Business plan

8 Ingredients Every App and Software Business Plan Needs

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When developing a business plan for a mobile app or web-based software service, there are some key elements you need to incorporate into your business plan.

Beyond the basics of a sales forecast, profit and loss, cash flow, and balance sheet, here are eight key factors to consider when adding to your business plan:

1. Projected traffic. The most useful and standard projections estimate future unique visitors per month. Tracking this number over time is essential. Visits are also useful because the combination of visits and unique visitors is an indication of repeat visits, which can be an asset. Hits, as they were called in the 1990s (number of pages viewed and images viewed) are no longer a good metric. Average time on site is also a useful metric, especially when tracked over time.

2. Conversions. A conversion occurs when someone browsing the site chooses to subscribe. Conversions per visit for fremiums, which offer a free basic version of the product and for paid subscriptions are useful. Another useful projection is paid fremium conversions.

3. Churning. Churn rate is an indicator of the percentage of fremiums and the percentage of paid subscribers who drop out per month. Some calculate average months instead, generating lifetime value per customer. These are just two sides of the same coin.

And alongside these general traffic projections, here are some key indicators of the flow of activity and the underlying business model:

4. Customer acquisition cost. This includes pay per click and other marketing efforts averaged over paying customers. Divide your sales and marketing costs by the number of customers. These are your customer acquisition costs.

5. Lifetime value of a customer. This is closely related to the churn rate. Multiply your average revenue per subscriber per month by the average number of months a subscriber stays.

6. Burn rate. This is an estimate of the amount of money it takes, per month, to stay in business. Include salaries, overhead, marketing, etc. Normally, a burn rate changes as the business scales.

7. Track. This is indicated in months, as in “how many months of consumption rates are in the cash balance”. We call this lead, as in “we have a nine month lead”.

8. Revenue. Sales forecasts should already show revenue. I add it here because it is an important and extremely useful indicator of company size and flow. It does not include investments or loans, but does include shipping, subscription, sales and service income. It is simply a projection of how much money you make each month.

In all of these business projections, a good business plan has estimated guesses, explaining the assumptions and drivers of how these numbers are expected to change in the future. Ideally, all projections included here are available by month for the next 12 months and by year for the next two and three years.
Usually the change over time is larger than the raw number at any given time. And the best way to validate any projection, aside from presenting detailed assumptions, is to show that the line projected for the future looks believable and makes sense when compared to the same line for the recent past.

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