The sales forecast of a new business venture should be calculated first because sales affect the expenditures of any business. The forecast should start with a timeline that depicts the seasonal patterns in the industry and the key events that might cause a change in the levels of sales. Having created a new timeline for a new venture, the entrepreneur should next”
1. Identify events that could trigger a change in the estimate at any point in time.
2. Calculat4 the impact of the change on the estimate. Will it cost sales to go up ? Will it cost sales to go down? Or are sales likely to remain stable?
3. Figure the probability that the event will occur. Is there a 50% chance that it will occur? A 20% chance? The percentage chosen is based on the information gathered during the triangulation process (when the problem is attacked from three angles).
Sales figures will come from estimates of demand based on primary research with the customer, analysis of adoption patterns for similar products, and estimates from value chain partners such as distributors and retailers. One word of caution: When choosing competing companies for comparison purposes, be aware that if the company is publicly held or well established, the new venture probably will not achieve the same level of sales for some time.
Therefore the sales figures gathered from these companies serve merely as an upper limit. The entrepreneur determines how much below that figure actual sales will be. The percentage increase in sales over a three – to-five – year period will depend on the following factors:
1. Growth rates in the market segment of the product or service.
2. The innovations offered that will make the product/service more attractive to the consumer, even at a higher price.
3. The technological innovations employed that enable the entrepreneur to produce the product or service at a lower cost than competitors, thus making it more accessible and enticing to the consumer.
Demand can be estimated from primary research with the consumer. For example, suppose that 7 out of 10 potential customers would purchase the entrepreneur’s product. Given that these responses might be optimistic, the entrepreneur should consider reducing the ratio. The amount of reduction is purely arbitrary and is based on how confident the entrepreneur is in the responses received from research with the customer.
Suppose the entrepreneur decides to reduce the estimate of demand to 6 out of 10, or 60%. Applying this percentage to the size of the niche market that the entrepreneur intends to enter can give a rough estimate of how many customers might purchase. Then comparing these results with feedbacks from value chain partners might confirm the numbers or cause the entrepreneur to modify the estimate. Results of research on adoption patterns for similar products or services would then be applied to determine sales on month – by – month basis.