Creating a Reliable Revenue Forecast with KPIs

Every business owner will like to make more

profits

But becoming the master of

your business is a disciplined act

You can never master your

business if you do not take the

time to plan and execute

Your plan begins with your revenue goals

The income statement tells the business owner

How much was

made

Spent

Left during a period of time

Anticipating what is required to achieve the planned growth is essential

2 systems within your revenue plan

There are two (2) systems required to accurately predict revenue

The customer

acquisition system

• For a business to consistently bring people in, the market has to be big enough to have people who need your service or product

Customer retention

system

• Customer retention system: Not all customers return after their first purchase. So therefore while projecting revenue, the customer retention rate needs to be considered

The Target Market

Size

The Market Reach

Response Rate

Conversion Rate Price

CUSTOMER ACQUISITION KPIS

#1) THE TARGET MARKET SIZE

Your market size is based on how many people have the problem you are attempting to solve. For example if I make the best pizzas and will like to solve the problem of eating a quick lunch in downtown Chicago, my target market will be the number of people looking for a quick lunch in downtown Chicago.

#2) THE MARKET REACH

Using our pizza business example, if the market size is 600,000, and you plan to reach potential customers through social media and foot traffic, your market reach will be calculated as follows

Number of people who walk past store during lunch = 5,000Number of people that can be reached through social media strategy = 100,000Total market reach = 105,000The key is to go where your potential customers hang out.

#3 RESPONSE RATE

Depending on how big you want to become you need a pricing model that can scale. Sure you can charge 10,000 dollars an hour but how many customers can you realistically attract at that price point. Your price is not a function of your cost but what the market is willing to pay.

#4 CONVERSION RATE

Your next step is making them bring out their wallet. Depending on what you sell, you might need a funnel to encourage people to buy. A funnel is a series of steps your prospects go through to convince them that you are worth spending money on. In our pizza example, the conversion is very simple.

#5) PRICE

Your market size is based on how many people have the problem you are attempting to solve. For example if I make the best pizzas and will like to solve the problem of eating a quick lunch in downtown Chicago, my target market will be the number of people looking for a quick lunch in downtown Chicago.

Number of Existing

Customers

Average Number of

Repeat Sales Per Customer

Retention Rate

CUSTOMER RETENTION KPIS

#1 NUMBER OF EXISTING CUSTOMERS

Depending on your business, the way you define customers will vary. You can choose to define a customer as someone that patronizes your business, or someone who visited once, etc.

#2 AVERAGE NUMBER OF REPEAT SALES PER CUSTOMER

The average number of repeat sales, is the number of times the typical customer comes to visit during the measurement period. If the typical customer visits once a month (over a year), then your average number of repeat sales is 12.

#3 RETENTION RATE

Retention rate is the percentage of customers you keep engaged. Using our pizza business example, of the 12,000 that chose to build a relationship, 100 of them stopped responding. For whatever reason, they decided not to patronize the business or respond to any of the offers.

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THE FORMULA FOR PREDICTING REVENUE WITH KPIS

Using the above KPIs we can predict your revenue as follows

Target market size * Market reach * Response rate

Prospect

Prospect * Conversion rate (how many customers convert at the last stage of your funnel)

Acquired customers

(Acquired customers) + (Existing customers * Retention rate)

Total customers

Total customers * Average price * Number of repeat sales per customer

Total Revenue

The more systematized your processes are, the more reliable your predictions will be

Predictive Accounting with KPIs: A More Predictable, Less Stressful Way to Run Your Business.

Phone: (417) 812-5945

Address: 1700 S Spring Street, Springfield, IL 62703

Email: evelyn@mybusinessskpicoach.com www.mybusinesskpi.com

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