To manage the expansion of your business, you ABSOLUTELY need to know how to project future revenue.  Knowing the mechanics behind this is VITAL to your growth. Whether your goal is to boost the confidence of financiers or to communicate your ambitions and policies to your team, your business will always benefit from your clear vision and intentions on how to get there.

I’ve been asked about revenue projections repeatedly during my Business Acceleration Intensive weekends. Here’s what it usually sounds like, “I need to know what a decent five-year revenue ramp should be for my business plan. How do I make it attractive to financiers?“ The problem? CEOs wait and ask me this question far too late in their process.  Learning this at the BEGINNING of a financing effort, or even earlier, will take you MUCH farther on your expansion journey.

Why?  Because financiers like to see a decent revenue ramp, plus a controlled cost structure. Sloppy cost control will botch your profitability at the speed of light. Also, there are key inflection points that are expected in the growth of a business if it is to be considered compelling.

Let’s use this example. Company X is a product company, expecting approximately 70% revenue from products and 30% revenue from services. I’d expect cash-flow breakeven at the end of Year Two and profitability at the end of Year Three. By then, initial development costs should be covered by sales. And the company should know the estimated lifetime value of a customer, have repeat purchases, and have solid expense data, too. That’s because in Year Two it’ll have its internal systems and processes in place and run more efficiently.

A Smooth, Upward Path

Here’s a revenue ramp example if Company X is seeking equity financing:

Year One: $500,000 to $1 million (shows X can go from zero to somewhere)

Year Two: $1 million to $2 million (double previous year’s revenue)

Year Three: $3 million-plus to $6 million-plus (triple to quadruple previous year’s revenue—Year Three is when the staff, systems, products are solidly in place and a customer base with repeat sales is firmly established. This is when X is ready to blow the doors off!)

Year Four: $9 million-plus to $18 million-plus (triple or more previous year’s revenue)

Year Five: $27 million-plus to $54 million-plus (triple or more previous year’s revenue)

Remember, equity investors want to see rapid growth. They’re investing for a glorious exit, and generally want startups to get to $50 million-plus in revenue in five years or so, depending on the type of business.

A Gentler Incline

If you’re seeking a loan, I’d dial down the revenue projections above, as the goal here is to show a stable, growing company that will have the ability to repay its loan on time. In this case, again using all the assumptions above, I’d lay out the revenue projections like this:

Year One: $500,000 to $1 million
Year Two: $1 million to $2 million (double previous year’s revenue)
Year Three: $2 million to $4 million (double previous year’s revenue)
Year Four: $6 million to $12 million (triple previous year’s revenue)
Year Five: $18 million-plus to $36 million-plus (triple or more previous year’s revenue)

LEARNING how to build a business that has expansion BUILT IN to it’s plan, that is a company that will give you CHOICES.  I’ve been gifted to take a LOT of companies down that path and through that journey – teaching them to understand their top line AND their bottom line.  If you’re ready to rock and to build a company that is READY to expand and READY for financing, feel free to get on board.

I’m taking my BAI weekends on the road and building communities of business builders all over the country.  Because Business Acceleration is not a theory, it’s your future.  http://bit.ly/ComafordBAI

Christine Comaford, Executive Mentor
CEO of Mighty Ventures, Inc.
NY Times Best Selling Author

Christine is the leading authority on business acceleration and optimization.
She has built and sold 5 of her own businesses with an average 700% ROI.
She has served as a board director or in-the-trenches advisor to 36 startups.
She has invested in over 200 startups including Google.

Christine has consulted to the White House (Clinton and Bush), as well as 700 of the Fortune 1000, and 300+ small businesses. She repeatedly removes obstacles and optimizes performance in companies large and small.