RENAISSANCE ENTREPRENEURSHIP CENTER
The Business Planning Class
ASSIGNMENT SEVEN
A Simple Annual Projection
By Paul Terry
Name: ________________________________
Due: See Assignment Schedule
The following are examples of how to calculate an annual sales projection for your start-up or expanding
business by simply starting with what you want to make in the next year. The first example is for a service
business The second example is for a product business. Pick the one most appropriate for you. (Note: We
have not included taxes or investment needed as start-up or expansion cost.)
Example One: A Service Business
1.
2.
3.
4.
5.
In my first or next year, I want to make
Estimated annual overhead (e.g., $1500/month x 12 months)
Total estimated sales needed for first/next year (#1 + #2)
Average amount per month (#3 divided by 12)
Estimated rate is $40 per hour. (You would research appropriate billable rate)
30,000
18,000
48,000
4,000
Calculations:
6. At $40 per hour, the number of billable hours needed per month is 100 hours. (This is step
#4 divided by step #5 or $4,000/$40 = 100 hours)
7. If we estimate 20 business days per month, then the number of billable hours needed per day
is 5. (100 hours divided by 20 days)
Comment:
To make the above projection work, this business must bill an average of 5 hours per work day to
generate $48,000 in sales. Can this be done?
Your Service Business: (YOU DO THIS ONE IF YOU ARE A SERVICE BUSINESS.)
1.
2.
3.
4.
5.
In my first or next year, I want to make
Estimated annual overhead (e.g.,$ __________x 12)
Total estimated sales for first/next year (Line#1 + Line #2)
Average amount per month (Line #3 divided by 12)
My estimated hourly rate is _______. (Your choice to estimate)
__________
__________
__________
__________
Calculations:
6. At $____/hour (see amount chosen for line 5 above), average number of billable hours
needed per month will equal ______ hours. (#4 divided by #5)
7. At _____ days/mo, average number of billable hours needed/day will equal ___________ (#6
divided by # of days)
Question:
Can your business bill _____ hours per work day? If not, what alternatives do you have in
changing the billable rates or number of hours, lowering the overhead or reducing draw and
increasing sales?
Response:
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
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Example Two: A Product Business
Step One:
1. First, you need to calculate your estimated gross profit (or gross profit margin)
A. You estimate you want to make a net profit (available for draw) of:
$ 36,000
B. You estimate an annual overhead: (estimate $2,000/mo x 12 mo)
24,000
C. Therefore, estimated gross profit is: (add #1 + #2):
$ 60,000
Step Two:
2. Next, choose an estimated cost of goods sold (COGS) for your business. Cost of goods sold is
estimated by owner based on experience, competition or industry standards. For example, here we
assumed COGS of 40%.
A. Choose the COGS %: (For example, based on our research and experience, we chose 40%)
B. Calculate Gross Profit %: (To review, 100% - COGS % = Gross Profit %).
So 100% - 40% =60% or 60/100 or .60 (converted to a decimal).
C. Determine COGS in dollars as follows: COGS% divided by GP% x GP in dollars = COGS in $
(For example: .40/.60 x $60,000 =$40,000). Therefore the COGS in dollars is $ 40,000
Step Three:
3. Finally, calculate annual sales in dollars:
To determine Annual Sales required: Gross Profit$ + COGS$ = Annual Sales in dollars.
So, ($60,000 + $40,000 = $100,000). Total Sales is
$100,000
4. Average amount of sales per month (#3 divided by 12) = $ 8,300
5. We set the unit price at $5/unit; then the number of units needed per month is $8,300/$5 = 1660 units.
6. In 20 workdays/month, estimated number of units needed per day is 1660 units/20 days = 84 units
Question:
Can you sell 84 units per day at an average price of $5 per unit? If not, you need to recalculate and change
estimated profit, overhead or cost of goods sold percentage estimate to make your business profitable
(based on the above assumptions). You may also need to change the price of the units of sale.
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Your Product Business: (YOU DO THIS IF YOU ARE A PRODUCT BUSINESS)
Step One:
1. You need to calculate your gross profit
A. In my first or next year, I want to make a net profit of:
B. Estimate for annual overhead (e.g.,$ __________/month x 12)
C. Total estimate needed for gross profit (add Line #1 + Line #2)
_________
_________
_________
Step Two:
2. Next, is to estimate for COGS.
A. Your research estimates COGS at ____% . (Fill in your guess or industry average here.)
B. Therefore, we can calculate your GP% by subtracting COGS% from Total Sales
(TS% - COGS% = GP%) For example, 100% - 30% = 70%
C. Now you can determine COGS in dollars: COGS%/GP% x GP
in dollars = COGS in $. (.30/.70 x GP$ = COGS in dollars)
Cost of Goods Sold in Dollars (as estimated above)
__________
Step Three:
3. To calculate Annual sales required, add the amount of gross profit to the amount for cost of goods
sold. This should equal Total Sales in dollars.
Total Sales in Dollars
__________
4. To get average amount of sales per month, divide by 12.
__________
5. At your estimate $___ per unit, the number of units needed per month is =
__________
(sales/month divided by $ per unit)
6. At _____ days per month, number of units needed per day =
__________
Question:
Can you sell _____ units per day? If not, you need to recalculate and change estimated net profit, overhead
or cost of goods sold percentage estimate.
Response:
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
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