Tuesday, March 5, 2013

How to Forecast Revenues for a Company Launch

One of the first things a MBA major learns is the importance of a well-crafted business plan. A key component of that plan is forecasting revenues. This is essential if you're going to be looking for investors in advance of a company launch. Those investors will want to know how and when their money will be coming back to them. Here are the steps to follow to forecast revenues for a company launch:

Step 1: Determine Your Operating Costs

What will it cost to keep your business open? Factor in everything from rent, insurance, salaries, office supplies, marketing, manufacturing (if applicable) and miscellaneous expenses. Those will be your operating costs. You'll then have a profit margin on every item you sell. That accumulated margin needs to be deducted from those operating costs.

Step 2: Create a Customer Profile

Who are you selling to? By creating a customer profile you'll be able to anticipate shifting trends in your business. You'll also know where to target your marketing campaigns. The majority of laundry detergent is sold to the moms who do the shopping and the advertising reflects that. There is a business adage that goes, "20% of your customers account for 80% of your sales." That's why you really have to understand who you're selling to in order to make an accurate forecast. You'll be depending on those profiles to be accurate.

Step 3: Determine the Reach of Your Campaign

If you're opening a neighborhood storefront then you should know what to expect in terms of foot traffic or customers traveling to your store. However, with an online business your reach could truly be global. How will you know how far that reach can go in order to make an accurate prediction? This might come down to a matter of marketing penetration. For instance, if you're going to advertise on Facebook then you'll be able to know what type of click through rate to expect. You can build a forecast utilizing that information.

Step 4: Size Up the Competitive Landscape

Chances are that whatever business you're starting up, somebody has already beaten you to the punch. That's a good thing because you can learn a lot by studying your competition. If you can find out what type of sales they achieved you should be able to make comparable forecasts.

Step 5: Add it Up

Now that you have all of those numbers you're ready to make a forecast. The best approach is to provide conservative and logical forecasts backed by data. Being conservative means erring on the side of caution and embracing the "worst case scenario" when it comes to sales.