How Do You Forecast Your Startup’s Revenue?

Forecasting your revenue might not seem very important. However, getting your forecast right is critical to your startup’s survival because getting your forecast can have all sorts of damaging effects to your startup including the end of your startup.

Picture: Depositphotos

Why forecasting is so important and the mistakes you don’t want to make forecasting your business.

There are two key reasons. The first reason is you need to know when you’re going to run out of money. For example, let’s say you start your company with $1 million in the bank. And let’s further say that you have a team of ten that you are paying each person $100,000 per year with the goal to develop your first product.

Ignoring all other expenses, it’s pretty obvious that you’re going to run out of money within one year. Then add in the other expenses such as equipment, software, travel, and rent that you have to estimate as well.

Maybe that’s another $8,000 per month, so you maybe have 11 months before you run out of money. Now, you know that you’re likely going to have either cut back on your costs or start raising the next round of funding pretty quickly.

The second thing you need to do is accurately forecast your revenue. Let’s say you’re expecting your new product to generate $1 million in net profits during the next 12 months.

Let’s say you are going to spend $2 million during this period and you have $1.5 million in cash at the beginning of the period. So, you’ll end up with $0.5 million in cash at the end of that period.

However, instead of generating $1 million in net profits, let’s say the product generates 0.5 million in net profits. Again, you’re out of money sooner than you expect.

Now, let’s move onto our five step plan for accurately forecasting your business starting with step number 1.

Step number 1: Execute your plan.

The most impactful thing you can do to accurately forecast your business is execute your plan. I’ll explain why.

Let’s say you’re planning on launching your first product or service in January. Your original first year revenue plan is…