I am working on the financial projection portion of my Business Plan, but am having a tough time “predicting” what my revenue is going to be. Do you have suggestions? – Lincoln, NE
Predicting or projecting your sales revenue on a month to month or year by year basis can be challenging. The question “Well how I am I supposed to know?” is asked frequently. I always like to identify the reason why you are writing a business plan, it may be for the bank to obtain a loan, it may be for a family member or partner to get an idea of the business before giving you money, or it may be for yourself for peace of mind. The answer will help with determining how “accurate” the numbers have to be to accomplish its goals and how accurate the previous portions of a business plan may have been written. The standard in the industry is a month to month projection for the first year of sales, and then a percentage increase of sales for years 2 and 3. How detailed of a business plan you have, will assist you in comprising reasonably accurate projections. How we predict revenue has a lot to do with the pricing portion of your marketing plan, the pricing portion of the marketing plan is significantly dependent on your competitive analysis not to mention your target market demographics. The point is, the more specific the previous portions of your business plan are, the easier it may be comprising financial projections. One trick I use is to refer to the marketing objectives, if, let’s say, one of your marketing objectives is to have 10 customers call you per day, and you think you can convert 5 of those customers to sales, then it is a matter of your price and arithmetic to get a projection. Then you may step back and decide if this amount of volume of sales relative to the cost of goods you sell is reasonable for your expectations of starting the business. Now none of these months will be the same, you will have slow seasons, and busy seasons and identifying this in your financial projections will also help with projection creditability especially when it comes to banks. Remember you are starting the business and therefore somewhat an the expert in the field and you can decide what is reasonable in the industry.