How do I predict my revenue and what can I do to stop guessing around how many dollars may be generated in sales this next month for my business. Most entrepreneurs don't have a clear and compelling roadmap for the future. Welcome to forecast on purpose, where we talk about how to define your purpose, build a growth plan and track progress along the way to make sure you stay on target.
The result is clarity, confidence, and peace of mind that you were on the right track. My name is Ben Cooper and I'm the founder of Amplify. We help entrepreneurs better understand how today's decisions either positively or negatively affect your future. In each episode, we'll hear a short case study story of an entrepreneur facing an important growth decision, a business concept that applies to the situation and a key question or action that you can apply to your own business.
Also it's possible we may be talking about your business and your specific challenges on future episodes as well. Today, we're going to be talking about how to predict revenues. Let's get started.
Elizabeth just opened a blank spreadsheet and is copying over her sales numbers from last month and last year, trying to get a feel for what's going on within her business. See, two months ago felt better than average. Last month felt really slow. And now this month is on pace for what might be her best month ever.
Really she's feeling a lot of business whiplash where things might be going really fast and now slow and then fast again. And it just feels a little bit out of control.
The thing is, if you know what you can expect from a revenue standpoint, you can finally avoid unnecessary head trash that something is wrong when really nothing might be wrong. And you can move from a reactive position to a proactive position. You can be sure that you're ready to deliver the value to customers that you don't run out of inventory and that you make sure you have capacity to do so, and you can better plan for future expansion.
The objective today is that we get a feel for how it can predict revenue. This allows us to basically narrow the region of darkness as we're looking out ahead into the future, we don't have to necessarily just cross fingers and guess, and hope that
things turn out better than last period last month, last year. And we don't just have to repeat the past. See, there are two big questions, two big pieces of what makes up revenue. One is we can look at the building blocks of what generates our revenue. And then two, we can look at how those building blocks might change over time.
So first, most businesses generally deal with a simple formula of how many units at what price. You can multiply those two things together. And whether you're a product based business, you're a service based business or a subscription business. lot of times you can simplify what generates your revenue into that simple formula: how many units at what price. Now things do get a little bit more complicated if you have a lot of different offerings, for instance. You may sell a product through one channel at one price, and you can take that same physical product and you can sell it through a wholesale relationship for a lower price. But either way, you're still able to identify some simplified calculation and you may have a hundred different small multipliers working together that roll up into your total revenue. You can have a lot of different channels working together.
But at the end of the day, what we want to do is get a simplified view of the building blocks underneath your revenue. So the first step that you can take, if you're trying to get a feel for what's going on this month, what can I expect next month is look at all of the units that the central individual unique types of value that could be a service offering where you have a certain level and then there's a higher level and people pay more for that.
You could have a subscription level where there's an entry point, there's a medium price point and there's a high price point, whatever it might be for your business. I have to speak generally right now because we're not sitting across the table from each other, talking about your specific business, but in general, what you want to do is get a feel for how many units at what prices can I multiply together to get my total revenue for the Now that's helpful to just get okay for this 30 day period, but what do you do now when you have to play that out over time?
So every month isn't exactly the same as any other month of the year. So if you're like a lot of businesses I work with, there's seasonality for instance, and you have to be prepared for some months, you know, year over year, you might be able to start seeing these patterns. Where, for instance, if you're a Shopify business and you're selling a product through a website, a lot of times Black Friday, Cyber Monday, Q4 is one of the best times of the year. If you're an outdoor equipment company, for instance, maybe the springtime is when you can sell a lot of products and those are your better points of the year.
But if you have better months of the year, that also means that you have probably have below average points of the year. And what's helpful is to get a feel for your specific company's seasonality, where you can zoom out look at a 12 month period.
If you can possibly open up a spreadsheet like Elizabeth did and get a visualized picture of, okay, what is the general seasonality that I might be able to expect? And how can I confirm that over previous years, if you can look back 2, 3, 4 years into the past and start to see similar shapes.
Then it becomes really helpful to get a feel for what you might be able to expect in future months. And again, it eliminates some of that head trash where you start feeling like something's really wrong with my business because. It feels like it's out of control, but really it's more so like you're on a journey and you know that there's a curve ahead. You're going to turn left or there's a, a hill and you're going up. But you can at least understand that there's something that you can expect and you can anticipate well in advance.
