Entrepreneurship

FORECASTING REVENUES AND

COSTS DEPARTMENT
At the end of this module, you are
expected to:
 identify essential factors in forecasting revenues and
costs;
 calculate
mark-up and selling price of a product or
merchandise;
 compute projected revenues;
 compute projected costs; and
 create a table showing projected revenue and costs.
 appreciate the significance of forecasting revenues an
costs to a business
 You have learned in the previous lesson the 4Ms of
operations; you now have the idea on what product/s to
manufacture and sell. Now, you also have a business model. One
of the most challenging parts in developing a business plan is
the financial plan. This part allows the entrepreneur to make
decisions based on financial assumptions without even having
started the business. Therefore, these financial projections
should be given the most attention by the entrepreneur.
Let us now examine how the sale of products
generates revenues. In this lesson, we will
identify the mark-up and selling price of the
product. We will also project the revenues that
the business will make from the sale of
products
 Have you tried estimating the time that it takes
you to travel from home to school? Try to fill in the
necessary information in the table below. Write
your estimate in Estimated Time column, after
arriving to school fill in the Actual Time in the blank
provided.
 Estimated Time Actual
Time
1. ____________
__________
2. ____________
__________
How close were your estimates compared to
the actual time? Did your estimate fall short
compared to the actual time? What do you
think were the factors that might have
contributed in getting you early to school?
On the other hand, does your actual time
exceed your estimates? What do you think
were the factors that might have contributed
in arriving later than your estimated time?
Considering these factors is essential in
making informed estimates by the
entrepreneur. Since the business he/she
is venturing hasn’t started yet, it is
important that these factors affecting
forecasting will be determined to better
help him/her in making the best
decisions for the business.
For the entrepreneur, after realizing the
potential for profit of his/her business
concept, the next step is to estimate
how much the revenue is on a daily,
monthly and annual basis. Before going
to forecasting and projecting the
revenues of the business, let us
determine first what revenue is.
Revenue is a result when sales exceed the
cost to produce goods or render the
services. Revenue is recognized when
earned, whether paid in cash or charged to
the account of the customer. Other terms
related to revenue include Sales and
Service Income. Sales is used especially
when the nature of business is
merchandising or retailing, while Service
Income is used to record revenues earned
by rendering services.
 You have just learned about what revenue is.
This time, let us study the various factors to
consider in forecasting revenues.
The entrepreneur would want his/her
forecasting for his/her small business as credible
and as accurate as possible to avoid complications
in the future. In estimating potential revenue for
the business, factors such as external and internal
factors that can affect the business must be
considered. These factors should serve as basis in
forecasting revenues of the business. These factors
are:
1. The economic condition of the
country. When the economy grows, its
growth is experienced by the
consumers. Consumers are more likely
to buy products and services. The
entrepreneur must be able to identify
the overall health of the economy in
order to make informed estimates. A
healthy economy makes good business.
2. The competing businesses or competitors.
Observe how your competitors are doing
business. Since you share the same market with
them, information about the number of products
sold daily or the number of items they are
carrying will give you idea as to how much your
competitors are selling. 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.
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. For example, teens usually follow
popular celebrities especially in their fashion
trend. Being able to anticipate these changes
allows the entrepreneur to maximize sales
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. The number of
products manufactured and made depends on the
capacity of the plant, availability of raw materials
and labour and also the number of salespersons
determine the amount of revenues earned by an
entrepreneur.
 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
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.
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
Selling Price for T-shirt = 135.00
Table 1 shows the projected daily revenue
of Ms. Nista’s online selling business.
Computations regarding the projected
revenue is presented in letters in upper
case A, B, C, D, and E.
Table 2 shows the projected monthly and
yearly revenue of Ms. Nista’s online
selling business. Computations about
the monthly revenue is calculated by
multipying daily revenues by 30 days ( 1
month).
For example, in Table 1 the daily revenue
is 3,420.00. To get the monthly projected
revenue it is multiplied by 30 days.
Therefore,

Projected Monthly Revenue = Projected

Daily Revenue x 30 days
Projected Monthly Revenue = 3,420.00 x
30
Projected Monthly Revenue = 102,600.00
On the other hand, the projected yearly
revenue is computed by multiplying the
monthly revenue by 12 months. The
calculation for projected yearly revenue
is as follows.
Projected Yearly Revenue = Projected
Daily Revenue x 365 days
Projected Yearly Revenue = 3,420.00 x
365
Projected Yearly Revenue = 1,248,300.00
Table 3 shows the projected monthly revenues
covering one year of operation. 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 July
to October the decrease in revenues is 5
percent from previous month. Since revenues
from sales of RTW’s are considered to be
seasonal, it assumed that there is a 5 percent
increase in revenue in November and 10
percent increase in December.
Computation for assumed increase of revenue 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
Important Assumptions:
February to May Increase of 5% from previous
revenue
June Increase of 10% from
previous revenue
July The same Revenue
August to October Loss of 5% from previous revenue
November Increase of 5% from previous revenue
December Increase of 10% from previous revenue
ACTIVITY

After learning the calculations presented, you

can now compute the projected revenue by
day, month and year based on your business
concept.
Aling Minda’s Sari-Sari Store is
operating a buy and sell business, she
sells broomsticks (walis tingting) in her
store at a local market. She gets her
broomsticks from a local supplier for 20
pesos each. She then adds 50 percent
mark-up on each broomstick. Every day,
Aling Mindas 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 January
to May, 5 per cent increase from previous
sales. For the month of June, 10 percent
increase from previous sales. For the months
July to December, record the same sales
every month.