Revenue Estimation


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"Revenue Estimation"

A Webinar conducted by
Aseem Sadana, COO & Co-founder, isango!

The session covered :

- Revenue estimation methodologies : overview and applications
- Do's and Don’ts
- Presenting revenue estimates to investors

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Revenue Estimation

  1. 1. Revenue Estimation May 2012
  2. 2. Contents 1 Introduction 2.Revenue estimation methodologies • Overview • Applications 3.Classic mistakes 4.Presenting revenue estimates to investors
  3. 3. Introduction• Revenue estimation is critical to any business plan• Yet, accurate estimation is rare• A key focus area for investors 3
  4. 4. Methodologies• Top down − “Market is known to be $200M. The leader has 15%. We can get 5% of it”• Bottom- up − “We will start with 1 restaurant in the first year. It’ll have 50 covers. Occupancy will go from 40% to 80% over a period of 12 months. We’ll make $200 per cover per day. So we’ll generate 50X60%X 200 X365= $2.19M. Next year I’ll open 2 additional branches….” 4
  5. 5. Applications • Quick sense check Top down • More relevant to get to addressable market size • Reflects your plan to address the market • Closer to the ground, brick by brick, with Bottom up a keen eye on feasibility • Tightly coupled with marketing plan and spend Both models are relevant as long as judiciously applied. 5
  6. 6. Typical funnel: Market size to business revenue Market/ industry Addressable market Revenue 6
  7. 7. Typical funnel: Market size to business revenue Illustrative Global market Relevant market Addressable market A plan targeting the addressable market will comprise grounds up assumptions. Estimated revenue is a byproduct of such a plan. 7
  8. 8. What’s essential for bottom up revenue estimation • Granular model should expose every assumption behind the estimate • Establish sanctity of assumptions Assumptions through market data, first hand observation or primary research • Test for different ranges (sensitivity analysis) 8
  9. 9. What’s essential for bottom up revenue estimation • Scenarios reflect range of possibilities in the face of uncertainty • Test your plan for conservative Scenarios assumptions while pursuing an aggressive case • Funding should provision for conservative scenarios 9
  10. 10. What’s essential for bottom up revenue estimation • Revenues are tightly coupled with your entire plan- not an „island‟ • Resourcing, marketing spend, timeline Linkage to rest (seasonality where applicable) – they all of the business have a key impact on revenues plan • Assumptions, costs and revenues should move in tandem 10
  11. 11. Classic mistakes to avoid• “Let‟s assume 1% market share of this $300 bn global market….!”• Assumptions not validated early on and turn out to be surprisingly „off‟ − E.g. Latent need ≠ Demand• “There is demand BUT getting those first customers is taking far more time than we thought”• Excel model can be linear…the market rarely is − Unpredictability − Small sample − Minimum threshold theory• Giving up too soon• Not giving up soon enough! 11
  12. 12. Presenting revenue estimates to investors• Back it all up with rationale for assumptions − Past trends/ market benchmarks − Cite parallels from different contexts if your offering is new − The more granular the better. And then show it off! − However, all said and done, real benchmarks from competitors/ others, are often more impactful than assumptions in a vacuum• Be credible in your approach − When you call something conservative, share the basis − Enthusiastic, but never dishonest − Acknowledge risks• Rehearse − Know your stuff like the back of your hand − Have a devil’s advocate and run thru likely questions 12 − Practice
  13. 13. Thank you.