LESSON 1

FORECASTING THE
REVENUES
OF THE
BUSINESS
 INTRODUCTION
.
• YOU HAVE LEARNED IN THE PREVIOUS LESSON THE 4Ms OF OPERATION, YOU NOW
HAVE THE IDEA ON WHAT PRODUCT/S TO MANUFACTURE AND SELL. NOW, YOU ALSO HAVE
A BUSINESS MODEL. ONE OF THE MOST CHALLENGING PARTS IN DEVELOPING A BUSINESS
PLAN IS THE FINANCIAL PLAN. THIS PART ALLOWS THE ENTREPRENEUR TO MAKE
DECISION BASED ON FINANCIAL ASSUMPTIONS WITHOUT EVEN HAVING STARTED A
BUSINESS. THEREFORE, THESE FINANCIAL PROJECTIONS SHOULD BE GIVEN THE MOST
ATTENTION BY THE ENTREPRENEUR.
• 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.

2
 WHAT IS REVENUE?

Revenue is a result when sales exceed

the cost to produce goods or render the
services.
It is recognized when earned, whether
paid in cash or charged to the account
of the customer.
 Other terms related to revenue includes sales and service income.

Sales is used especially when the

nature of the business is
merchandising and retail.

Service Income is used to record

revenues earned by rendering
services.
The following are the factors that serve as basis in forecasting
revenues of the business.

1. The Economic Condition of the Country

2. The Competing Businesses or Competitors

3. Changes happening in the community

4. The Internal Aspect of the Business

THE ECONOMIC CONDITION OF THE
COUNTRY

WHEN THE ECONOMY GROWS, ITS GROWTH IS

EXPERIENCED BY THE CONSUMERS. CONSUMERS ARE
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 ECOCOMY
MAKES GOOD BUSINESS.
 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 BENCHMARK OR HOW
MUCH PRODUCTS YOU NEED TO STOCK YOUR BUSINESS IN
ORDER TO COPE UP WITH THE CUSTOMER DEMAND. THIS
WILL GIVE YOU A BETTER ESTIMATE AS TO HOW MUCH
MARKET SHARE IS AVAILABLE FOR YOU TO EXPLOIT.
CHANGES HAPPENING IN THE COMMUNITY

CHANGES’ HAPPENING IN THE ENVIRONMENT SUCH AS

CUSTOMER DEMOGRAPHIC, LIFESTYLE AND BUYING
BEHAVIOUR GIVES THE ENTREPRENEUR A BETTER
PERSPECTIVE ABOUT THE MARKET. THE ENTREPRENEUR
SHOULD ALWAYS BE KEEN IN ORDER TO SUSTAIN IN THE
BUSINESS. FOR EXAMPLE, TEENS USUALLY FOLLOW
POPULAR CELEBRITIES ESPECIALLY IN THEIR FASION TREND.
BEING ABLE TO ANTICIPATE THESE CHANGES ALLOWS THE
ENTREPRENEUR TO MAXIMIZE SALES POTENTIAL.
THE INTERNAL ASPECT OF THE BUSINESS

ANOTHER FACTOR THAT AFFECTS FORECASTING REVENUE

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
EVERYDAY; THEREFORE HE/SHE CAN ONLY SELL AS MUCH AS
250 PIECES OF PUTO EVERYDAY. 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 SALESPERSON DETERMINES 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.
Example: Ms. Fashion Tuale recently opened her dream business and named it “Fit Mo’to
Ready to Wear Online Selling Business, an online selling business that 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 everyday is 10 and the average
pair of fashion jeans sold everyday is 6.

From the information gathered Ms. Tuale 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-shirts is P90,
while a pair of fashion jeans costs P230/piece. She then adds a 50 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-shirts = 135.00
Table 1 shows the projected daily revenue of Ms. Tuale’s online selling business.
Computations regarding the projected revenue is presented in letters in upper case
A, B, C, D, and E.
Projected
Type of RTW’s Cost per Mark up Volume
Unit 50% Selling Price (D) Projected
(A) (B) (C) Revenue
Average No. of (E)
Items Sold
(Daily)

(A) (B)=(A x .50) (C)=(A+B) (D) (E)=(C x D)

T-Shirts 90.00 45.00 135.00 10 1,350.00

Jeans 230.00 115.00 345.00 6 2,070.00
Total 320.00 160.00 480.00 16 3,420.00
 Table 2 shows the projected monthly and yearly revenue of
Ms. Tuale’s online selling business. Computations about the monthly revenue is
calculated by multiplying daily revenues by 30 days (1 month).

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 = 3,430.00 x 30
Projected Monthly Revenue = 1,248,300.00

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 2
Projected Monthly and Yearly Revenue
Fit Mo’to Ready to Wear Online Selling Business
Projected Projected
Projected Revenue Volume Projected
Selling Volume Average No. Revenue
Price Of Items Sold
Type
Of (YEARLY)
Average
RTW’s No. of Items (MONTHLY) (YEARLY)
Sold

(MONTHLY)
(C)=(A+B) F = ( D x 30 G = ( C x F) H= (D x 365 I= (C x H)
Days) Days)

T-Shirts 135.00 300 40,500.00 3,650 492,750.00

Jeans 345.00 180 62,100.00 2,190 755,550.00

 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
previous month, 10 percent. Let us consider that months 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 considered to be seasonal, it
assumed that there is 10 percent increase in revenue from
November to December.
 Computation for assumed increase of revenue on specific months is as
follow:

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 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 – 7,202.60

Projected Revenue for September = 136,839.08

TABLE 3
PROJECTED MONTHLY REVENUE
Fit Mo’to Ready to Wear Online Selling Bussiness
Month January February March April May June
Revenue 102,600.00 107,730.00 113,116.50 118,772.33 124,710.94 137,182.04

Month July August September October November December

Revenue 144,041.14 144,041.14 136,839.08 129,997.13 136,496.98 150,146.68
IMPORTANT ASSUMPTIONS:

February to May Increase of 5% from previous revenue

June Increase of 10% from previous revenue

July to August The Same Revenue

September to October Loss 5% from previous revenue

November Increase 5% from previous revenue

December Increase 10% from previous revenue

 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 on 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.