376,351  $       8,589,918  $    12,290,727
   
Additional Cash Spent  
Current Borrowing Repaid  $                       –  $          60,000  $          120,000  $          240,000  $          480,000
Long-Term Liabilities Principal  $                       –  $                   –  $                     –  $                      –  $                      –
Inventory  $                       –  $                   –  $                     –  $                      –  $                      –
Long-Term Assets Purchase  $              60,000  $          81,000  $          109,350  $                      –  $                      –
Dividends  $                       –  $                   –  $                     –  $                      –  $                      –
Subtotal Cash Spent  $        1,485,700  $    3,399,660  $      5,605,701  $       8,829,918  $    12,770,727
   
Net Cash Flow  $         (330,700)  $  18,375,340  $    59,719,299  $  121,820,082  $  183,204,273
Cash Balance  $        2,545,300  $  20,920,640  $    80,639,939  $  202,460,021  $  385,664,294

 

Projected Balance Sheet
  Year 1 Year 2 Year 3 Year 4 Year 5
Assets  
Current Assets  
Cash  $        2,545,300  $  20,920,640  $    80,639,939  $  202,460,021  $  385,664,294
Inventory  $                       –  $                   –  $                     –  $                      –  $                      –
Total Current Assets  $        2,545,300  $  20,920,640  $    80,639,939  $  202,460,021  $  385,664,294
   
Long Term Assets  
Long-Term Assets  $              60,000  $        141,000  $          250,350  $          250,350  $          250,350
Accum. Depreciation  $                6,000  $          20,100  $            45,135  $             70,170  $             95,205
Total Long-Term Assets  $              54,000  $        120,900  $          205,215  $          180,180  $          155,145
   
Total Assets  $        2,599,300  $  21,041,540  $    80,845,154  $  202,640,201  $  385,819,439
   
Liabilities and Capital  
Current Liabilities  
Accounts Payable  $              60,000  $        120,000  $          240,000  $          480,000  $          960,000
Current Borrowing  $                       –  $                   –  $                     –  $                      –  $                      –
Other Current Liabilities  $                       –  $                   –  $                     –  $                      –  $                      –
Total Current Liabilities  $              60,000  $        120,000  $          240,000  $          480,000  $          960,000
   
Long-Term Liabilities  $                       –  $                   –  $                     –  $                      –  $                      –
Total Liabilities  $              60,000  $        120,000  $          240,000  $          480,000  $          960,000
   
Paid-in-Capital  $        5,000,000  $    5,000,000  $      5,000,000  $       5,000,000  $       5,000,000
Retained Earnings  $      (2,124,000)  $  (3,248,700)  $    15,201,240  $    57,123,651  $  142,521,107
Earnings  $      (1,124,700)  $  18,449,940  $    41,922,411  $    85,397,456  $  128,531,283
Total Capital  $        1,751,300  $  20,201,240  $    62,123,651  $  147,521,107  $  276,052,391
   
Total Liabilities and Capital  $        1,811,300  $  20,321,240  $    62,363,651  $  148,001,107  $  277,012,391
   
Net Worth  $        1,751,300  $  20,201,240  $    62,123,651  $  147,521,107  $  276,052,391

Financial Analysis

InAd’s total revenue and expenses during the first year totaled $1.16 million and $2.28 million approximately, resulting in a deficit of $1.12 million approximately. A straightforward breakeven-calculation is not possible because not all of the company’s service are priced at the same rate. Though Research, Email, and Gaming will be charged to the clients at 10 cents per consumer targeted, General services will be charged at $100 per labor hour. The services under General will include everything else such as ad development, marketing campaign management, and comprehensive customized market research per clients’ needs (the other Research refers to access to statistical consumer data collected by IER advertising platform). A simple calculation reveals that InAd will need to generate average monthly revenue of approximately $190,000 in its first year to break-even.

As far as InAd’s income statement is concerned, the following assumptions have been applied in reaching at the estimated projections:

  • The company’s data storage expense will double each year due to larger client base.
  • Legal & Accounting costs will grow by 10% each year due to company’s growth and the resulting complexity.
  • From second year onwards, the company will spend 2% of its annual revenues on advertising and marketing activities.
  • Repair & Maintenance and office supplies expenses will also grow by 10% each year.
  • Company’s rent expense will grow by 5% each year. Some of the rental increase may also be due to additional rental spaces.
  • The company will use straight-line depreciation method and all assets will have ten years life with zero salvage value.
  • Payroll taxes will be 20% of the personnel expense.
  • Other expenses will increase by 10% each year and Adshare will be 2% of the company’s annual revenues. Adshare includes the incentives paid to the consumers for providing their data to the company which is then fed to IER advertising platform.
  • Corporate Tax has been assumed at 30%

In terms of annual performance, InAd will become profitable by its second year of operations and the net profit is expected to increase from over $18 million in second year to over $128 million in fifth year which will also be due to the explosive growth that will happen in internet advertising according to independent estimates. In addition, the company will be one of the earliest players to primarily focus on internet advertising. The company will also enhance its profitability by avoiding debt financing and financing its growth activities through internal funding. InAd’s management expects the company’s cash reserves to increase from about $2.5 million in first year to over $385 million by fifth year. The company doesn’t plan to make any major asset purchase in the first five years.

