The period of time that you need to project the revenue can vary from 3 years to as long as 10 years and beyond. The 3-year period is adequate for most types of businesses. However, longer periods are usually needed where the capital investment is considerable. For instance if you intend to invest in an oil refinery, it may take say 15 years for the investment to show an adequate return. For our purpose, the projection will be for a 3-year period or 36 months.
What you need to do at this stage is to visualize what the expected revenue that the products and/or services in your business idea will bring in on month 36. To do this, you imagine that today is the last day of month 36. You have just closed for the day. Business has been as you expected since the day you started 36 months ago. The revenue that you generate is what you had envisaged at the beginning. You start to count the number of products and/or services sold in each category. The numbers are exactly what you wished for when planning the start up. Furthermore, the prices that you charge for the products and/or services are precisely the figures in your plan. You look at the profit and loss accounts and, with a smirk of satisfaction, smile at the profit that you made as expected.
At this stage in your start up plan, it is important that you are aware that you are using broad approximations in the projections. This means that if you are in the pet food business, you are using broad categories. There may be 4 broad categories such as food for dogs, cats, small mammals, and aquatic animals.
In total you may have 100 different products in these 4 categories. There is no point in estimating the revenue to be generated for each of the 100 products. As the saying goes, it is better to be approximately right than to be precisely wrong.
To do an estimate for one category, use the average selling price multiplied by the average quantity that you expect to be sold on month 36. For instance, if you have 10 items with prices of $1, $1.50, $2, $3, $3.80, $5.20, $6.40, $9.10, $13.30, and $18.90. Its OK to use a ballpark figure of $5 as the average selling price. Use the same method to estimate the average quantity you expect to be sold on month 36. Once you have the average selling price and average quantity that you expect to be sold on month 36, you can tweak these figures as needed. If you think the average selling price appears to be too low, adjust it to $6. At this stage, you should have a good feel of the selling prices and quantities that you expect to be sold on month 36.
Expected Revenue for Month 36