It's fun to skim through a number of new business plans in a short period of time. I always take special note of the sales projections and compare set against set.
Of course, there is probably no merit in comparing apples to oranges as I'm suggesting I like to do. But it sometimes becomes apparent which prospective owners are attempting to be objective, and which are merely dreaming. Even if you don't understand specific market demand, you will get a distinct "feel" for the amount of hype and exaggeration that floats around in the numbers and the logic.
Sometimes, you almost laugh at the over blown numbers that entrepreneurs pull out of the sky. You wonder how they came to the conclusions they did about their future sales. They should explain their reasoning and estimation methodology, but even so, some leave you merely scratching your head wondering "where the heck did that assumption come from?"
I will tell you that I don't ever remember looking at a sales projection that I thought looked too conservative. It's always the opposite case.
Especially in small business niches, it seems that typical sales projections are far off the mark. I have heard long-time product and marketing experts state that it is very rare that a specialized niche product will sell more than 1,000 units.
If the business owner says something like "I only need to sell 2,000 units to break even," you can pretty well assume that this particular product and its owner are in big trouble - at least in meeting projections!
Testing can certainly reduce the chances that your projections are way out of line. It pays to not roll the product out until a test has been accomplished. The results are not totally indicative of your final sales results, but you will have a ballpark idea whether the product will likely be a best seller, a flop, or something in between.
The price of your product will certainly play into the equation. A $20 product may need a thousand sales for a comfortable profit; but a $200 product will give you the same amount of revenue, yet you only need to make 100 sales. That could be more realistic an approach.
Here's another test of the usefulness of your projections. Ask yourself: "What proportion of my registered customers is likely to buy my product?
If the answer is 2%, or 5%, you will have a number to base a "thoughtful" sales figure on. If you say 50% or 75%, the chances are you're not being realistic.
Why base sales figure estimates on your customer base rather than the number of prospects in your niche? If you can't entice folks to register for your site and your services for free, does it follow that they'll buy from you in any greater numbers? (Of course they could, but there is no sound basis for assuming they will.)
The next time you are trying to estimate sales projections, remember to be realistic, base your estimate on some defensible reasoning, and be conservative. There are fewer downsides to underestimating than overestimating.
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