This article will provide you some important guidelines on how to project revenue for startups. Find the complete details below.
It can be really challenging to project revenue and expenses for a startup business during initial stages and many budding entrepreneurs feel that it takes a lot of time to build forecasts on expenses and revenues of their business. If you are not able to provide an accurate set of revenue forecasts for your startup, you are not likely to convince investors on funding your business. Also, projecting revenue of your startup is very essential in order to develop staffing and operational plans to successfully execute your business ideas. This article provides some guidance on projecting revenue for startups,
Estimating the Startup Costs
First you should start by calculating your expenses and operational costs of running the business. During startup stages, it is very simple to forecast expenses when compared to revenues. Some of the important expenses to be considered include,
- Fixed expenses like utility bills, rent, phone bills, accounting/book keeping expenses, insurance, legal and licensing fees, product marketing costs, machinery or equipment, employee salaries, transportation etc.
- Variable expenses like cost of selling goods, direct labor costs, packaging, customer service, direct sales and marketing, supplies and materials etc.
While forecasting expenses, you should always double the marketing and advertising costs since they generally exceed beyond the set expectations. Also insurance and legal fees can generally go high beyond expectations and cannot be predicted always. You should also maintain track of your sales and customer service. You should consider all the potential expenses that can arise during the course of your business expansion. You may want to look into software for a corporate expense management in order to project expenses faster and more accurately.
The next step is to project the revenues of all the services/products from your startup. You should find out best case/worst case scenarios of your business deals and forecast revenues in both aggressive and conservative methods.
In your conservative projection of revenues you can assume the following scenarios,
- No sales staff
- Two marketing channels and low price point
- One new service/product introduced in every 3 years.
Similarly you can consider below assumption for your aggressive case,
- Low price point for normal product and higher price for premium range of products/services.
- Four or five marketing channels which are managed with the help of separate marketing team with a marketing manager.
- Separate sales team with at least two sales staff who are paid based on commission and incentives.
- New product/service introduced every year.
By assuming more positively you can project higher revenues for your startup business and this can help in generating more ideas to improve it.
Try to maintain the key ratios to assure your projections are accurate. After making revenue forecasts based on aggressive case, don’t underestimate your expenses (by brittany at tf online). You should try to keep expenses under control and focus on growing your sales. You should continuously monitor your actual revenue as well as expenses to ensure things are under control. Find out the ratio of total expenses to total revenue for a given financial period, usually a quarter. If you find that direct sales and customer service expenses are higher than predicted expenses, then it is possible that it may increase in future.
Also figure out the operating profit margin by estimating the ratio of total operating costs and revenues. When revenue increases, the overhead cost must be a small ratio of total costs and there should be significant improvement in operating profit margin. You should monitor this on a continuous basis to accurately project revenues. You should develop a habit of developing quarterly estimates on your revenues to find out key areas of improving your business and unnecessary expenses which should be reduced.