To determine whether your business is viable or not simply calculate its ability to generate revenue. Whilst this can seem like a daunting feat, it is actually a straightforward process requiring only a few key inputs and a small amount of speculation. The end result is a much clearer idea of which business areas you should be focusing on to maximise your revenue.
Having an idea of your potential revenue is an important part of determining if your business idea is viable. To figure this out you just need to know a few things about what your business will look like.
The resource document attached to this page contains a potential revenue calculator. To use this tool, simply enter the following data:
- Maximum number of potential customers you expect per day – be realistic. If you’re opening an intimate fine dining establishment with just five tables, it’s unlikely you’ll serve 500 customers per day.
- Number of days you’ll be open each year – if you plan to be closed on holidays and weekends, make sure you subtract those days from the year.
- Percentage of customers who make a purchase – conduct research to uncover average conversion rates for your industry.
- Average sale per customer – this will depend on your market and your product or service. Do your research to see what the market will accept.
- Average cost per customer (if applicable) – how much does it cost to produce your product or service? In some cases, particularly with service businesses, you may not have any per customer costs. If so, skip this field.
Often the point of predicting revenue is for speculation rather than to generate a solid figure, and therefore this data does not have to be exact. If you are struggling, look at information from similar businesses in your industry.
It is also a good exercise to play around with different numbers. This will allow you to see which improvements/setbacks will have the largest relative impact on revenue, and cater to this accordingly. For example, are you better off focusing on increasing the number of customers in the store, the number of customers who purchase, or even the average sale per customer? Answering questions like these will help you to make effective business decisions.
Sales and profit trend calculator
Sales and profit trends are essential in business, as they allow you to identify seasonality and adjust for highs and lows in profit and working capital.
This tool will allow you to calculate and forecast your gross profit for each quarter, as well as your total overhead costs. Enter in the information on customer spending and numbers and you will see the trend in gross profit over the four quarters. Once you have done the same for overhead, you will be able to see changes in total overhead, as well as net profit.