Simple Trick for Projecting Next Year’s Revenue

As entrepreneurs glimpse a new year on the horizon, the brightest among them lay planning groundwork now. A pernicious myth receiving deserved suppression is that budgeting is impossibly useless for small operations with widely fluctuating incomes. At the least, however, a forecast of revenue promotes valuable oversight that enables effective business management. It uncovers your pipeline of future work and helps estimate marketing targets.

On a spreadsheet, list in the first column your existing and prospective projects for January. A retail business with sales to the general public will list normal minimum sales volume and extra customer volume – possibly showing each weekend separately to account for anticipation of heightened traffic. Record in the next column the amount of expected revenue from each line in the first column. Place in the next column to the right a percentage of probability for the projected revenue. For example, you may have a 100% expectation of some work but only a 50% chance of closing a new client deal or getting above average customers on weekends.

The last column to the right multiplies projected revenue by the probability percentages for each row. The sum of this column is your revenue forecast for January. Repeat the process for the subsequent eleven months. Then add the twelve revenue forecasts to determine your expected revenue for next year. This technique presents a meaningful scenario by turning hoped for revenue into realistic results based on probability. A 25% chance of making a million dollars realistically means you can expect a quarter million.

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