How to predict sales of a new business?
January 14, 2010 9:45 AM   Subscribe

We want to start a small business but would like some data about predicting probable sales volume, etc.

So my fabulous SO and I have wanted to start and run a small business for some time. We are considering a gardening shop targeted at heirloom food plants and ornamentals native to our area. We are ready to sink capital into the operation to get it running and can, with flexible arrangements of our day jobs, operate the shop for at least a year without hired help and without drawing any compensation from it.

Here’s what we are struggling with at the moment - We’d like to find data sets, research, studies from which we can glean information upon which to base reasonable predictions regarding expectable gross sales, etc. We can easily figure out the fixed costs of inventory, space rental, taxes and the like but are both at sea as to whether there’s even a chance the shop could pay its own way within a reasonable time - say 6 months or so.

Are there any national (we are in the US) data collections or other sources of such information you’d recommend? We are hesitant to commit the money and energy to this endeavor if we are going to be feeding it all our disposable income for years before it begins to break even.

Any help?
posted by BrooksCooper to Work & Money (5 answers total) 4 users marked this as a favorite
For starters, you might consider going around to gardening shops that aren't close to you (ie. not competitors) and asking them about business.

It sounds like you are looking to make this retail however you may wish to consider opening an online storefront. You can get an ecommerce setup for free essentially through things like ubercart for Joomla, and then just have to pay for hosting, a domain, design and advertising.

The benefits are huge since it is MUCH cheaper and quicker to get up and running and the overhead is minimal so if it doesn't take off right away you haven't wasted a ton of money. Plus, you're not locked into a nasty lease.

Lastly, while the goal of the site is obviously to make commissions off the Amazon affiliate program, there is some helpful info and decent links on this Squidoo lense.
posted by Elminster24 at 10:18 AM on January 14, 2010

You could go at it the opposite way and tot up all the fixed costs and then figure out how much you'd need to make a day to cover that.

You could then scout out local gardening stores and figure out how many customers a day those guys get, perhaps even ask people that are heading in if they'd be interested in a store like yours so now you have a rough estimate of the traffic you'd get visiting you, multiply that by what you think would be an average purchase and see if all the numbers pan out that way.
posted by zeoslap at 10:52 AM on January 14, 2010 [2 favorites]

Zeoslap's approach is much more likely to yield results. A friend at Starbucks said they once calculated the projected profitability of a new store by getting a baseline for their current stores. Basically, they'd figure out how much nearby foot or car traffic equated with number of daily customers (e.g. traffic/customer ratio). They already know the average amount spent per customer. To evaluate a new location, they'd arm themselves with one of those click-counter things and count people passing by the proposed location at various times.
posted by centerweight at 11:13 AM on January 14, 2010

n-ing zeoslap and centerweight re. their suggestion to essentially back into your numbers via figuring out what you need per day to break even, then take those daily figures out to weekly and then monthly sales projections. If you know your costs, you can then do a rough comparison between your income and cost of goods sold to see if there's a gross profit left over. At that point, then subtract your operating expenses to see if there's going to be a sufficient net profit. Breaking down your sales projection guesses to daily and weekly amounts gives a much more understandable and comprehensible view of whether your monthly and yearly figures are doable. (Kind of like everyone knows a billion is a big number, but breaking it down into 1,000 million gives you a better sense of just how big a billion really is).

I'm in the process of doing this right now myself, and it is challenging. Not so much in the sense of getting accurate projections, but in having a sort of gut-feeling confidence in your numbers to the point where you then become semi-confident that there's a profit to be made. My experience is that you get to this point by doing your market research, thinking about your own buying/shopping habits, and having a high degree of knowledge about your costs.

Grab some drinks, the ipod, one of those hand clicker-counters, and park outside a similar business near you. Like zeoslap suggested, count the number of customers heading in during a full day of business and then guesstimate what the average $/sale is for your market sector. That should get you pretty close.

Your particular industry has a very large number of trade publications, most of which are usually available online. Most trades publish market trend reports annually where they publish survey results of customers, sales, trending items, customer demographics, etc... You can get an enormous amount of real data from these for free.

I highly recommend doing a business plan as part of this process. I've found the "Plan As You Go Business Plan" book to be very good in terms of being more focused on small businesses that are not looking for outside investors. It has a lot of examples of small spreadsheets that are used to break down the financial projections into manageable chunks. (The author sells business plan software, but it's very clear in the book that spreadsheets will do the trick, so it's not a marketing hype piece). The other thing that I like about the book's approach is that you will quickly substitute actual income/expense numbers for your projection and that over a few months, the original projections become meaningless. Granted, you have to take the leap of actually starting the business to do that, but it drives home the point that projections are really just guesses.

Good luck and great question!
posted by webhund at 1:23 PM on January 14, 2010

Talk to the sales reps from your potential suppliers. Pump them for general info that might help and ask them if they can introduce you to people outside your territory who operate similar businesses to the one you want to start.
posted by Good Brain at 10:41 PM on January 14, 2010

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