Predicting future turnover
Discussion
I am always fascinated at the projections people on 'Dragons Den' make for their business. How do they come up with those figures?
I ask because rather naively I have never had a business plan which can do that kind of accurate prediction but guess that investors/bankers want a strong guesstimate?
For example, suppose I have a new product which I think councils will be interested in. Initial reactions are positive. I know there are X number of councils in the country, that they each have Y programmes for which it could be used, and that I would charge Z for the product.
So turnover could be X * Y * Z.
But knowing all councils won't buy, and that ones that do might only buy for a few programmes it becomes say X * 10%, *3 * £2000. Competitors may drop their prices in response. How do businesses determine what proportion of potential customers are likely to buy given all the variables?
Is it a wet finger in the air or is it some sort of market research? How do they access the customer base and make a realistic estimate on those likely to buty. I could ring uop 20 councils and get an intial reaction, but I am guessing that more people say they might buy than do eventually do so, so sampling might be an over estimate?
I ask because rather naively I have never had a business plan which can do that kind of accurate prediction but guess that investors/bankers want a strong guesstimate?
For example, suppose I have a new product which I think councils will be interested in. Initial reactions are positive. I know there are X number of councils in the country, that they each have Y programmes for which it could be used, and that I would charge Z for the product.
So turnover could be X * Y * Z.
But knowing all councils won't buy, and that ones that do might only buy for a few programmes it becomes say X * 10%, *3 * £2000. Competitors may drop their prices in response. How do businesses determine what proportion of potential customers are likely to buy given all the variables?
Is it a wet finger in the air or is it some sort of market research? How do they access the customer base and make a realistic estimate on those likely to buty. I could ring uop 20 councils and get an intial reaction, but I am guessing that more people say they might buy than do eventually do so, so sampling might be an over estimate?
Brown and Boris said:
I am always fascinated at the projections people on 'Dragons Den' make for their business. How do they come up with those figures?
They make a wild and usually highly exaggerated guess with little or very clouded business acumen. There are so many variables something like that could never be accurately estimated.
I like to do a worst case scenario based upon uptake of similar products. Another way is to work out the maximum turnover of a product although this in only really feasible in a smaller market such as for example there were 20, 50 or 5000 potential customers. You can then work out what the turnover would be if 10% buy, 20% buy and so on.
This is useful as it allows to to work out what it is work investing to chase the turnover to maximise profit. For example, if the maximum likely turnover is £100k a year there is not much point spending £80k trying to get it, because even a sales team of divine skills could only make you £20k, and most likely you would run at a loss.
JustinP1 said:
Brown and Boris said:
I am always fascinated at the projections people on 'Dragons Den' make for their business. How do they come up with those figures?
They make a wild and usually highly exaggerated guess with little or very clouded business acumen. There are so many variables something like that could never be accurately estimated.
I like to do a worst case scenario based upon uptake of similar products. Another way is to work out the maximum turnover of a product although this in only really feasible in a smaller market such as for example there were 20, 50 or 5000 potential customers. You can then work out what the turnover would be if 10% buy, 20% buy and so on.
This is useful as it allows to to work out what it is work investing to chase the turnover to maximise profit. For example, if the maximum likely turnover is £100k a year there is not much point spending £80k trying to get it, because even a sales team of divine skills could only make you £20k, and most likely you would run at a loss.
Brown and Boris said:
JustinP1 said:
Brown and Boris said:
I am always fascinated at the projections people on 'Dragons Den' make for their business. How do they come up with those figures?
They make a wild and usually highly exaggerated guess with little or very clouded business acumen. There are so many variables something like that could never be accurately estimated.
I like to do a worst case scenario based upon uptake of similar products. Another way is to work out the maximum turnover of a product although this in only really feasible in a smaller market such as for example there were 20, 50 or 5000 potential customers. You can then work out what the turnover would be if 10% buy, 20% buy and so on.
This is useful as it allows to to work out what it is work investing to chase the turnover to maximise profit. For example, if the maximum likely turnover is £100k a year there is not much point spending £80k trying to get it, because even a sales team of divine skills could only make you £20k, and most likely you would run at a loss.
Depending on the product and market, your 'spend' may benefit you from economies of scale, to a point where there is the law of diminishing returns. For example, the first 1% is going to be easier to get compared to the last 1% you have bombarded with marketing for the last 5 years!
That's the way I've always worked it out - tabulating all of the scenarios. That way by looking at worst, mediocre and best case scenarios, you can line these up against your operational cost and predict where you will be at any stage - having these figures calculated then of course enable you to create cashflows on worst, mediocre and best case scenarios.
Ok, so I have started pricing now.
In a nutshell, do I price up ( start with the basic version/service and add on costs for extra optional bits) or down ( show the top end price and then deduct based on what they want)?
I am basically offering a web based service where the content is tailored to their need. There are basic set up costs for each version, then potential add ons for inserting the user logos, content, traffic and statistical services to analyse results.
I think I should show the standard basic charge and then the add-ons for various services but a business colleague says I should start with the Rolls Royce version and work down. That way they will trim it to get just within budget and I might be able to sell them something more than the minimum they need which is the risk in pricing up rather than downthat they add on until it will do the job and no more.
??????
In a nutshell, do I price up ( start with the basic version/service and add on costs for extra optional bits) or down ( show the top end price and then deduct based on what they want)?