Another component that can affect month over month changes in revenue can be organic growth. So if you look back and see year over year, quarter over quarter, even month over month, sales are generally on the rise. We are seeing more units at those prices that we sell them at continue to go out the door and we're able to expect that next month or next year is going to be some percentage growth over the previous year.
And that's helpful because what we can do is we can apply the seasonal shape where we say, okay, here's what we expect over a 12 month period. Here's the storyline that we are aware of. And we can take that same shape and we're able to extrapolate that shape and, and really project it through little bit higher growth. So if you know that you're growing 20% year over year, for instance, then you can take that same last year's values of revenue and sales, and you can apply a 20% growth to that and get a feel for, okay, here's that same shape, but ramped up by the expected organic growth rate that we're expecting.
A third piece that can affect how growth is changing over time. Can be what I've referred to as driven growth. And it's not just sitting back and hey, naturally, there's more demand because organically. The market is wanting more and more of what we're doing. And we, if we did nothing, here's how sales would increase over time.
But there's also driven growth where we can have intentional sales efforts at play. We can have ad spend where if we spend a dollar, we have a return on that ad has been that we expect to come back into the business through revenue. And so what we want to be able to do is identify those two types of revenue, organic and really driven growth.
By being able to separate them and understanding if we were to push harder in sales efforts or ad spend that we might expect some additional growth that layers on top of what we would expect if we didn't increase those efforts at all in the first place. we have seasonality, we have organic and we have driven growth.
So it's kind of like, in some ways a farmer. I live in the Midwest I'm just here in Indiana and every day it seems like I'm driving past land that there's some crop growing and it's just a good reminder that a farmer really has to be aware of seasons. You have to be
incorporating an understanding of some months you harvest, some months you prepare and some months you work the land. And there's just a reality to running a business that parallels the life of growing a crop where you have to just be aware that there is some element of seasonality and there are things that you can probably do to positively influence that.
So the key question and takeaway that I want to encourage you with today is that you step back and look at your business and maybe start with. Getting a view of this month or next month and getting a feel for how many units do I expect to be selling in a 30 day period. What are the prices per unit?
A lot of platforms like Shopify, for instance, can make it easy to get a feel for what the breakdown of sales is and how many units at what price. And you can get an understanding of what's going on there. But what I would also encourage you to do is that first month, get a picture of that and then zoom out and say, okay, well, how might this play out over a three month or six month or 12 month timeframe? Because
it might reveal as you look into which products are generating the most money. Even simple things like, well, we're charging this price for that, but over here we have competitors who are charging 50% higher for a similar product. And ours is better. It may reveal some unique opportunities for you to even increase your revenue by just looking at
the pricing strategy that you have, and we'll dig into pricing in a later episode, but in general we can look at how many units we're sending out the door and how many dollars we're generating from each of those sales and each of those units. And those will roll up into that total revenue amount. It sounds simple, but usually there's some opportunity to find hidden improvements and increases in revenue just by drilling in and looking intentionally at the numbers.
The final thing I would encourage you to do is to step back and look at where are those high points in the year are you about to encounter some unique high point or low point in your business? And what can you do to make sure that you're ready? You don't want to be running out of the main products at the wrong time. You want to make sure that you have capacity if you're a service business to
step into the important opportunities that may be presenting themselves just because of the time of the year or the certain month that you're about to step into. So pay attention to what your unique business may be about to encounter as you serve your unique audience. Every business is different. Every product is different. Every service is different. So it's important to just not be afraid to take a customized and tailored approach to what growth might look like for you. " Comparison is the thief of joy." That's one of my favorite sayings I've heard people say before.
So if you're looking at what other businesses are doing and you're just trying to copy them. You might run into a position where you get off track from where you really want to be. So if you are someone, you know, is an entrepreneur and you'd like some help planning for the future, don't hesitate to reach out. Go to forecastonpurpose.com to learn more. And remember: You are not alone and you don't have to just blindly guess about the future. Keep fighting the good fight and forecast on purpose.