Projecting Sales for Your Start Up Company's Business Plan

A key component of a good business plan is the section on sales projections for the start-up company. Sales projections are your educated guess at the volume of sales you will be able to pull during your first five years of business. This initial period is when most start-up companies struggle the most, and it is essential that your company's plan be strong enough to mitigate the pitfalls of start-up companies so that investors or financiers are confident that you will have the cash flow needed to survive.

Here are two ways to project sales for your start-up company's business plan:

Option 1 - Define Your Method of Acquiring Customers

The first option in creating sales projections for your start up company is to analyze how you plan on attracting customers to estimate sales. For this option, you will need to detail how much money you will be spending on advertising, and you will need to identify how many people you will reach with this advertising budget and how many of the exposed population will need your products or services.

For example, you might plan to spend $10,000 on advertising, which you learn will reach an audience of 50,000, of which 50% will be your target demographic. Of the 25,000 members of your target demographic about three percent will respond to your advertisement activities, which will produce 750 initial customers. If your average product sells for $19.95, then your projected sales will be $14,962.50.

Option 2 - Use Comparisons to Create a Projection

Another option is to base your sales projection on what your competitors are producing in terms of sales. Here you can research the sales volume of individuals in similar markets and then translate these sales to your market. If there is no other company in your market selling the items you want to sell then you can claim a larger share of the local market and project a higher sales volume for the initial periods of your company's start up. On the other hand, if there are other companies in your marketing selling the same or similar items, then you will need to make adjustments to your sales projections based upon your estimated market share.

For example, if you are entering into a franchise business, then you will be given a territory to work. The population of this territory will define your total market size. Your market share, however, will be based upon the number of individuals within your territory that want to buy your products and the number of individuals outside your territory that are willing to buy from you as well. It is very difficult to estimate your start-up market share, so it is better to err on the low side than it is to overestimate your market share.

Option 3 - Use a Combination of Options 1 and 2

Another way to estimate your sales is to combine the aforementioned methods. By taking the average of the two, you can utilize all of the data you have to predict your start up company's sales more accurately.

References

http://www.entrepreneur.com/startingabusiness/businessplans/article31656.html