Profit is the measure for all businesses. A revenue plan is a description of how you will take your business into profitability.
A revenue plan has to be simple and used as a measuring stick on a weekly basis. In many cases, the profit margin is a percentage figure. Your cost of the product or service compared to the selling price is the company profit. The total sales amount is the revenue stream. A budget has to be established which includes all operating costs plus a company profit. The following is a basic revenue plan model:
- Make a list of all the products and or services that you currently provide to your customers.
- Next to each, list the price you charge your customers.
- Now put the number of units, by each product or service that you plan to sell in the next month.
- By multiplying the number of units you project will be sold by the cost of each unit, you come up with a revenue plan.
- This simple formula will tell you if your sales objectives will meet your budgeted requirements.
While this may seem like a simplistic plan we have been able to adopt this system to our clients that sell services as well as products. Even if prices vary on service products we can estimate sales price and thus project revenues.
There are several benefits to this simple revenue plan:
- The business projects the number of sales it can make in a given month. Once the sales projections are complete the revenue can be determined and compared to required budget projections. If they meet projections, then you’re ready to go and market your products/services. If they don’t, then either the prices have to be raised or the numbers of products sold have to be increased.
- The most important benefit is the knowledge gained in this exercise. You know exactly what you have to sell in a given time frame.
Very few small businesses have a revenue plan. They count the dollars made on each sale without knowing exactly how many sales have to be made to achieve profitability. Take the time to create a revenue plan. It also provides a measure of discipline and accountability.
The greatest gap in life is the one between knowing and doing. Dick Biggs
Nick J. Petra CFP