Biz Opps - Make Money
Sales Projections – Realistic or Pie in the Sky?
It’s fun to skim through a number of new business plans in a short period of time. I always take special note of the sales projections and compare one set against another.
During my corporate career in small business economic development I have the opportunity to review business plans, marketing plans, financial plans, profit and loss statements, and one of my favorites – sales projections.
Why did I look forward to reviewing them? I always thought it quite fascinating, and often “telling” about the entrepreneur’s chances for business success. Some sales projections read like fairy tales, others were more like the title of the song “The Impossible Dream,” and still others were so conservative it almost raised the question “If you can’t sell more than this … why are you going into business?”
Of course, there is probably no merit in comparing apples to oranges as I’m suggesting I like to do. But it sometimes becomes apparent which prospective owners are attempting to be objective, and which are merely dreaming. Even if you don’t understand specific market demand, you will get a distinct “feel” for the amount of hype and exaggeration that floats around in the numbers and the logic.
Sometimes, you almost laugh at the over blown-up numbers that entrepreneurs pull out of the sky. You wonder how they came to the conclusions they did about their future sales. I often asked the entrepreneur to show me the research he had done on market demand and why he thought he could command a certain percentage of that demand with a new business. A new business prospect should be able to explain his reasoning and estimation methodology; but even so, some leave you merely scratching your head wondering “where the heck did that assumption and figure come from?”
I will tell you that I don’t ever remember looking at a sales projection that I thought looked too conservative very often. It’s always the opposite case, as one would expect. Still, I would expect entrepreneurs to have a certain amount of optimism and hope for the level of business their new project could achieve.
Especially in small business niches, it seems that typical sales projections are far off the mark. I have heard long-time product and marketing experts state that it is very rare that a specialized niche product will sell more than 1,000 units.
If the business owner says something like “I only need to sell 3,000 units to break even,” you can pretty well assume that this particular product and its owner are in potentially big trouble – at least in meeting projections!
Testing can certainly reduce the chances that your projections are way out of line and I always suggest an initial roll-out on a small scale to see how a product or service is received in the marketplace. It pays to not roll the product out until tests has been accomplished and changes made to optimize sales. The results are not totally indicative of your final sales results, of course, but you will have a ballpark idea whether the product will likely be a good seller, a flop, or (typically) something in between.
The price of your product will certainly play into the equation. A $20 product may need a thousand sales for a comfortable profit given the work involved and the investment in marketing; but a $200 product will give you the same amount of revenue, yet you only need to make 100 sales. That could be a more realistic an approach. It’s why you test … in order to maximize sales given various pricing points.
Here’s another test of the usefulness of your projections. Ask yourself: “What proportion of my registered customers (or subscribers) are likely to buy my product?
If the answer is 2%, or 5%, you will have a number to base a “thoughtful” sales figure on. If you say 50% or 75%, the chances are you’re not being realistic. You will know your audience the best and if you have presented various offers in the past you will have at least some “feel” for how a new product might be received.
Why base sales figure estimates on your customer base rather than the number of prospects in your niche? If you can’t entice folks to register for your site and your services for free, does it follow that they’ll buy from you in any greater numbers? (Of course they could, but there is no sound basis for assuming they will.) In fact, I would expect that an audience of loyal subscribers would convert much better than random prospects in the niche market that are being contacted for the first time.
The next time you are trying to estimate sales projections, remember to be realistic, base your estimate on some defensible reasoning, test the viability of the product and optimize results … then be conservative in your projections until you know your audience and their buying habits well. There are fewer downsides to underestimating than overestimating.
To your online business success,
Steve Browne
www.SteveBrowneDirect.com