1. © 2007 Mark T. Schenkel1 Revenue Forecasting ETP 3700 Dr. Mark T. Schenkel

2. © 2007 Mark T. Schenkel 2 Figure 4-1 Model for Entrepreneurial Financial Management Setting Financial Goals Revenue Forecasting Monitoring Performance Expense Forecasting

3. © 2007 Mark T. Schenkel 3 Common Forecasting Mistakes 1.The linear forecast mistake 2.The hockey stick forecast mistake 3.The 20/80 vs. 80/20 mistake

4. © 2007 Mark T. Schenkel 4 Marketing Plan and Forecasting Marketing PlanRevenue Forecasts Backbone Why understanding the potential mistakes is important... 1.Greater accuracy in forecasts improves the odds of engaging in effective implementation efforts (e.g., avoid cash flow crises) 2.Forecasts that demonstrate strong “backbone” enhance the odds of garnering investor support (i.e., add credibility to the plan)

5. © 2007 Mark T. Schenkel 5 Marketing Plan and Revenue Forecasting 1.Identifying industry and market trends –E.g., horse-buggy whips vs. digital media players 2.Market research –What and why do consumers need/want X (e.g., forklift maintenance agreements; Levi’s)? 3.Competitive analysis –Key issue: how might you go about overcoming existing competitive brand loyalty, and creating loyalty for your own venture

6. © 2007 Mark T. Schenkel 6 Sample Competitive Grid Cleanliness of Facilities Hours of Operation SelectionPrice Joe’s Inc. Generally clean in public areas, but back rooms usually messy 8:00 – 6:00 Most commonly purchased products available $5 - $20 Jane’s Inc. Consistently clean and orderly throughout all facilities 8:00 – 8:00 All commonly purchased available and some specialty items in stock $7 - $30 Sally & Jim’s Shop Public areas somewhat messy and disorganized and back areas very messy 9:00 – 4:00 Many common items not in stock – usually have to special order $3 - $12 Ozzie’s Place Spotless throughout 7:00 – 9:00 All common items plus most specialty items $5 - $20

7. © 2007 Mark T. Schenkel 7 Marketing Plan Tells what we will sell To whom we will sell it For how much we will sell it for How we will get it to them How we will let them know that we have it to sell to them

8. © 2007 Mark T. Schenkel 8 Importance of Revenue Forecasting Bank financing Inventory assumptions Staffing decisions Space decisions Investors

9. © 2007 Mark T. Schenkel 9 Basic Guidelines for Revenue Forecasts Market research to assure the quality of the assumptions behind the revenue forecasts Validate assumptions with more than one source of data Inventory all revenue assumptions Plan based on more conservative assumptions

10. Revenue Forecast Exercise Either alone, in pairs, or in teams, take a moment to consider a venture that you have, are in the process of, or are considering starting at some point in the future. Generate an outline that addresses the following: 1.What type of business is it? 2.How does the type of business impact the revenue stream? List all your assumptions and the basis of each (e.g., market trends, competitive analysis, seasonality, etc.). 3.Generate a basic 12-month revenue projection based on the information and assumptions above. 4.What are the implications for overhead capital investment? © 2007 Mark T. Schenkel 10