HomeBUSINESSBusiness Creation: Setting Your Turnover Targets

Business Creation: Setting Your Turnover Targets

The forecast turnover is arguably the most complex financial element to budget in a business plan. The results that you will achieve will depend on many factors: communication, marketing, sales or production capacity, economic conditions, notoriety, etc.

In practice, you have to combine several methods to estimate your forecast turnover. The Entrepreneur’s Corner offers you a multi-step approach to setting turnover targets as part of a business creation project :

  • Evaluate your potential turnover thanks to your market research
  • Set the maximum target for maximum turnover
  • Set the minimum turnover target to achieve breakeven
  • Refine your forecast revenue targets

Evaluate your potential turnover thanks to your market research

When carrying out your market research, you could collect a lot of information to define sales assumptions. To do this, here is a reasonably simple thinking method:

  • You know the turnover of the precise market that you intend to integrate (limited in the activity and your geographical sector),
  • You know the different competitors already on the market,
  • You can segment them by size,
  • You have a rough idea of ​​the market share of large competitors, mid-size competitors, and small competitors.

To do this, you can, for example, consult the studies published by INSEE, by recognized institutes or by professional organizations in your sector of activity. In these studies, we often find information such as the industry’s turnover, the number of companies, their distribution by size and their average turnover. Some reports even offer segmentation by geographic area.

Then, the information collected will allow you to work on the following subjects:

  • Estimate the turnover by category of competitors (large, medium, small),
  • Determine the means available to each type of competitors,
  • Depending on the standards open to your company, check in which segment of players you will be located (large, medium, small),
  • Then relate the category you are to the average sales of competitors of similar size.

To get more precise information about the turnover of your competitors, you can first check if their accounts are public. To do this, you can consult the infogreffe or société.com websites. However, many companies do not file their reports. Besides, small businesses can request that their annual accounts not be made public following their filing.

Of course, this is a first approach based on comparison with companies of a similar size to yours. This allows you to have a first idea of ​​the turnover achieved by entrepreneurs who have the same means as you. The reality will then be different since you may not have the exact positioning and the same strategy. These elements will refine your estimates; we will come back to this a little later.

Also Read: Has The Covid-19 Had An Impact On Business Start-ups In 2021?

Set the maximum target for maximum turnover

To begin with, the sales objectives you set for yourself must be consistent with your means. Concerning this, you have to estimate what is your maximum capacity to sell products or services. Being reasonable, what is the maximum turnover that you cannot exceed?

For production or manufacturing activities, you need to know the capacity of your work tool. How many materials, products or other goods can you produce per day or week? Determining your maximum production capacity allows you to set a limit on items made. Then, based on their prices, you can choose a maximum turnover.

For service activities, you need to know how long it takes to perform a service and then estimate the maximum number of services that can be performed per year. It is therefore essential to measure how many working hours each service offered requires. Depending on the human resources at your disposal, you can estimate a maximum turnover. Don’t forget to consider the time you will have to allocate to other company functions: communication, administrative management, etc.

For sales activities, you must ask yourself the number of customers that you can reasonably serve over a day or a week, taking into account the entire process: making contact, exchange, advice, possible tests, signing of the contract and placing of sale, payment, delivery or delivery of products… It is also necessary to estimate the average basket of future customers. From the customer flow and the average basket, you can determine a maximum turnover.

Set the minimum turnover target to achieve breakeven

This method allows you to set a minimum turnover target. If you reach this amount, your business will break even, meaning your turnover covers all your expenses. You are, therefore, neither in profit nor in deficit; your result is equal to zero.

It implies that you have a precise idea of ​​all the costs linked to the implementation of your project, in particular:

  • Stocks and purchases of goods, raw materials or materials,
  • General costs (rent, insurance, equipment rental, travel costs, management costs, etc.),
  • Salaries and social contributions, of employees and managers,
  • Taxes and duties,
  • Financial charges, in particular on your loans,
  • Depreciation allowances for your investments.

All these elements are then classified into two categories:

  • Variable costs, the amount of which changes in proportion to turnover. This is the case, for example, for the purchase of goods. As soon as you change revenue, those things change too.
  • And fixed costs, that is to say, that their amount is set (it will not change in proportion to turnover). If you change the revenue, these expenses should not be discounted.

Your provisional income statement is the tool to use to determine the amount of turnover to achieve breakeven. Ideally, you should use software or an application that allows you to create a provisional income statement automatically.

Also Read: The Legal Representative Of A Company: Definition, Appointment And Role

Refine your forecast revenue targets

When you get to this step, you usually have an estimate:

  • Of the turnover achieved by companies comparable to yours,
  • Of your maximum turnover threshold, about the means at your disposal,
  • Of the minimum turnover to achieve breakeven.

It is then necessary to refine your forecasts by considering all the elements specific to your project: positioning, communication, marketing, network, location. These differences with your competitors will result in performance, superior or lower, of those they record.

The results of surveys carried out with your customer segment will provide you with information on the purchase intentions of your offer. From the sample surveyed, you will get an idea of ​​your sales potential. Of course, the reliability of the survey must be taken into account. A survey conducted personally by interviewing your future potential customers does not have the same degree of reliability as a survey carried out by a polling institute.

A test phase is ideal for getting a clear idea of ​​your conversion rate (what percentage of potential customers buy your product or service?). Finally, communication, positioning and the action plan you have planned will inevitably influence your performance. You should also take this into account in your forecast. For example :

  • If you take advantage of a weak point in your competition to provide a better solution for customers, you will benefit positively from your performance.
  • On the other hand, if your match is better in certain areas (and you should not underestimate this), the effect will be negative at your level.

Finally, do not forget the most important: those who will decide to buy your products or services or spend with your competitors. Only actual performance matters; forecasts will remain forecasts.

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