I am basically offering a web based service where the content is tailored to their need. There are basic set up costs for each version, then potential add ons for inserting the user logos, content, traffic and statistical services to analyse results.
I think I should show the standard basic charge and then the add-ons for various services but a business colleague says I should start with the Rolls Royce version and work down. That way they will trim it to get just within budget and I might be able to sell them something more than the minimum they need which is the risk in pricing up rather than downthat they add on until it will do the job and no more.
??????
Another question about pricing for different sectors. I notice that some companies offer a different rate to charity/voluntary sector. I am happy to do that but does that rack off private/public sectior if they think they are getting charges more? Is it best just to prioce as normal and then put a note to ask voluntary/charity sector to ask about special rates? I might react differently to Save the Children or RSPCA than some politicall based charity group!
Brown and Boris said:
I am basically offering a web based service where the content is tailored to their need. There are basic set up costs for each version, then potential add ons for inserting the user logos, content, traffic and statistical services to analyse results.
Hi there. I have experience in selling & delivering IT systems to local authorities. What department area is it in? What do they have in their published spend forcast? That should give you a good idea of your market size. Then as you say make some guestimates of win rate, sale price, costs and so forth. Working with local government is hard on the one hand but dead easy on the other. One of our customers bought 10 top end servers, rack, the whole works. They have no need for then but needed to spend it for year end! The best place to be is when they buy your stuff instead of Dell servers.
ukvoyager.info said:
Brown and Boris said:
I am basically offering a web based service where the content is tailored to their need. There are basic set up costs for each version, then potential add ons for inserting the user logos, content, traffic and statistical services to analyse results.
Hi there. I have experience in selling & delivering IT systems to local authorities. What department area is it in? What do they have in their published spend forcast? That should give you a good idea of your market size. Then as you say make some guestimates of win rate, sale price, costs and so forth. Working with local government is hard on the one hand but dead easy on the other. One of our customers bought 10 top end servers, rack, the whole works. They have no need for then but needed to spend it for year end! The best place to be is when they buy your stuff instead of Dell servers.
Brown and Boris said:
ukvoyager.info said:
Brown and Boris said:
I am basically offering a web based service where the content is tailored to their need. There are basic set up costs for each version, then potential add ons for inserting the user logos, content, traffic and statistical services to analyse results.
Hi there. I have experience in selling & delivering IT systems to local authorities. What department area is it in? What do they have in their published spend forcast? That should give you a good idea of your market size. Then as you say make some guestimates of win rate, sale price, costs and so forth. Working with local government is hard on the one hand but dead easy on the other. One of our customers bought 10 top end servers, rack, the whole works. They have no need for then but needed to spend it for year end! The best place to be is when they buy your stuff instead of Dell servers.
Here, the ideology of the sale is what you will save them over what they already do, or why it will be better for them if they don't do anything like that.
For example, if a company does process X for £50k a year, then if you can do the same for £20k then that is a bargain, even though the actual cost for you may be £2k.
Brown and Boris said:
Stuff
Councils have strict EU, national and local purchasing procedures in place. This isn't a problem as long as you know about it. The eu limit is easy. > €200k and you have to go to OJEC tender and the tender can only be for three years with an option to extend a further 2. (10 year tenders are no more
) Under that we usually find up to £100k they can go to (non-ojec) tender. Up to £60k they can go on three quotes and up to £20k they can go on a single quote. The key is for them to make an argument to their people that what you have is unique and you are the only people in the universe who can do it. Always ask what their limits are before you offer a price. That way you can be 1k below it with a good argument why they shouldnt/couldnt go out for quotes.
I would also roll up any ongoing maintenance & hosting charges up in the capital expense for 3 & 5 years. They wont buy anything that costs them to run it year on year.
Don't know if this helps for your pricing, it certainly set our initial prices when we started up!
On the NGO pricing, I wouldn't change it if I were you. They are a business like anyone else and most have more money than they know what to do with. If its a little small outfit then thats another story. Let your consents (and bank balance) be your guide
. ukvoyager.info said:
Brown and Boris said:
Stuff
Councils have strict EU, national and local purchasing procedures in place. This isn't a problem as long as you know about it. The eu limit is easy. > €200k and you have to go to OJEC tender and the tender can only be for three years with an option to extend a further 2. (10 year tenders are no more
) Under that we usually find up to £100k they can go to (non-ojec) tender. Up to £60k they can go on three quotes and up to £20k they can go on a single quote. The key is for them to make an argument to their people that what you have is unique and you are the only people in the universe who can do it. Always ask what their limits are before you offer a price. That way you can be 1k below it with a good argument why they shouldnt/couldnt go out for quotes.
I would also roll up any ongoing maintenance & hosting charges up in the capital expense for 3 & 5 years. They wont buy anything that costs them to run it year on year.
Don't know if this helps for your pricing, it certainly set our initial prices when we started up!
On the NGO pricing, I wouldn't change it if I were you. They are a business like anyone else and most have more money than they know what to do with. If its a little small outfit then thats another story. Let your consents (and bank balance) be your guide
. I suspect they would be buying support for a particular annual short term project rather than ongoing work, although I can see them not wanting to pay set up costs every year so I may have to build that in on an expectation of them repeating the work in Y2.
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