January 30, 2012

Ahh, sales forecasts. Big businesses have them. Established small businesses have them. But what about startups?

David Friedman says it isn’t realistic to forecast sales at a startup. As founder and CEO of Inhabi, a real estate website that launched in September, he believes in the process of putting together a forecast, but then throwing away the results.

“The forecasting process makes you look at the drivers in your business and that is valuable,” he says.

Why shouldn’t early stage entrepreneurs pay attention to forecast results?

Because everything at a startup is uncertain, notes Friedman. Instead of holding fast to forecast numbers, he recommends looking at them as a goal of what you’d like to achieve. Creating a sales forecast is an “exploratory” exercise, he says, and founders should be comfortable changing it based on feedback from customers and fluctuations in the market.

Doug Winegardner, founder of RMA, a media agency in Indianapolis, approaches startup sales forecasts a little differently. He believes every early stage founder should make two forecasts: one based on general market conditions and one based purely on survival.

“The general market forecast can detail your goals and the survival forecast can help you determine the numbers you need to hit so you don’t become a sinking ship,” he says.

General forecast

Start your general sales forecast by researching a similar company. Even if you think your product or service is the first of its kind, you can still find organizations that offer something similar, says Winegardner.

“Get savvy with your research,” he suggests. “Look at blogs and articles to see how companies achieved success and what roadblocks they ran into. You may not get exact sales numbers, but you will have a good idea to help you make predictions.”

If blogs and articles don’t do the trick, Lisa Meloche, co-founder of Structured Business Solutions, a business consultancy in Sterling Heights, Mich., recommends calling up your industry trade association, local Chamber of Commerce or a networking group.

“When you get involved, you can chat with small-business owners,” she says. “People are very willing to help in networking situations.”

From there, sit down and plot out factors in your business’s sales process, recommends Winegardner. How many meetings can you realistically hold per week? How long is your sales cycle? How many salespeople will you employ? What is the usual closing ratio?

“This can be hard to determine when you are a younger company, but try to understand your sales process and see how difficult it will be to get sales in the door,” he says. “If you can close two weekly sales per person and you have five people working for you, that should mean 10 sales per week, for example.”

Survival forecast

A survival forecast is bare bones. Add up your expenses and there you go. Winegardner recommends starting your business as leanly as possible and not to splurge on expenses you don’t need.

He says, “Focus on your personal needs, what do you need to survive?”

Next article: Why Forecasting Is Critical to Small Business Success

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