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Welcome to our latest entrepreneurial series. This one covers tech startup success, with tips and advice on getting your company off to the best possible start. In this instalment, we’re going to look at how to project potential revenue and growth.
Predicting revenue and growth is of course a challenge, but by systematically moving through the points below, you can start to get a sense of the viability of your offering.
Let’s dive in:
- Settle on a timeline: Okay, before you even start thinking about forecasting your revenue, it’s important to decide on just how far forward you want to think. Perhaps it’s two years, five years, ten years? Having this in mind before getting into the numbers is important.
- Start with basic expenses: First, think about your fixed costs such as rent, utilities, phone and internet, technology, salaries, etc. Then consider direct labour costs in terms of providing customer service – and how that might change over time as you grow.
- Expense overflow: When it comes to marketing, legal and insurance, make sure you add a sizable contingency, since these often run over.
- Now move on to sales: Here’s where it gets tougher, particularly for startups which are unlikely to have existing data to use for predictions. So this is where research really comes in. First, look into the level of demand for your product/service. What is the current market like? Then research price stability in your industry. Then it’s time to get creative – create customer profiles/s, estimate your market share (no matter how small it’s going to start), and think about purchasing frequency.
- Do multiple forecasts: When you have gathered your data on expenses and projected sales, it’s important to run a number of different projections or scenarios. Perhaps one very conservative, one very aggressive and one right in the middle. Having these predictions means that, month-by-month, you can measure your actual numbers against the different predictions.
- Get a helping hand: There are a number of great applications out there that will help you streamline and accelerate your revenue planning no matter how complex it may be. Using cloud-based planning, budgeting, and forecasting software will help you better analyse your business and your offering – and their future potential.
Of course over time your business model will evolve, but that’s no reason to avoid projections. In fact, constantly updating projections will help you keep on top of your business when you’re starting out, and keep stakeholders in-the-loop when you grow.
This wraps up our first tech startup success series. Next time we’ll look at how to build a winning team. And if you missed any of our previous series on various entrepreneurial themes – from business plan writing to bootstrapping to how to deliver a winning investor pitch – you can catch up anytime by visiting our blog here.