Thursday, October 4, 2012

Predicting Accurate Sales Revenue for your Business Plan

Your business plan is your calling card. This is how you’ll be judged by potential investors and lending institutions. It has to be expertly prepared and you need to be able to stand by every projection.

The key word there is “projection.” For all practical purposes, you’re making an estimate as to how your business will perform. In the real world, those numbers can go up and down.

Predicting accurate sales revenues could make all the difference with your potential investor. Those numbers have to be realistic and rock solid. Here are the steps to take for making accurate sales predictions.

Step 1: Expenses

You’ll need to put together the list of fixed and variable expenses. These will include all the items you know you’ll be paying out for on a regular basis such as office rent, equipment rent, payroll, electric, phone and inventory (if applicable). You should also factor in the budget for marketing campaigns. It proves you’re being realistic about your business expenditures.

Step 2: Income

Here is where you’ll be doing the bulwark of your predicting. How can you estimate revenue when you haven’t sold your product or service yet? One approach would be to analyze the competition. What kind of business have they done in the past several quarters? If they are a public company you can find that information easily.

You might also have experience from a previous job that can provide projected sales figures. Your local Small Business Administration or Chamber of Commerce might also be able to help you.  

You should also analyze your own market. This is easier with a brick and mortar type of store than with an ecommerce business. Think of your business as a zone that attracts potential customers. What would be the average amount of customers who would visit your store or site each day? Of that number, what percentage would make actual purchases? Of that number, how much would they spend? This is how you shape projections. You should always strive to be conservative with those estimates so as not to over inflate your company’s value.

Step 3: Do the Calculations

Here the math is simple: You subtract your expenses from your sales projections. That is your profit margin and it’s the number your investors will be most interested in.

Whatever set of numbers you put into your plan you’ll need to make sure you’ve got backups for them. This can actually be explained as part of your business plan but it’s a guarantee you’ll be asked at some point, “How did you come by these figures?” You want to make sure you have a responsible answer.