Financial assumptions How to estimate your Sales?

Catherine Blondiau Rodolphe d’Udekem d’Acoz

Business and Finance Advisors @ IMPULSE.Brussels

2

SALES

Sales?

What? When? How Much? Price? How?

Market potential = (Average Purchase * How Much * How Often)

What ?

Focus on your Value Proposition

What do you offer : MVP or full

product/service, product alone or full

package,…

What is your Unique Selling Proposition?

Price?

Pricing of alternative solutions

How much is the customer ready/willing to pay?

Price:

- Not too low

- Not too high

- Coherent

Evolution of the selling prices?

What is the average amount per purchase?

Test it!

How Much?

2 methods to evaluate How Much you will be able to sell

Top Down

approach starts with market and

industry data.

Bottom Up

approach starts with your

customers and your resources

How Much? – Top Down

A Top Down analysis is calculated by determining the total market, then estimating your share of that market.

It works in 3 steps :

1. Total Available Market (TAM) : How large is the market if all customers buy your product ?

2. Serviceable Available Market (SAM) : Focus on your own technology/services

3. Serviceable Obtainable Market (SOM) : Which realistic market share can be obtained by myself, considering competition, countries, my sales/distribution channels and other market influences?

How Much? – Top Down : Example

You want to sell internet access in Europe

Each account will yield €250 per year.

Expected revenue : € 1 billion (4 millions ×€250/customer)

TAM Total population of Europe 500 millions

SAM % of the population who want

internet access 80%

400 millions

SOM Based on your market study, you

expect to achieve 1% of that potentiel audience

1% 4 millions

How Much? – Bottom-Up

This approach allow you to estimate the sales considering the client and your resources.

The idea is to understand how much you will be able to sell considering the resources of your company :

- Time

- People

- Money

How Much? – Bottom Up: Example

You want to sell internet access in Europe

Each account will yield €250 per year.

Expected revenue : € 150 000 (600×€250/customer)

We can bring on board five salespeople 5 salespeople

Each salesperson can make ten phone sales calls a day that get through to a prospect.

10 calls/day

There are 240 working days per year. 240 days

5% of the sales calls will convert within six months 5%

Estimated sales 600

How Much?

Combine both approaches

- Use top-down analysis to estimate the market opportunity for your company—to decide whether you want to try it in the first place

- Use bottom-up analysis to get a realistic and testable estimate of what you can achieve within the first years of your startup

Challenge both approaches and present a coherent global perspective of your estimated sales

One-off/recurring/bundled sales?

What are the supporting trends of your market ?

How fast will the market grow?

When & How ?

How and When are you going to sell your products ?

Sales channels: Direct / Indirect – focus may shift over time

When & How ? - COCA

Impact on the cost of customer acquisition (COCA)

Target

Calls

Meetings

First sale

€?

When & How ? - COCA Impact on the cost of customer acquisition (COCA) :

- It costs money to achieve each sales

- How much resources (time, €, HR) does it require (cf Bottom Up approach)?

- Includes unsuccessful prospects

- To be taken into account in your financial plan

- Choice of channels :

Financially sustainable?

When & How ? - COCA & LTVOAC COCA & Life time value of an acquired customer

- Cost of Customer Acquisition (COCA)

- Life time value of an acquired customer (LTVOAC)

- Each acquired customer will provide you with revenues during his life time (as a client of your company)

- Put those revenues in perspective with the COCA

COCA = Sales & Marketing Costs / Customers

LTVOAC = revenue over life time x gross margin

When & How ? - COCA & LTVOAC

Lifetime value of a gym member who spends €20 every month for 3 years?

- €20 X 12 months X 3 years = €720 in total revenue (or €240 per year)

How much will it cost you to acquire this client? Allowable acquisition cost?

How to optimize LTVOAC?

Discount while managing CF

Don’t Forget …

Probably one of the most important parameters … and certainly the most difficult to estimate !!

Consider different (sub)categories of products and/or services

Consider the volume of units (products/services) sold and the respective selling prices

Outputs

– Per product (category)

– Per client / market / segment

– Per channel

– Combine ?

Don’t Forget …

Gross sales or Net sales (e.g. after commission, bad debts…)

Consider the initial volumes and the growth rates for each line of products/services without forgetting the market’s dynamic (seasonality, evolution of the selling prices, growth…)

Be aware of potential delays and lower (initial) volumes & growth rates than expected.

Consider the sales without VAT (unless you do not recuperate it !)

Don’t Forget …

The sales data should be based on tangible elements and hypothesis directly linked to the business plan

In no circumstances should the volume of sales be based on the costs … : “ spontaneous sales creation ” in order to achieve break even or benefit on paper does not help and could possibly endanger your credibility in the eyes of third parties

To keep in mind:

- User friendliness, avoid too much items

- Internal logic : price, discount, cost of sales, payment conditions… & cycle

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