How to be precise in estimating your projected turnover

Estimating company turnover

The estimation of the projected turnover is where the market study and the establishment of the provisional accounts meet.
Project promoters are often tempted to simplify this step by only taking into consideration the estimated costs of the company.
Sometimes even, the desired profit turns out to be the starting point of a calculation leading to the estimate of the turnover to achieve to meet this target.

In truth, you should avoid only using one method of calculation. Ideally, several methods will be used to reach your conclusion. Here are the main methods one can use to make this estimate:

Summary

  1. The “benchmarks” method
  2. The “purchasing intentions” method
  3. The “objectives and market shares” method
  4. The “test” method, or “operational” method
  5. Other indicators
  6. Our advice

The “benchmarks” method

In this day and age, it is incredibly rare to gain a foothold in a market without being confronted with competition.

As such, the first method consists in:

  • Consulting information about your competitors: for companies, many reports are available on the internet.
  • Searching accounting statistics for this activity in this particular sector. In particular, try to find the turnover achieved per person working in the company.
  • Making a preliminary estimate of estimated turnover, and then analyzing the economic environment that will host the company, the range of products sold,  and the target clientele.

Take the example of creating a shoe business. The steps to follow are as follows:

  • First of all, obtain the list of competitors present in this sector from the Chamber of Commerce and Industry.
  • Then, find the publication of their results that these companies submitted to the Commercial Court.
  • Go on to study the figures of the profession, published each year by the approved management centers, the National Federation of the footwear industry of France and the specialized press.
  • Figure out the average turnover per person thanks to these documents and multiply it by the number of collaborators participating in your project.
  • Finally, based on this data, determine your projected monthly turnover for the first twelve months of your activity. Keep in mind that, for this example, the seasonal aspect of the activity should be taken into consideration, as should the sales, the arrival of the new collections, the meteorological conditions, etc.

Be careful! Turnover gotten from results publications doesn’t take into account taxation.

If your activity is completely new in the area, it will of course be difficult to find pre-existing data. As such, it can be tempting to try to find a similar project in another location and model your projected revenue on that one.
However, this should be taken with a grain of salt, as a commercial success in one area can prove to be an utter failure elsewhere.
Always take into account the specificities of each project, as well as the specificities of each area.

The “purchasing intentions” method

During a survey, the potential customer is often asked about his intentions or buying habits: how much they usually buy, how often they buy, how much money they would be willing to buy for, what their average basket is, etc.
It is thus possible to use these response elements to make an estimate of your projected turnover.

However, you should always be careful when it comes to intentions, as there are no guarantees. As such, someone may underestimate, overestimate or even deliberately lie about his consumption. It is therefore important to be careful when analyzing this data, and to remember not to completely rely on it.

Unlike the previous method, Customers always take into account taxation when giving their answers, since it is always integrated with the price they pay. As such, remember that any projected turnover coming from this method will also take taxes into account.

Here is an example of a projected turnover:
MonthAverage bundle of goodsNumber of clientsAverage turnover
January65€1007 000€
February75€1308 450€
December70€20015 000€
Total for the first year67€ – on average1 500100 500€

The “objectives and market shares” method

This method requires first and foremost that you:

  • define the precise geographical area in which your potential customers are located (catchment area) in order to determine the potential of the market,
  • clearly identify the competition.

The data you will find while making the market study will prove invaluable for this step.

You should take note of the following:

  • Numerous Chambers of Commerce and Industry provide project promoters with local studies on trade flows. You should not hesitate to try to consult their studies or their documentation.
  • The Chambers of Trade and Crafts, have has constructed a tool to help companies get implemented in an area called
  • The INSEE, or the French National Institute for Statistics and Economic Research, has also developed a tool for assisting the diagnosis of local implementation searchable online: A downloadable guide describes the operation of this tool.

Once the market has been studied, the project developer will have to determine the market share he can take from his direct and indirect competitors. At this stage, not only should he take into account the potential customers that haven’t been won over by the competition yet, but he should also consider the evasion of customers: the fact that some consumers so far have been buying products from other areas because these products were previously unavailable near them.

For example: the sale of sports goods represents 2 million euros in the area of action of the project leader. The existing competitors take 80% of this market (20% of evasion towards other commercial poles).
The future entrepreneur estimates to take 5% of the market in the first year with a sales area of 150 m², which represents 100,000€.

The “test” method, or “operational” method

To test your project before starting your own business, you can make use of:

These three devices make it possible to exercise an independent activity while being “legally supported” by another structure and thus to test the market during this period.
An annual turnover can then be estimated on the basis of concrete information: purchase orders/contracts signed over the test period, periodic customers, partnership projects and subcontracting.

Other indicators

All of the methods presented above serve the same use: to determine a projected turnover.
However, these estimates should be checked by professionals in counseling or professionals in the profession or sector: accountants, advisers of organizations to support entrepreneurship, professional organizations, etc.
Their experience makes it possible to analyze the forecasts and determine how trustworthy they are: projected turnover should be neither too pessimistic nor too optimistic. They should only ever be realistic.

Our advice:

Try to use at least two or three of the methods we mentioned earlier, and identify a low and high estimate of your projected turnover.
Here is a grid you could try to fill:

The method usedprojected turnover
Math: ………..

 

………………..€

Math: ………..

 

………………..€

Math: ………..

 

………………..€

Final estimate (based on the three methods above)Average:

………………..€

 

High estimate:

………………..€

Low estimate:

………………..€

Once the projected turnover has been determined, the project leader should calculate the expenses to be paid by the company, by implementing the financial forecast study.