Inc.:
Q: My start-up is a website specializing in hosting a niche market of viewers’ videos. As an original content site offering free information and video my only source of revenue will initially be through advertisement. How can I forecast earnings to my potential investors with a business model such as this?
A: Revenue and earnings forecasts are an inexact science, so the most important thing you can do to earn credibility with investors is to demonstrate a logical thought process and a dose of reality to support your forecasts.
In your case there are three variables to consider, the number of potential advertisers, the average amount of annual revenue you could realistically expect from each based on current statistics of similar businesses, and the productivity of your sales engine in any given year. The formula is fairly simple. Follow these steps.
1. Calculate your total addressable market. This is the number of businesses that have a product or service relevant to your audience, multiplied by the average amount of annual advertising revenue you could expect from each.
2. Create your annual forecast by multiplying the number of advertisers you can sign on each year by $6,000. In this case it would be 250 x $6,000 for a total of $1.5 million. Be sure to annualize this forecast to account for the fact that not all advertisers will sign on at the same time.
John Mansour is founder and CEO of ZIGZAG Marketing.
Photo by ZIGZAG Marketing.
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