How to come up with a sales forecast that works

You have an interesting new business and you’re working your plan, thinking about seeking investors when you come to the sales forecast.

How do you validate a sales forecast when you’re talking about something new? Of course there’s no data. So now what?

I’ve been on both sides of the table on this one — as an entrepreneur, seeking investment and an angel investor and as a business plan contest judge, evaluating new business plans.

I’ve also spent a lot of years in the middle — as consultant to investors and as consultant or co-founder for the entrepreneurs. Given that background, here are some thoughts that might help you validate sales.

Single customer

Sales are the best validation by far — real, actual sales, even if they’re just a single involved customer, or a small account.

Sales means people or companies are spending money to buy what you’re selling. That’s light years ahead of blank projections.

A buy-in by a potential large customer or distribution channel is also a good validation.

Getting them involved with a prototype, beta program, or early investment is great.

Overall market demographics.

How many of your potential customers (the more carefully defined, the better) are there?

How do they divide into meaningful measurable groups. This injects reality into your forecast. Know the top numbers in the market.

Avoid the small-piece-of-a-huge-market gambit.

This is the top-down forecast that starts with how much money is spent on say, home entertainment, then projects your business will get some tiny piece; like half a per cent. That is never convincing. Don’t do it. It’s deadly.

Break a forecast down into pieces. Divide and conquer.