5 Things Your Startup Sales Projections Should Include
Startup sales projections are necessary for business growth. However, given the data limitations with startups, you need to include these five things.
Startup sales projections help in determining and proving the viability of a business plan. Sales projections are central to your business plan, especially if you are trying to raise money. Most investors will check those out first to determine if they want to get involved in the business.
The thing is, startups are at a disadvantage. Sales projections typically require previous sales data. Most startups have less of that compared to an established business. If the company is yet to start operations, it has no data at all.
Of course, you could pull numbers from the air for projections in a startup pitch, but you have nothing to back that up. To create startup sales projections you can defend, you need to include five assumptions.
Sales Projections Explained
Sales projections are a process for estimating the future financial viability of a business. They are the future revenues businesses anticipate they will earn, typically stated in units or currency.
When the sales estimates are going up, they show that a company is in good health. In most cases, startups use sales projections as part of their business plans to acquire funding.
However, sales projections will not tell you what you will actually earn in the future. In the best of times, they are an educated guess. The real purpose of a sales forecast is much like A/B testing. It helps you check if you need to adjust your business plans based on actual sales.
Basics of Sstartup Sales Projections
You will find many methods for forecasting sales, some of which seem very complicated. However, anyone can forecast sales with enough data. As long as you can do basic arithmetic for numbers in a simple spreadsheet, you can create sales projections.
Most people use rows and columns to organize data, similar to a chart of accounts. Using a table will be useful if you are selling more than one product or service.
The first thing you need to do is to make a list of everything you sell. Next, estimate the number of units you think you can sell per month. Multiply that number by the unit price to find out the total sales per month.
Here’s an example of a simple sales projection:
Next, find out how much it costs you to produce your products or services per unit. Multiply that number by project units sold to get the total cost per month.
Finally, subtract the total cost from the total sales amount to get your net profit per month. Do the same thing for all the months of the year. Add them all up to get your Year 1 projection.
Benefits of Startup Sales Projections
It is simple to make sales projections. However, why should you even bother to make sales projections if there is no guarantee it will happen?
Remember that forecasting is about goal setting and planning. You want to know how many sales you need to make to break even, given the direct cost of your products or supplies. You also want to see what you will need for the next few years based on projected sales.
Sales projections can help startups:
- Manage the supply chain, ensuring access to enough supplies when needed
- Ensure sufficient workforce, storage, and funding to sustain anticipated growth
- Handle demand, including seasonal spikes
- Determine and meet logistical challenges to ensure customer satisfaction, e.g., delivery
- Anticipate cash flow requirements
- Manage inventory
Sales Projections Assumptions
Now that you know the basics of sales projections, the next step is to talk about assumptions. By definition, an assumption is something taken as true without questioning it.
Assumptions, in this case, are facts based on market research data. True, the data is not specific to your business. However, it provides you with a solid basis for sales projections that you will not have as a startup otherwise.
Most businesses do market research for sales forecasting as a matter of course. However, since previous sales data may not be sufficient or available for startups, market research is essentially all they have to go on.
So, what assumptions can you include when making sales projections?
One of the best reasons to start a business is to fill a need. You can find spaces where you are likely to make a difference by checking market trends from macro and micro perspectives.
Macro refers to global conditions such as the economy, politics, and natural disasters. Micro refers to market data for specific sectors. Some of the questions you want to answer include:
- Is there a growing demand for a product or service?
- How much will it grow in the next few years?
- What type of product or service is performing well?
- Is there much competition for that product or service?
- Is there going to be a likely shortage of raw materials or labor for a product or service?
When you understand the market, you are more likely to make accurate predictions for growth. You can also refer to surveys and reports to back up your sales projections when creating your business plan.
Products and Services
Forecasting sales will also largely depend on customer and production factors that will affect direct costs.
For example, you have arranged to outsource mobile development to a reliable company offshore. At the same time, the cost of office rentals has gone up in your area. These will factor into your total profit.
Alternatively, you plan to offer free versions to Android users, but not for iOS users. Limiting the market will affect the number of downloads you can expect.
You need to allow for these shifts in your products and services as it affects your bottom line. These factors will have a definite effect on your ability to operate your business.
Seasonality in Sales Projections
Everyone has experienced delivery delays during the Christmas season, which is understandably annoying. However, businesses should anticipate them. Failing to plan around these seasonal dips and peaks is unforgivable.
The same applies to startups when creating sales projections. You need to assume these seasonal fluctuations will happen for your business and include them in your forecast.
For example, if you plan to sell a holiday-themed mobile app, you can expect many downloads during the holiday. At the same time, you will probably sit on inventory at any other time of the year. For your regular apps, you might expect to have more downloads if you have a free version.
Marketing Strategies for Startup Sales
A major assumption you can make when forecasting sales is the success of your marketing strategies. If you rely on word-of-mouth to promote your mobile app, you can expect a slow download day every day.
However, that is not the case if you plan an aggressive marketing campaign. You can expect many more sales if you use paid ads on social media or television, for instance.
Comprehensive marketing efforts typically increase the likelihood of sales. You can assume a certain level of success in your marketing efforts when projecting sales numbers.
Most businesses will have to deal with tax, labor, and production regulations. Legal requirements can also change, so you will need to keep a sharp eye on them. Startup owners need to understand the laws and regulations that are likely to affect their businesses.
For example, selling mobile apps will require compliance with privacy regulations and laws about paid promotions.
These requirements may represent a high cost to you. On the other hand, some rules may actually help you sell more units or make you eligible for grants.
Either way, you need to make sure you include regulations for projections in a startup pitch.
Sales Projections help Startups Grow
Sales projections are essential for startups because they serve as benchmarks for success. While anyone can make sales projections, gathering the data and processing it into usable form can be a bit of a challenge.
Full Scale can provide you with the help you need. We build IT teams quickly and affordably to fill any need. We also deploy a host of professionals to provide subject matter expertise for startup projections and other business tasks.
Do you want to have a bright future? Get in touch with us so we can help!