Revenue Projection

When developing a pro forma, revenue projections are critical. Investors will look here first to determine if the business has merit and if the entrepreneur knows the market. After all, this is why they invest, to get that revenue. Unfortunately, most entrepreneurs I've met believe this figure is mostly guess work and many simply use industry growth rates for their projections. As a specialty of mine, I'd like to offer some pointers using an example.

1. Never rely solely on market performance. This number is an industry average and doesn't reflect those lean, hard, and almost always unprofitable first few years of many individual companies within that average.

 2. Do use performance records from individual companies that are most like yours. If you're selling a new soft drink, don't use coca-coal as a comparable. Look for a startup like yours and justify how your business is like that one based on location, market segment, marketing and business strategy.

 3. Get that information. If the business has gone public, their financial performance is public record. But chances are it won't be. Your closest competitor is probably a privately run company with performance records safely stored in hidden cabinets locked in hidden rooms on uncharted Islands. Here's where it gets fun. Pull out your spy glass and go full Sherlock on these guys. Here's an example for one I pulled:

A company that paces interns with companies became a media darling recently, partly because it is run by two very smart, young, and attractive females. And as such they were interviewed regularly on business and non-business related network programs. The founders, of course, took full advantage of the spotlight to highlight their business success. I read and viewed every interview they gave and was able to plot several dates at which the founders claimed they had doubled their revenue. A final interview revealed revenue in hard numbers for a specific date. I was able to use the doubling dates to work backwards from the hard number to create a revenue profile for their full three years of business. The figures worked forward and backwards indicating they were telling the truth. I was able to use this profile to estimate revenue growth in terms of percentage for a client in a similar business.

Industry analysis is important to understand. How your competitors fared is even more important for projecting revenue.