For any business money is crucial. We have this great idea and have a plan for marketing and positioning shaping up well, but we need to pay for these efforts to get our foot in the door. We also need to estimate our sales forecast, or what we expect these marketing expenses to bring in. The more detailed you can be in this plan the better, because it will make putting our business plan together easier on the marketing budget items. The sales forecast will also be useful in drafting the business plan.
As part of your marketing plan, you need to outline some general projections of expenses to execute your marketing plan. You will likely want a website, business cards, some advertising and other tools to execute your marketing plan. While it may be difficult, try to outline these marketing expenses for three to five years. This will provide you a general guideline for what you have budgeted and prevent excessive spending, which is not budgeted.
Projecting can be a very hard process, but figuring it out as you go can be costly. If you are seeking investors, poor projections will make them nervous. My recommendation is to reach out to a few different agencies and other business owners, to try to get a ballpark for the average costs and take a higher figure for your budget. Adding extra to the budget is called padding. With no padding and an unforeseen expense, we risk not having enough capital.
Things in business tend to cost more than we initially planned for, for a lot of different items. We will overlook some things we need and it is good to know there are a few extra funds added in, just in case, to execute the marketing plans’ strategy.
Your product is great and you are going to get a million sales in a day right? Probably not. Just like a homeowner, who assumes their house will sell the next day, new entrepreneurs have a tendency or rather a frequent habit of overestimating their market. This makes sales projections a challenge. You want to project strong sales, but you also want to keep it realistic. Additionally, projecting bad sales is not going to motivate you to work harder to exceed the forecast and will not make your business very attractive to investors.
What we have to do is estimate our sales at a reasonable volume. We need to look at comparable products and see the customer retention ratio, need in the market, and purchasing trends. This can be very challenging since we are not selling a product yet to know how the market will respond. We should try to set three to five year projections. So, how do we get these numbers? I have two recommendations for you.
The first is to find a small business development center or business incubator. They can help you determine reasonable sales projections and also help review the expenses outlined earlier. They have experience in a variety of different market segments and can be a good source of both information and support.
My second suggestion is to ask people you know about your product. Try some pre-sales surveys and interviews to “feel out” your market and gather interest. After you have done some research and taken a look at the market segments we outlined earlier, we can try to forecast the sales.
Create a table with four columns like below:
|Month/Year||Pessimistic Sales Estimate||Realistic Sales Estimate||Optimistic Sales Estimate|
Go through this table and forecast both the best and worst case estimates, in addition to the number of sales you realistically would expect. There are many methods, but a simple way is to take the sum of all three of these estimates and divide that by three. That will provide a forecast based on all of your estimations and provide a best average.
Create several different tables and charts for the sales forecast and save those for the appendix later in the plan. Remember, it is important to outline the information to keep the readers interest and that the “work” we are showing can be added to the end.