Once you have outlined the factors that could affect revenue over your chosen time period, you can combine the estimated effect of those things on sales with the associated expenses.Ī simple formula for projecting sales is: Combine expenses and sales into a forecast You can then draft your revenue forecast based on the number of sales made, and the value of those sales. Take the average value of one sale, and then consider the number of sales you make. Assess competitor sales and if/ how these are growing in comparison and adjust sales potential accordingly.įorecasting sales using a top-down analysis, which means using the total value of a market and then predicting how much of that market you expect your business to capture, is a useful way of predicting possible sales, although it isn’t necessarily accurate.Ī bottom-up analysis can be more realistic.Compare this to average customer purchase value each year to understand your sales potential.Quantify your customer purchasing capacity by calculating the maximum value of purchases per customer each year (number of products x unit price).Define your company's market penetration by dividing your current sales by the total market size.Determine total market size (number of potential customers).These expenses might include things like material costs, packaging and labour.īoth your fixed and variable costs may need to increase to drive new revenue, so think about how the predicted and planned factors you shortlisted earlier will impact your expenses. Remember that your business probably has fixed costs that are easier to predict and variable costs that will increase or fall based on sales. Estimate your expensesįuture expenses are critical when creating a revenue forecast. For example, sales for Father’s Day in June were 51% higher than our record-breaking Mother’s Day, and then, by Christmas, we were up 72% from Mother’s Day.” 3. “Then we saw the halo effect of this for other gift-giving occasions throughout 2020. “March 2020 was up 102% compared with March 2019,” says Douglas. But in 2020, with many retailers closed and more customers looking for gifts online, the company had a bumper year. Think about your planned business activity and predict how things like expansion, marketing campaigns or new product launches might affect sales or how the adoption of new technology that might speed up order processing or manufacturing.įor gift hamper company Don’t Buy Her Flowers, occasions such as Mother’s Day bring a spike in sales, says founder Steph Douglas. Upcoming changes to the law that might impact your sales.Consider what may drive or hinder growthīefore you start predicting how your business will perform, you need to consider the external factors that could drive or slow your sales over the next year. Remember, the further out the forecast, the more uncertain it is. It can also be helpful to provide a top-line annual prediction for the next three years. Typically, revenue is forecasted over 12 months. And, if revenue is forecast to fall, the business can take steps to improve the forecast, such as finding new ways to drive revenue or reducing costs. If you know that revenue is likely to increase, you can make plans for investment or other costs. Understanding likely future revenue is useful to businesses in two ways. Revenue forecasting is the process of predicting your revenue over a period of time (typically 12 months) by using historical and current sales performance data. We’ll recap on what a revenue forecast is, how to forecast revenue growth, and why it’s important for your business' success and cash flow. We’re here to help speed things up with a seven-step reminder on how to create a revenue forecast for your growing business. Even when you are managing your small business successfully, wrangling with financial reports can be time-consuming.
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