How to Project Business Revenue for Your Small Business

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The Art of Projecting Small Business Revenue

This section educates you on the art of revenue projection for your small business. We'll discuss different methods of revenue estimation, how to handle uncertainties, and the importance of regular review and adjustment.

How to Project Business Revenue for Your Small Business – Transcript

When planning your small business idea, one of the first things that you'll need to do to figure out if your small business could have some legs is to make an estimation of how much money the business could generate. But if you're planning out a business, you should not make revenue assumptions based on a gut feeling. In this video, we're going to teach you how to forecast revenue projections for your small business like a pro.

Hey everybody, Will Scheren here from Small Business Startup Guide by TRUiC. This video is part of a larger course dedicated to helping small business owners cut through the noise and get to the essentials of starting and operating their business. If that sounds like it would be really useful to you, be sure to like and subscribe.

Before showing you how to estimate the amount of revenue that your business idea could generate, Let's quickly define what revenue is. Revenue consists of all of the ways that your business will generate income through selling its products or services. Simply put, a business's revenue is equal to the price of its products or services multiplied by the number of those units sold. Unlike profit, revenue does not take into consideration how much money a business spends to sell its units. It's only focused on the quantity of units that a company sells to its customers and the price the customers pay for those units.

Earlier in the course, we showed you how to plan for your business and conduct market research. Keep that information close as we show you how to forecast your revenue, as you'll need to lean on it and perhaps adjust it as you plan to make decisions about how to position your products and services to maximize your revenue streams. We've shown you how to find your business's capacity to produce your product or service, as well as how to produce a price-quality matrix to assess the competitive landscape in your market. If you haven't watched that video, you may want to go and take a look at it now before proceeding with this one.

While we’ve already discussed lots of points of researching a given industry, we have not yet discussed how to price your products or services. So let's do that now. While looking at your competitive quality price matrix, you want to look for opportunities within your market to position your products so that they either offer a higher quality or lower price than your competitors. And it's worth noting that if your products both offer a higher quality and a lower price than competitors with similar products, then you'll have an easier time entering a marketplace.

It's also worth noting that unless killing your competition is a part of your strategy, your products do not have to be significantly better or significantly less costly than competitors' products in order for you to secure a strong foothold in the market. Creating too much distance on the matrix between your products and your competitors could cause you to miss out on profit unnecessarily. With each of your products, Take time to consider how they'll fit within the competitive landscape and find the place on the matrix that you believe would give your business the best chance to make you the most money. Then note the price that you selected for each of the products.

After selecting each of your products’ price points, consider your findings from your planning and research involving your capacity. Also, consider the population size of your ideal customers, your ability to market your products to those customers, and the competitive landscape that could siphon off potential customers from your business. Using this information, make an estimation of how many of your products you believe you could sell over a given period.

Finally, if you're selling multiple products, you may want to categorize them at this point to make your financial projections a little more manageable.

After obtaining this information, we're ready to open up LivePlan.com to begin creating a financial forecast.

At TRUiC our mission is to offer all our resources and information for free - but we support our work by using affiliate links, meaning we earn a commission on many of the amazing deals we’ve negotiated for you. Full transparency, LivePlan.com is one such affiliate partner. Link in description below. 

After logging in, click on the Forecast tab, and you'll land on the part of the site where you can enter in your revenue projections. You'll want to add your major products, services, or other sources of revenue here. With the fitness center, for example, you might have group memberships, individuals, personal training, and counter sales. A shoe store might organize its revenue into sneakers, casual shoes, children's shoes, and accessories.

Do your best to keep your list relatively short. Trying to manage dozens of individual revenue streams can make your forecast hard to prepare and maintain. Also, you can compare your forecasted values with your actual results later down the road on the dashboard, so think about the categories of revenue that will make the most sense for you here. Note that grants, crowdfunding donations, and other money that doesn't involve equity or payback should go here too.

If you're not ready to consider funding yet, don't worry. You can always go back and add that later.

To begin adding revenue information, start by clicking “Add Revenue Stream.” Add a title for your product category here and then click “Next.” Then note whether the revenue will be incurred through unit sales for individual products, billable hours for services that bill by the hour, or reoccurring revenue for subscription products. If none of these models are acceptable, select the “Revenue only” stream to be able to simply add revenue details manually.

After clicking next, you'll be able to determine whether you believe you'll be selling a constant amount of these products over any given months or a year, or whether you believe the amounts will vary. Continue to follow the prompts for entering in the number of units that you believe you can sell for whichever period of time you selected. And then finally, follow the prompts to enter the pricing for the revenue stream.

After finalizing the revenue stream information, you'll see that the data has been added to the financial table dashboard on LivePlan.com Repeat this process until all of the revenue streams for your business plan up to this point have been accounted for by clicking the ad revenue stream button.

In the next video in the course, we'll be taking a look at the direct costs associated with each sale Your business makes.

This video is part of a step-by-step course that provides business owners all of the essential information to start and operate their business. We've provided a link for you to get access to all of the free and discounted business tools that we mentioned in the course below this video.

Be sure to like and subscribe to get more of this content. We'll see you in the next video, and if you have any questions, let us know.