Developing Forecasted Revenue Projections
One objection most frequently encountered when working with new entrepreneurs during my strategy sessions has to deal with building revenue projections. It is difficult for new entrepreneurs to comprehend putting a number on paper when there isn’t any revenue history to back up their projections. My response to their objections may differ from client to client and…scenario to scenario, but the basis remains the same. Forecasting or projecting anticipated revenue is the key starting point for every other growth strategy put into place for growing their business. The fact that there may not be revenue history within their organization is a non-issue. There are tons of data available online and within competitor sales histories to accurately develop reliable and realistic projections. The key is utilizing the data gathered to develop a comprehensive pricing strategy that reflects a high degree of reliability for you and your company.
There are many determining factors that feed into revenue projecting that should to be understood and analyzed in order to accurately project potential sales. It involves more that picking a number out of the air and building a strategy upon it. For instance, you need to understand where the revenue will be coming from…your sales channel. The sales channel involves the customer, the market and the product/service.
Do you know who your customer is and what their price threshold is for your purchasing product/service?
- What is their motivation?
- How deeply rooted is their need or desire for your product/service?
Do your know how many buyers are within your market?
- Is the market big enough to support your business?
- How many competitors are targeting the same market as you are?
- What percentage market share do they current possess?
- What percentage are you targeting?
- Is it enough to support your business?
Do you know the cost of producing or providing your product/service?
- What is the production load/demand needed to keep your profit levels where you want them
- Can you meet the market demand?
Once you understand the sales channel, it is important to understand your production/distribution channel. Whether you are simply providing a product or service as an extension of a much bigger channel such as specialized consulting, retail sales or service based support, or…you are on the front end of the logistical supply chain in manufacturing, it is important to understand the entire distribution cycle. You need to understand every point along the channel that will be eating into your profits. The more middle distribution points, the less profit on the back end. However, keep in mind, those distribution points may actually save in costly overhead and logistical nightmares should you handle it yourselves. The point is weighing the pros and cons of your distribution channel are key to determining revenue projections.
Finally, it is important to understand that the “eggs in one basket” theory carries a great deal of merit, especially during volatile economic times. We work with all of our clients to not only develop a revenue model for their primary product or service, but to also look at potential additional income streams that could be captured now or in the near future. It may involve developing a service or warranty program, a use-training program, online sales of valuable information and white papers…whatever might add value to their offerings and would not take away from their original objective, by further enhancing and drawing attention to it.
This is a very simplistic viewpoint on the process involved in developing revenue projections for a new company. One point that I believe also must be stressed when developing forecasted revenue projections is to think BIG! We always tell our clients during our sessions to think as though money were not an issue. If you had all the money you needed to grow your business today, what type of company would you imagine? By showing them the ultimate potential, we can then break it down into smaller, more obtainable goals based on the realities of today…but with the ultimate GOAL in mind.
By putting limits on yourself you are restricting growth. You will only work toward what you have set in front of you. By setting BIGGER revenue goals you are pushing yourself outside of your comfort zone. You are telling yourself that this is important to you and it is make it or break it time. By setting lofty goals and breaking them down into smaller, more achievable milestones it does not appear as daunting as looking at the big picture.
However, having that big picture looming at the finish line and realizing that you can achieve the BIG picture by taking small steps is what motivates you to keep going!
DAVNA Enterprises, LLC is a Florida based firm specializing in the development and implementation of strategic operational, marketing and business development programs locally and internationally. Whether a new business starting out or an existing firm seeking increased market exposure, rebranding or repositioning, DAVNA brings more than 35 years of experience and the expertise needed to successfully develop and execute strategies designed to achieve your ultimate goals. For more information visit www.davna.com or email info@davna.com
