Getting product and service plans right the first time

This section describes the thing money is exchanged for. It goes wrong when it describes features to an audience that wants to know what one sale looks like, what it costs to deliver, and whether it can be delivered repeatedly.

Write it so that a stranger could take the section, work out your gross margin, and be roughly right.

Run this as a confirmation pass over a drafted section, with your price list, supplier quotes and the financial model open. Mark each item confirmed, unconfirmed, or not applicable, and treat the unconfirmed column as the real output of the hour.

What to take away

Name the unit of sale

Everything else follows from this. What, exactly, does a customer buy once?

A haircut. A month of access. A pallet delivered. An hour of work. A project with four stages. A machine plus an installation plus a service contract. Some businesses have two or three units and that is fine, but each one needs its own description, its own cost, and its own price.

The test: can you say the sentence "a customer pays X for Y" without a footnote? If the answer needs three conditions, either the offer is too complicated to sell or you have not decided what it is yet. Both are worth discovering now.

If the unit is still moving, stop. Nothing below this point can be confirmed while the unit of sale is unsettled.

Then say how many units a typical customer buys, and how often. One-off, seasonal, monthly, or on a contract term. A business with repeat purchase is a fundamentally different business from one selling once to each customer, and the plan reads differently from the first paragraph.

The revenue build uses that frequency rather than assuming a single purchase per customer. Any bundle or package is broken into its parts somewhere, so a reader can see what is being discounted.

What one unit costs you

Before price, cost. For a single unit of sale, list what it consumes: materials, direct labor hours at the rate loaded in the team section, packaging, delivery, transaction fees, and anything else that only occurs because that sale occurred.

That total is your cost floor. Everything the business spends that does not vary with the sale, which is rent, insurance, the office phone, your own salary, and the loan payment, has to be covered by the difference between price and floor, multiplied by volume.

Two things founders leave out and later regret. Payment processing, which is a real percentage of every card sale and belongs in the unit cost, not in overhead. And rework: the proportion of jobs that come back, are redone, or are refunded. Both are small per unit and large per year.

Price materials from a quote and write down the date it was given. Direct labor goes in at the loaded rate, not the bare wage. Any input priced from memory is unconfirmed until a quote replaces it.

Where an input has moved recently, the producer price series published by the Bureau of Labor Statistics shows the direction, but only your own quote is evidence.

Carry an allowance for work redone, refunded or returned, with the basis for the percentage stated. The contribution per unit here has to appear at the same figure in the break-even calculation in the projections.

You do not need a benchmark for any of this. You need your own quotes, your own wage rates, and your own supplier prices, and you need to write down where each figure came from.

Pricing has three inputs and one of them is not optional

Cost. Price below the floor and volume makes it worse.

What the alternative costs the customer. Not what competitors charge, but what the customer currently spends to solve the problem, including doing it themselves badly. That number is often higher than the competitor's list price and it is the real ceiling.

What you can hold. A price you can only get by explaining it at length is a price you will discount under pressure. If your model needs a premium price, the section has to say what supports it, and "better service" is not an answer unless you can describe what specifically is better and what it costs you to provide.

Write the price. Write the discount policy, because there will be one, and an undocumented discount policy becomes whatever the customer asks for. Write the payment terms too, because when the money arrives changes the cash flow more than the price does.

Put a date beside the price. Say who can authorize an exception to the discount policy, and name the payment terms: deposit, on delivery, invoiced, or by installment.

If you sell time, your inventory is perishable

Service businesses have a constraint that product businesses do not: an unsold hour is gone. This section has to state how many billable or chargeable hours exist and what fraction you expect to sell.

Be careful with that fraction: quoting, travel, admin, invoicing, and overruns fill the gap between hours worked and hours billed.

Take a real week, count the hours actually chargeable, and use that. If the business has not started, count the unavoidably non-chargeable hours in your intended schedule and subtract them first.

The same discipline applies to seats, bays, rooms, vans and machines. Capacity times utilization is where the revenue build starts, and the utilization figure is the one most likely to be wrong. It reappears in the operations plan as the constraint on how much work the business can accept.

Where the offer is in its life

State plainly whether what you sell is in development, in testing with real users, launched, established, or being retired. Then say what evidence supports the claim.

For something not yet built, list what exists: specification, prototype, pilot customer, regulatory step not taken.

Give the remaining steps and their costs, then put those costs in the model. Development in the narrative but not the cash flow is the most common source of a plan running out of money in month seven.

For something established, say how it has changed, what customers ask for that it does not do, and what the next version costs.

The inputs you do not control

List what has to arrive for you to deliver: materials, stock, a licensed platform, a subcontractor, a single piece of equipment.

A one-supplier business with no alternative has real exposure. Better to find that in the plan than in the first bad quarter.

Note any input that is contractual: a franchise agreement, an exclusive distribution deal, a license with usage limits. Terms that can be changed by the other party belong in the risk discussion.

Rights, described accurately

Say what the business actually owns and in whose name.

Registered trademarks, pending applications, and names you simply use are three different things. Read what a trademark actually is before you claim one.

Patents granted, applications filed, and ideas not filed are separate too; the patent basics separates them clearly. So are software you own, software you license, and software you license under terms that limit commercial use.

Every mark described as registered carries a number and a status, and a search of the trademark database supports the wording used.

The frequent problem in early businesses is that the domain, the trademark, the code, or the customer list sits in a founder's personal name rather than the company's. It is fixable and cheap to fix early. It is expensive and awkward to fix during diligence.

Where the answer is uncertain, say it is uncertain and name the professional reviewing it. Do not characterise your own legal position in a document you are asking people to rely on.

Roadmap discipline

A short forward list is useful. A long one is a warning sign, because it usually means the current offer is not finished and the plan is describing enthusiasm.

Keep to what will be delivered inside the plan's horizon, and give each item three things: what it is, what it costs, and what has to be true before it starts. Anything without a cost is not a plan item, it is a wish, and it should be labeled as one or left out.

Claim or evidence

The difference between a section that survives scrutiny and one that does not is whether each statement is marked correctly.

Where the claim is promotional rather than factual, the same substantiation standard applies in your advertising, which the Federal Trade Commission's guidance for advertisers sets out plainly.

Anything you cannot support at this level should be written as an assumption to be tested, with the test named. That is not a weakness in a plan; it is the labeling the fundamentals guide asks for, and it is what distinguishes a plan from a brochure.

Reconcile before sending

The unit of sale here must match the company description and be priced in the revenue build. It is also the unit of capacity in the operations plan. Delivery method must match operations. Capacity must not exceed what operations says exists.

The customer must be the first-ranked segment in the market analysis. Development spending must appear in the cash flow in the months it occurs.

Sign-off

Three lines on your working copy: the date the unit cost was last rebuilt from quotes, the items still unconfirmed with the owner named beside each, and the date of the next rebuild.

Common questions

How much technical detail?

Enough for a competent non-specialist to understand what is being sold and why it is hard to copy. Specifications go in the appendix. If the reader is a lender, assume no technical background at all.

We sell many products. Do I describe each one?

No. Group them into lines that share a cost structure and a customer, describe the lines, and give the range and price band for each. Then name the two or three items that drive most of the revenue and describe those individually.

Should I include photographs or a specification sheet?

Yes, in the appendix, for anything physical. It answers questions faster than paragraphs. Keep the section itself readable without them.

What if pricing is not settled?

Give the range you are testing, the floor below which the model fails, and the date you will decide. A stated range with a floor is far more useful to a reader than a single invented price.