A simple way to plan your revenue targets

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As a new business owner, it can be kind of overwhelming to figure out how to meet your annual revenue targets.

In the midst of pages and pages of notes, research, business plan drafts and product ideas, you can get very stuck.

So set aside your MBA and PhD-trained minds for a minute, and play along with a game of math.  If you laugh mockingly in a Dr. Evil kind of way at the simplicity of the concept, I can only share the following nugget:

Common sense is rarely common practice.

My favorite coaching mentor Andrea Lee describes a very simple process for figuring out revenue targets in her book Multiple Streams of Coaching Income.  This book is built on the premise that thriving coaches (and consultants, or any service-based business) need to develop multiple streams of revenue besides their hourly consulting time.  These additional streams can be things like group coaching programs, electronic books (E-books), teleclasses, membership websites and a whole variety of other things.

Her process is called The Money Game.   You will need the following things:

  • a pad of paper
  • a pencil
  • or, if you are fancy, a spreadsheet

Now take the following steps:

  1. Write your annual income goal at the top of the page.  It doesn’t matter if it is $10,000 or $100,000 this year.  There is no right or wrong answer.
  2. Create three columns on your page.
  3. In column 1, list your products or services.
  4. In column 2, list the cost of each product or service.
  5. In column 3, list how many units you think you can sell of each product or service.

The game comes into play as you begin to juggle around the mixture of what you want to offer.  So in example one, you imagine one mix of services and products:

moneygame1

After review, you may feel like it is wildly optimistic to sell 100 E-books a month, so you revise your estimates downward to a more reasonable number.  You may also want to increase your monthly consulting hours, as you think it will be easier to sell consulting than products at first.  Then you might decrease the number of new members to your paid membership site, but increase the monthly fee.

moneygame2

Thinking some more, you choose to add two new programs to the mix:  a once a year live retreat for your clients, and a group telephone coaching program held twice a year.  Knowing it will take time to develop and promote these programs, you decrease your consulting hours.

moneygame3

The possibilities for mutation are endless.  The key is to keep juggling the numbers around until you reach a mix of products and services that feels comfortable and feasible for you to accomplish.  Andrea says in her book:

“When forecasting the revenue for your coaching business using the multiple streams approach…you can use a slide rule for each of the pertinent numbers.

And for each of the numbers, you can experiment with putting in the numbers that you are most comfortable with.

So, whether it’s the number of people you project, anticipate or research tells you can scientifically expect to buy your product OR

Whether it’s the price tag that you would be comfortable pricing your material at,

You can shift those numbers up and down until you end with a monthly gross revenue number as well as a yearly number that fits into the bigger picture of your yearly financial goals.

This may mean that you have 5 revenue streams, or 15.  Or it could mean that you only have 3.  Try it and see what you come up with, because the real magic of The Money Game is when you extrapolate it and personalize it.”

You can play the Money Game as you launch your business, and revisit it every month or quarter.  You may decide to add or remove products.  You may decide to launch a new program.  The key is to break your large annual financial goal into realistic pieces.

The more concrete you are, the more likely you will reach your goals.

Have fun, and let me know how it turns out.

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13 Responses to “A simple way to plan your revenue targets”

  1. Ron Davison says:

    Important post. It seems like the important thing is for the spreadsheet calculations to help you think through realistic forecasts – not actually pretend to predict them. Where I have gotten distracted in life is in playing too long with these numbers in lieu of becoming engaged in the tasks that lie behind the numbers (e.g., actually marketing or creating the products).

    Great reminder, though, that this all needs to ultimately link back to real numbers. Thanks!

  2. Jon says:

    Very timely. I was sitting down this morning to do this very thing. Thanks Pam.

  3. Mark Howell says:

    Great post! I love the very practical concept. It will help me for sure. Thanks!

    mark

  4. Deb says:

    Stephen, I totally agree. I can throw out numbers for days, but how do I know they MEAN something? Revenue targets always seem like wishful thinking to me, rather than anything I can plan to or count on.

  5. This is great for brainstorming about what you might be able to do in order to generate the optimum income. I think something else needs to be taken into consideration though.

    The time you spend producing whatever is generating the income stream. For instance, writing an e-book may take a while but once it’s done, it’s done. You continue to sell the same e-book with little or no effort, over and over. Consulting, on the other hand requires constant investment of time while you’re earning the income, as do classes. You need to consider how many e-books you could write during the time you spend consulting or how many additional web site subscriptions could you sell if you spent the same amount of time promoting your site and keeping it fresh as you spend teaching.

