Revenue is defined as the value you gain in exchange for products or services. You can calculate your revenue margin by multiplying the sales of a certain period with the corresponding price. For the overall revenue, you just add up all the product/service revenues.
Importance for your Business Plan
Banks and investors, who read your business plan, will thoroughly analyse both your revenue forecasting and strategy. If you are not able to sell your product to your customers, your startup will fail. Your backers know that in most cases revenue projections show wishful thinking or have been altered so the income covers the expenses. That is why it is in your own interest to base your calculations on the best estimate of the market, you can achieve.
- A good revenue projection is always based on realistic data. Important: Keep your calculations transparent, so your investors can follow them. In most cases, they are no specialists for your niche and have to rely on your honesty. If you offer more than one product/service, be sure to display them separately. 3-5 positions are manageable, but 10 would be confusing.
- Entrepreneurs are sometimes uncertain how to approach a realistic, strategic financial plan. Especially when it comes to prices, sales and other margins. No worries, that’s totally normal. Following are a few tips for that.
- Be grateful if you already possess some experience in the area. Banks love reliable metrics. If you take over a business, you need to diligently check your predecessor’s files. Explain what revenue per customer margin has been generated in the past, how the former owner did business and how you will make some of their customers, your customers. The same goes if you have prior experience in the field and are maybe even bringing customers with you.
- A general market analysis needs to be included. Analyse all available metrics e.g. industry reports. Research via Internet or in your surroundings: Is somebody already offering the same product as me? At what rates?
- Attention: A theoretical is all but worthless without a reality check. Our experience shows that a lot of entrepreneurs are afraid of reality checks. Maybe it is possible to get a closer look at your competition by visiting them as a customer. If you are not in direct competition to some market players, they might offer advice or experience. Speak to potential customers before founding and check if your predictions were correct. Don’t be afraid! As an entrepreneur, you will have to practice your sales skills anyways.