Starting the New Year Right - Forecasting Your Revenues

For most being the first day of the first full week back from the holidays, hopefully you have begun the process of making sure that plans for the first quarter are on track so that you don't miss opportunities that may occur during the first three months.  And you should have a clear idea of the direction you hope your organization will be taking for 2014 as a whole.  If you have questions on either account, it's probably time to sit down and come up with some reasonable goals.

One of the hardest things to do in business today is to predict your future revenues. Expenses and capital spending are relatively easy compared with forecasting the funding vehicle of your business.

So how do you begin to estimate your revenue?  Great question. The key is to understand your business. This is not a task that you delegate to a lower level employee. Only you as the business owner have a big picture look on your business, your industry and the economy as a whole. Internal and external factors must be taken into account. Internal strengths and weaknesses will be key in identifying revenue growth opportunities. Many businesses use gross sales as their measure. Some look at this daily. Others look at it weekly or even monthly.  I would submit that you need to look at what is driving your revenues - the key levers in your business.

So what are they? Let's use a different equation. How about Traffic * Conversion Rate * Average Sale = Revenue? Let's break each on of these down.

Traffic is driven from your marketing activities, primarily your promotional budget. The more your brand is in places where potential, qualified customers are looking for your products or services, the better chance you have to get their attention. In today's world, prospective customers are using a variety of platforms to find our product or service information. You need to be judicious about what platform will give you the biggest bang for the buck.

Conversion Rate is all about how successful your sale effort is. The percentage of traffic converted to sales will depend some on your industry, but will depend mostly on your efforts to sell. How well trained are your staff? Are you the chief cook/bottle washer/salesperson? If so, how are you at taking inquiries (either online or in person) and creating paying customers? What if you were to convert another 1% or 5% or 10% of your Traffic? Big impact most likely on your revenue and your bottom line.

Average Sale is the weighted average sales to each customer. As you can imagine, if you are selling bubble gum your average sale is less than if you are selling diamond earrings. This is about the product/service choices you make in your business - what do you have to sell.

This may not fit exactly into your business model, but it should work for most with a little tinkering. It all goes back to your marketing plan and what drives revenue in your business. If you want to talk more about this or other strategic decisions in your business, send us an email to set up an appointment. If you are looking to do a little research, there are a number of YouTube videos on forecasting (hint: we're not guaranteeing that you will be able to stay awake!) and of course, Lynda.com has an online video tutorial called "Calculating a Seasonal Forecast". Call 775-283-7123 to set up an appointment to watch this one!