How to Forecast Revenue

Revenue Projections for your Business Plan

Revenue is shown on the income statement and is the money a business gets from selling its goods and services. Forecast revenue is the starting point for using the financial projections template. Revenue is sometimes referred to as sales or turnover.

We have created a free sales forecasting spreadsheet to help you understand how to forecast revenue, which is available for download at the link below.

How to Start the Revenue Projection

To forecast revenue is usually the most difficult part of the business financial projections process. There are numerous ways of finding information to start your revenue projection, a few of which are listed below. Our blog post on sale projections, goes into these in more detail.

  1. Historical sales data.
  2. Information from similar businesses, trade associations, company accounts.
  3. Market data and statistics
  4. Government demographic data and average spend data
  5. Business capacity

methods of creating a revenue projection

Methods of Sales Forecasting

There are two main methods of forecasting sales, unit based and non unit based.

Forecast Revenue Using the Unit Sales Method

Most businesses sell a product or a service which can be broken down into the number of units sold and the selling price per unit. A revenue projection can then be obtained by using the standard units based method as follows:

Revenue = Unit sales x Unit selling price

If the number of products is small then the revenue forecast can be done for each product and totaled. If there are a large number of products and it’s impractical to forecast each product, try to break them down into groups and use an average selling price for the group to forecast revenue.

To assist you in developing a unit sales based revenue forecast, we have provided a free sales forecast calculator, available at the link below. This calculator allows for up to five unit based products and percentage selling price increases.

Forecast Revenue Using the Non Unit Based Method

If the trade of the business is such that it can’t be broken down into unit sales, then split the revenue into product lines, departments, customer groups etc. and estimate total revenue for each category.

Industry Specific Revenue Projection Template

How you forecast revenue for your business will depend on the type of industry in which it operates. We have created revenue forecasting template for a number of industries, some which are listed below

Revenue Projection Templates

More templates are available in our Business Templates Section, and more will be added in the future. If your industry is not listed contact us and let us know, and we’ll try to help.

Whichever method you use to forecast revenue, the important thing  is to get a best estimate and start the revenue projection; it can always be adjusted later as the plan takes shape.

Finally a few words of warning when you forecast revenue, avoid wishful thinking, (take 20-30% off the figure you first thought of), avoid too much detail in analyzing the types of revenue you have, and make sure the sales are within your businesses capacity.

Revenue forecasting is an art not a science, no one expects you to be able to predict the future, you are making educated guesses based on the information you have available to give a realistic estimate of what you think the forecast revenue will be.

What’s the Next Step?

The next step in producing a five year financial projection for your business plan using our financial projections template is to learn how to calculate the gross margin percentage for your products and services.

This is part of the How to Create Financial Projections Guide a series of posts on how our template is used to produce simple financial projections for a business plan.

Last modified October 8th, 2019 by Michael Brown

About the Author

Chartered accountant Michael Brown is the founder and CEO of Plan Projections. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.

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