Entrepreneurship
Quarter 2 – Module 7
Forecasting Revenues and Costs Department
Lesson 1: Forecasting The Revenues Of The Business
This part allows the entrepreneur to make decisions based on financial assumptions
without even having started the business.
Let us now examine how the sale of products generates revenues. In this lesson, we will
identify the mark-up and selling price of the product. We will also project the revenues that the
business will make from the sale of products.
For the entrepreneur, after realizing the potential for profit of his/her business
concept, the next step is to estimate how much the revenue is on a daily, monthly and
annual basis. Before going to forecasting and projecting the revenues of the business.
Revenue is a result when sales exceed the cost to produce goods or render the
services.
Other terms related to revenue include Sales and Service Income. Sales is used
especially when the nature of business is merchandising or retailing, while Service Income is
used to record revenues earned by rendering services.
Factors serve as basis in forecasting revenues of the business.
1. The economic condition of the country. When the economy grows, its growth is
experienced by the consumers. Consumers are more likely to buy products and services. The
entrepreneur must be able to identify the overall health of the economy in order to make
informed estimates. A healthy economy makes good business.
2. The competing businesses or competitors. Observe how your competitors are doing
business. Since you share the same market with them, information about the number of products
sold daily or the number of items they are carrying will give you idea as to how much your
competitors are selling. This will give you a benchmark on how much products you need to stock
your business in order to cope with the customer demand. This will also give you a better
estimate as to how much market share is available for you to exploit.
3. Changes happening in the community. Changes happening in the environment such as
customer demographic, lifestyle and buying behavior give the entrepreneur a better perspective
about the market. The entrepreneur should always be keen in adapting to these changes in order
to sustain the business. For example, teens usually follow popular celebrities especially in their
fashion trend. Being able to anticipate these changes allows the entrepreneur to maximize sales
potential.
4. The internal aspect of the business. Another factor that affects forecasting revenues in
the business itself. Plant capacity often plays a very important role in forecasting. For example, a
“Puto” maker can only make 250 pieces of puto every day; therefore, he can only sell as much as
250 pieces of puto every day. The
number of products manufactured and made depends on the capacity of the plant,
availability of raw materials and labour and also the number of salespersons determine the
amount of revenues earned by an entrepreneur.
Now that all factors affecting forecasting revenues are identified, you can now calculate
and project potential revenues of your chosen business. The table below shows an example of
revenues forecasted in a Ready to Wear Online Selling Business.
Example: Ms. Fashion Nista recently opened her dream business and named it Fit Mo’to
Ready to Wear Online Selling Business, an online selling business which specializes in ready to
wear clothes for teens and young adults. Based on her initial interview among several online
selling businesses, the average number of t-shirts sold every day is 10 and the average pair of
fashion jeans sold every day is 6. From the information gathered, Ms. Nista projected the revenue
of her Fit Mo’to Ready to Wear Online Selling Business. She gets her supplies at a local RTW
dealer in the city. The cost per piece of t-shirt is 90 pesos, while a pair of fashion jeans costs 230
pesos per piece. She then adds a 50 percent mark up to every piece of RTW sold.
Mark up refers to the amount added to the cost to come up with the selling price. The
formula for getting the mark up price is as follows:
Mark Up Price = ( Cost x Desired Mark Up Percentage)
Mark Up for T-shirt = ( 90.00 x .50)
Mark Up for T-shirt = 45.00
In calculating for the selling price, the formula is as follows:
Selling Price = Cost + Mark Up
Selling Price = 90.00 + 45.00
Selling Price for T-shirt = 135.00
Table 1 shows the projected daily revenue of Ms. Nista’s online selling business.
Computations regarding the projected revenue is presented in letters in upper case A, B, C, D,
and E.
Table 2 shows the projected monthly and yearly revenue of Ms. Nista’s online selling
business. Computations about the monthly revenue is calculated by multipying daily revenues by
30 days ( 1 month).
For example, in Table 1 the daily revenue is 3,420.00. To get the monthly projected
revenue it is multiplied by 30 days. Therefore,
Projected Monthly Revenue = Projected Daily Revenue x 30 days
Projected Monthly Revenue = 3,420.00 x 30
Projected Monthly Revenue = 102,600.00
On the other hand, the projected yearly revenue is computed by multiplying the monthly
revenue by 12 months. The calculation for projected yearly revenue is as follows.
Projected Yearly Revenue = Projected Daily Revenue x 365 days
Projected Yearly Revenue = 3,420.00 x 365
Projected Yearly Revenue = 1,248,300.00
Table 3 shows the projected monthly revenues covering one year of operation. The table
shows an average increase of revenue every month by 5 percent except June, July to October
and December. While the month of June has twice the increase from the previous month by 10
percent, let us consider that months covering July to October are considered to be Off-Peak
months, therefore sales from July to October are expected to decrease. It is assumed that there is
no increase in revenue from July to August, while from August to October the decrease in
revenues is 5 percent from previous month. Since revenues from sales of RTW’s are considered
to be seasonal, it assumed that there is a 10 percent increase in revenue from November to
December.
Computation for assumed increase of revenue on specific months is as follows:
Projected Monthly Revenue (Increase) = Revenue (January) x 5 % Increase
Projected Monthly Revenue (Increase) = 102,600.00 x .05
Projected Monthly Revenue (Increase) = 5,130.00
Projected Revenue for February = Revenue (January) + Amount of Increase
Projected Revenue for February = 102,600.00 + 5,130.00
Projected Revenue for February = 107,730.00
On the other hand, decrease in revenue is computed as follows:
Projected Monthly Revenue (Decrease) = Revenue (August) x 5 % Increase
Projected Monthly Revenue (Increase) = 144,041.14 x .05
Projected Monthly Revenue (Increase) = 7,202.06
Projected Revenue for September = Revenue (August) - Amount of Decrease
Projected Revenue for September = 144,041.14 – 7,202.06
Projected Revenue for September = 136,839.08
The numbers in the last table are very attractive, having revenues that are increasing in
numbers is a good sign that a business is growing. However, an entrepreneur should not be
overwhelmed by these revenues, as these are just gross revenue, this is not the final amount of
profit or income an entrepreneur will get at the end of every period. Take note that the amount of
net revenue is still subjected to the expenses incurred in the operation of business.
What’s More
After learning the calculations presented, you can now compute the projected
revenue by day, month and year based on your business concept.
Aling Minda is operating a buy and sell business, she sells broomsticks (walis
tingting) in her stall at a local market. She gets her broomsticks from a local supplier
for 25 pesos each. She then adds 50 percent mark-up on each broomstick. Every day,
aling Minda can sell 30 broomsticks.
Use the template below and fill in the necessary figures based on the scenario. Remember
to use the factors to consider in projecting revenues and refer to Tables 1, 2 and 3 as your guide.