The company’s balance sheet also paints a satisfactory picture. The only short or long term liabilities are expected to be accounts payable. The company has struck a deal with Amazon which will allow it to delay half of the payment for data storage by a year. As can be expected, the company’s growth objectives will primarily be funded through retained earnings. The company has decided to delay going public for at least a decade because doing so will help it achieve higher valuation as it would already have established itself and proven its business model by then.

As far as the company’s start-up funding is requirement, the management plans to sell a 10% stake for $5 million to outside investors. The start-up expenses will equal a little more than $2.1 million, leaving about $2.9 million to meet future expansion needs. The company doesn’t plan to seek any debt funding, at least in the first five years.

           

Est. Capital/Investment Needs
Start-Up Expenses   Start-Up Liabilities
Legal  $         12,000 Liabilities and Capital  
Accounting  $         12,000 Current Borrowing  $                 –
Consultants  $       100,000 Long-Term Liabilities  $                 –
Business Acquisition  $   2,000,000 Accounts Payable  $                 –
Total Start-Up Expenses  $   2,124,000 Other Current Liabilities  $                 –
  Total Liabilities  $                 –
Start-Up Assets  
Working Capital  $   2,876,000 Start-Up Investments
Inventory  $                   – Planned Investment  
Equipment  $                   – Owner  $                 –
Property  $                   – Investor  $  5,000,000
Other Long-Term Assets  $                   – Total Planned Investment  $  5,000,000
Total Start-Up Assets  $   2,876,000  
   
Total Requirements Start-Up Funding
Total Start-Up Expenses  $   2,124,000 Total Liabilities  $                 –
Total Start-Up Assets  $   2,876,000 Total Planned Investment  $  5,000,000
Total Requirements  $   5,000,000 Total Funding  $  5,000,000
   
Start-Up Capital and Liabilities
Loss at Start-Up (Start-Up Expenses)  $                                                      (2,124,000)
Total Capital and Liabilities  $                                                        2,876,000
Cash Balance on Starting Date  $                                                        2,876,000

References

Bloomberg BusinessWeek. (n.d.). Publicis Groupe (PUB:EN Paris). Retrieved November 25, 2011, from http://investing.businessweek.com/businessweek/research/stocks/financials/financials.asp?ticker=PUB:FP

Carat. (2007, June 29). Global Advertising Spend to Grow 6.4% in ‘08. Retrieved 13 2011, November, from Global Advertising Spend to Grow 6.4% in ‘08

Golvin, C. S. (2007, May). How Youth Communicate. Retrieved November 4, 2011, from http://www.forrester.com/Research/Document/Excerpt/0,7211,37052,00.html

GrabStats. (n.d.). Online Advertising Statistics. Retrieved November 4, 2011, from http://grabstats.com/statcategorymain.asp?StatCatID=4

GroupM. (2007, December 4). US Ad Spend to Grow 3.7% in ‘08, Up from 2.8% in ‘07; Global to Grow 7%. Retrieved November 13, 2011, from http://www.marketingcharts.com/television/us-ad-spend-to-grow-37-in-08-up-from-28-in-07-global-to-grow-7-2601/

Interrepublic. (n.d.). 2010 Annual Report. Retrieved November 4, 2011, from http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9ODk4NzV8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1

Marketing Charts. (2011, November 11). Local TV Advertisers to Increase Digital Budgets. Retrieved November 12, 2011, from http://www.marketingcharts.com/television/local-tv-advertisers-to-increase-digital-budgets-20048/

Marketing Charts. (2011, November 11). Mobile Advertisers’ Use of Local Market Targeting Grows. Retrieved November 13, 2011, from http://www.marketingcharts.com/direct/mobile-advertisers-use-of-local-market-targeting-grows-20044/

Omnicom Group. (n.d.). 2010 Financial Highlights. Retrieved November 4, 2011, from http://www.omnicomgroup.com/aboutomnicomgroup/financialhighlights

Sweney, M. (2011, February 10). Publicis revenue up 8.3% in 2010. Retrieved November 4, 2011, from http://www.guardian.co.uk/media/2011/feb/10/publicis-2010-results

Walsh, M. (2009, February 27). Behavioral Targeting To Surpass Search Advertising By 2020. Retrieved November 4, 2011, from http://www.mediapost.com/publications/article/101147/

Wang H. Parks Associates. (2005). The Changing Face of Advertising in the Digital Age. Research Paper.

WPP. (n.d.). Client developments in the first half of 2010. Retrieved November 4, 2011, from http://www.wpp.com/interimreports/2010/report-to-share-owners/operations-review/client-developments.html

WPP. (n.d.). Revenue by communications services sector and brand. Retrieved November 4, 2011, from http://www.wpp.com/interimreports/2010/report-to-share-owners/operations-review/css-brand-revenue.html

WPP. (n.d.). Revenue by region. Retrieved November 4, 2011, from http://www.wpp.com/interimreports/2010/report-to-share-owners/operations-review/revenue-by-region.html

WPP. (n.d.). Unaudited condensed consolidated interim income statement. Retrieved November 4, 2011, from http://www.wpp.com/interimreports/2010/interim-financial-statements/index.html

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