    Keeping your investment of time in mind would help maximize the profit while minimizing the effort. Expending minimum effort for a given profit allows you to investigate even more profit streams and have the time to exploit them. It also lets you maximize your free time for doing other things you enjoy (you remember, your life outside of work) … while making the acceptable income that allows you to enjoy those “other things”.

  6. I like your numbers. Can I use your numbers?

    Seriously, how or why would I think that I could sell, say, 20 monthly teleclasses? Or 37 copies of an ebook? Or whatever.

    The strategy is a great strategy – if the numbers make sense.

    But how do you know when the numbers make sense, and when the numbers are merely wishful thinking?

    Great questions Stephen (and follow up with Deb)

    Obviously, the missing info in this quick summary of revenue projections is:

    1) how carefully you have researched your market
    2) how specifically you have developed your niche so that you are sure you are providing useful services and products to those who have a need for them and can afford to pay for them
    3) what is your robust marketing machine to drive these revenue numbers. These are things like speaking engagements, ezine list, blog, mailings, PR, teleclasses, etc.

    If you have these things in place, you are much more likely to reach your targets. But the whole thing is a process of experimentation. So you may set out to get 3 new coaching clients a month and find that that number is too aggressive. Or you try to sell your e-book and find that the price point is too high, so you change it and amp up your marketing efforts by creating a joint venture with a partner with a lot of clients in your target market. Marketing is the key to driving sales.

    To Deb’s point, I would just say that if you don’t take a stab at defining your revenue numbers, what are you basing your cash flow projections on? Without any specific numbers, it makes it hard for me to know how to focus my sales and marketing efforts. I have never been a button-down business plan kind of gal, but I do like to know that I can cover my expenses, and reach my revenue goals each year.

    This could be a case of “whatever works.” Different systems and strategies jive with different people. If this one doesn’t work for you, toss it out and try something else. Whatever you do, try to get concrete about how much money you want to make each month or year. Otherwise, you will be blowing around in the wind.

    Thanks,
    -Pam

  7. Pamela Slim says:

    Cristina and Katelyn, great questions!

    I am pondering blog posts on these topics … stay tuned for more info.

    The “what to charge without feeling like a greedy arse” is a tough one for many people!

    -Pam

  8. Katelyn says:

    It’s so simple and brilliant… And so difficult to implement!

    I’m having trouble raising my prices on the services in my art business that are selling — such as children’s piano lessons. I need to do this, since some other goods/services (like my massive oil paintings) aren’t selling. Everyone I talk to says $15/lesson (my current rate) is far too cheap. The market standard in my town, supposedly, is $30/lesson. But I love my students, I love how much they’re learning, and I believe this service is foundational in children’s educational development and should be accessible to everyone. Moreover, I would be heart-broken if I lost a single student over a rate change.

    I am a horrible businesswoman when it comes to collecting the money. How do you raise your rates when you don’t want to lose a single customer? Isn’t there always an element of risk or potential loss in such a move? How do you minimize it?

    Thanks,
    Katelyn

  9. Mary says:

    This works as a first step to get out of the cube as well… what services do you perform in that chair that someone else is collecting the cash for?

  10. Mike DeWitt says:

    Pam,

    This little method perfectly embodies the great Jay Abraham’s dictum: There are only three ways for you to increase revenenue:
    1) increase your number of customers
    2) increase the averages size per sale (including raising your price)
    3) increase the number of times clients return and buy again. (From Chapter One of his book Getting Everything You Can Out of All You’ve got – you can read it online at Abraham.com)

    If you get creative in thinking about how to do those three things (in particular the last two), you’ll be surprised by what opportunities you find.

    Mike

  11. Cristina says:

    Hi Pam. I have started my own secretarial service biz, and I advertised in the CBD Weekly in my capital city and got zero response. Apart from playing the Google game, and trying to get free media, what other secrets are out there that a person on a budget could do? (Perhaps you’ve written on this already?)

    Sincerely
    Cristina

  12. Sherry Borzo says:

    I’m just starting out Pam so this is very helpful. Starting a small business is fun and frightening at the same time-like an amusement park ride. Wheeee!!!

  13. Suzanne says:

    Pam, I was doing something very similar to this today and was getting quite overwhelmed at the prospect, this came at the perfect time with the perfect solution!

    Thank you!

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