ENTREPRENEURSHIP

LESSON 2.1-
QUARTER 2
FORECAST THE REVENUE
OF THE
BUSINESS ,FORECAST THE
COST TO BE INCURRED ,
COMPUTE PROFITS
 FORECAST THE
REVENUE OF THE
BUSINESS
 REVENUE
❑ A result when sales exceed the
cost to produce goods or render
the services.
❑ The income obtained by a
business from its sales of goods
(referred to as sales revenue) or
sales of services provided to its
customer (referred to as service
 REVENUE
❑ Recognized when earned, whether
paid in cash or charged to the
account of the customer.
⮚ Sales-is used especially
when the nature of
business is merchandising
or retailing
⮚ Service Income- e is used
to record revenues earned
 REVENUE FORECAST
The calculation of the quantity of
cash that a company will receive
from sales in products or services
during a particular time. The
business revenue forecast is an
essential part of business
planning though it is not intended
to give actual figures for each
 WHY
FORECAST?
 FORECASTING
❑A tool used in planning that
aims to support management or
a business owner in its desire to
adjust and cope with
uncertainties of the future.
❑Depends on data from the past
and present and to make
meaningful estimates on
FORECASTING REVENUES
AND COSTS IS THE SAME AS
WEATHER FORECASTING,
THOUGH FORECASTING
REVENUES AND COSTS IS IN
THE CONTEXT OF BUSINESS.
ADVANTAGES OF FORECASTING
TECHNIQUES
⮚Determine events that might affect the
operation of the business such as sales
expectations, costs incurred in the business as
well as the profit that the business is earning.
⮚Making informed estimates reduces risks that
might be experienced by the entrepreneur in
FACTORS TO CONSIDER IN FORECASTING
REVENUES
1. THE ECONOMIC CONDITION OF THE
COUNTRY
⮚The entrepreneur must be able to
identify the overall health of the
economy in order to make informed
estimates. A healthy economy makes
 FACTORS TO CONSIDER IN FORECASTING
REVENUES
2. THE COMPETING BUSINESSES OR COMPETITORS
⮚ 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.
 FACTORS TO CONSIDER IN FORECASTING
REVENUES
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.
FACTORS TO CONSIDER IN FORECASTING REVENUES
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.
 SIMPLE STEPS TO FORECAST REVENUE
1. Choose which forecasting methodology primarily based on
the business is needed, how much time you have, and
your degree of confidence in the data.
A. Top-down forecasting.-It is a method of estimating a
company’s future performance by starting with high-level
market share (your tam-total available market),
potential market share and down to revenue.
FOR EXAMPLE, IF YOUR COMPANY IS SELLING A
MOBILE PHONE, YOU MAY LOOK AT THE NUMBER OF
CONSUMERS WHO HAVE PURCHASED MOBILE PHONES.
 SIMPLE STEPS TO FORECAST REVENUE
B. BOTTOM-UP FORECASTING- it is a method of estimating company’s
future performance via starting with low- level c ompany data and
working up to revenue.
C. QUALITATIVE FORECASTING- It is an estimation methodology that uses
professional judgment instead than numerical analysis. It depends upon the
information of experienced and expert consultants to provide insights into
future
outcomes.
D. QUANTITATIVE FORECASTING- It is a statistical approach to make
predictions
about the future which makes use of numerical measures and prior results to
predict
future events. They are highly structured on mathematical calculations.
 SIMPLE STEPS TO FORECAST
REVENUE
2. IDENTIFY AND BREAK DOWN YOUR REVENUE DRIVERS SO THAT YOU CAN
FORECAST THEM LATER.
THESE ARE THE METRICS THAT WILL DRIVE YOUR REVENUE:
● SALESPEOPLE
● MARKETING
● NUMBER OF CUSTOMERS
● AVERAGE FREQUENCY OF PURCHASE (HOW OFTEN A SINGLE CUSTOMER
BUYS YOUR PRODUCT)
● AVERAGE PURCHASE VOLUME (HOW MANY PRODUCTS A SINGLE CUSTOMER
BUYS)
● VARIETY OF PRODUCTS AMOUNT SOLD OF EACH PRODUCT
● PRICES OF EACH PRODUCT
● SALES CYCLE (HOW LONG FROM START TO FINISH DOES IT TAKE A
SALESPERSON TO CLOSE A SALE)
 SIMPLE STEPS TO FORECAST
REVENUE
3. Project the drivers and
use the drivers to forecast
the revenues. And compute
the sales revenue.
 PURPOSE OF FORECASTING REVENUE
1.Can help you discover why, when, where, and how of
your sales activities.
2.It can assist you to come up with a better strategy to
maximize your profit.
3.It can also help with your cash flow management
through planning your capital needs to keep away from
lacking payments, dropping suppliers and investors, and
adverse credit history.
4.It can assist to determine profit margin and contribution
to gross profits.
5.It can manage production scheduling to prevent
bottlenecks that would possibly cause lost income and
 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.
Table 1 shows the projected daily revenue of Ms.
Nista’s online selling business. Computations
regarding the projected revenue is presented in
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
 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
COMPUTATION FOR ASSUMED INCREASE OF REVENEUE 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.
 ACTIVITY 2.1

•DIRECTIONS: COMPUTE THE PROJECTED REVENUE BY DAY,

MONTH AND YEAR BASED ON THE BUSINESS CONCEPT.

PROBLEM: 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.
• Use the calculations you have made in Table 1 to successfully
complete the information in Table 2 and calculate the projected
monthly and yearly revenue of Aling Minda’s business.

• For Table 3, use the following assumed increases in sales every

month:
From February to May, 5 % increase from previous sales.
For the month of June, 10 % increase from previous sales.
For the months July to December, record the same sales
every month.