Jump to content
ADI Forums
BoydLabBuck

Startup Sales forecast help

Recommended Posts

BoydLabBuck    0

Hey everyone, I'm in the midst of writing a business plan for a small distillery with tasting room.  I have a solid image of what I want to do and approximately the startup size, but I have no data to create a sales forecast.  I could ballpark numbers, come up with a couple scenarios, but even then I'm just spitballing it.

For those that have dealt with this issue, how did you develop a sales forecast?  I tried contacting the state division of liquor control to get my hands on statewide sales data, but they've been unresponsive.

Any tips or advice?  TIA!

Share this post


Link to post
Share on other sites

Can you answer the following questions? And maybe members can chime in afterwards. 

Rural or suburban location?

Tourist area?

Walking distance to other attractions?

Selling bottles out of the tasting room?

Cocktail bar or just samples?

Distribution in the first year or just the tasting room?

Selling merchandise in store and online? 

Selling the tasting room as a venue?

The list could go on.... but i think that might be enough to throw some ballpark numbers around.

Share this post


Link to post
Share on other sites

Why not just assume zero for the first two years, and understand how that impacts your business model?  Then model some realistic and optimistic cases on top of that, and build out a probability-weighted average?  

Nobody has a crystal ball.

It was useful for me to build out an Excel model that took into account startup costs, in addition to fixed and variable operating costs, which took in various sales scenarios and calculated P&L, etc, etc accordingly.

The probability weighted average, along with a dynamic spreadsheet, allows you to start playing to various scenarios (including hugely pessimistic ones).

This way, you can adjust your planning accordingly to account for various scenarios.  So while we hope the optimistic forecast plays out, we can at least have some confidence that the pessimistic forecast won't result in short-term failure.

Share this post


Link to post
Share on other sites

Just to be clear, the probability weighted forecast isn't about yielding an accurate forecast number, it's about testing the business model against various scenarios to understand how it will react to those, both optimistic and pessimistic.  From a methodology perspective, it's the exact opposite of trying to build a single accurate forecast.

It's acknowledging that you aren't in a position to build a single highly confident forecast, so instead you build a set of different forecasts, and assign a probability to those, for example, I'm 30% confident in the pessimistic forecast, 60% confident in the baseline forecast, and 10% confident in the optimistic forecast.  We then plug those in, and see how those impact the model.

Then, you can start to test the model - ok - what happens if we push the pessimistic to 40% and baseline to 50%?  Or, what if we increase the volume on the optimistic scenario.  Or, you can start to look at it from another perspective, such as what are the minimum monthly sales volumes necessary to break-even?  Or, at what point can I actually draw a salary, have enough cash to make a subsequent investment, what level of sales do I need to be able to afford a certain level of inventory build, etc.

  • reaction_title_1 1

Share this post


Link to post
Share on other sites
Foreshot    12

Another one: Are you selling aged or unaged spirits? Aged spirits take time to age... 

 

Your question misses the biggest factor in the equation: Where are you? To answer your question really well it would require local knowledge. Without it we can only give you generalizations. 

 

Two big factors are local population and your location. If you are in a larger population area you're probably will be fine with a "B" or "C" retail location. In a smaller population area you need to be in "A" or "B" retail or else make yourself out to be a destination/anchor. If you locate near on a major road and you have good signage consider part of your rent/mortgage to be advertising. "A" retail = major anchor or mall nearby, "B" = no major anchors close but on a major road or close, "C" = on a larger road or near a cluster of smaller retail. Most retail is sold with either a foot traffic or a "cars per day" estimate as well as income for 5,10, 20 miles or so. Unless you plan on being a destination then stick to "C" or better retail. For a destination you need to have something special for people to come and see. 

You can also help foot traffic by locating near a similar business, be it beer, wine, or another distillery. In that case it's called an economic corridor. It creates a location that people that want your product are more likely to go as it reduces the search cost for an item. It creates the destination for them. Most car dealerships do this by clustering near each other. 

If you're doing distribution are you going with a distributor or self distributing? That will change things. Each state and distributor is different in this. Local knowledge matters a lot with that. 

 

For sales forecast as other have said it's going to be a guesstimate but you can try this: 

How many people are in your area within: 5, 10, 30, 50, 100 miles. The further they are the less likely they are to come to your store. 

What is the market for your product? I don't know where you're at so I don't know whom you could ask for this info or than looking at national sales trends. SCORE and the SBA could also help with more localized data. 

How many people are going to know about your product based on marketing? Most advertising is sold on impressions so it's fairly easy to work with them to figure out a percentage. 

Of the people that know about your products, how many people are going to be willing to go to your store (or website) and buy something?

What kind of retail space are you in? A,B or C? Each one lowers the # of people in the door. 

 

You'll end up seeing some really large numbers get whittled down to some small numbers. Don't be discouraged, be realistic. If you have a really good product, people will know and spread that fact by word of mouth. Marketing is going to be your biggest issue to getting people in the door. If you don't have experience with marketing find a business that can help. You'll probably spend more money on it than you want but it's how you get customers. 

Good luck! 

Share this post


Link to post
Share on other sites
Foreshot    12
1 hour ago, Silk City Distillers said:

It's acknowledging that you aren't in a position to build a single highly confident forecast, so instead you build a set of different forecasts, and assign a probability to those, for example, I'm 30% confident in the pessimistic forecast, 60% confident in the baseline forecast, and 10% confident in the optimistic forecast.  We then plug those in, and see how those impact the model.

That ^^^^^^ know what your breakeven is and you're setting yourself up very well. Build actionable plans based on each scenario. Then when the numbers come in execute the plans. 

Share this post


Link to post
Share on other sites
Quirk    1

These are all really thoughtful responses folks. Very valuable information. This thread should be pinned!

There has never been a sales forecast in history that was accurate. Never. They are all wrong, always. The question is how close can you get.

My uncle rides a motorcycle. He says there are two kinds of riders: those who have wrecked, and those who will. You just have to prepare for the pessimistic forecast, but strive for the optimistic one. And enjoy the ride.

 

Share this post


Link to post
Share on other sites
Foreshot    12

To answer the question of how many people live in your area you can lookup your MSA: http://www.census.gov/population/metro/data/def.html

Estimated census for the MSA's (updated yearly): https://www.census.gov/programs-surveys/popest.html

https://en.wikipedia.org/wiki/Metropolitan_statistical_area

Pittsburgh MSA on Wiki, as an example, smaller metros are less detailed: https://en.wikipedia.org/wiki/Pittsburgh_metropolitan_area

There's tons of info related to MSA on the BLS wesbite - https://www.bls.gov/. Most those of that is more useful in a B2B business. You can look up restaurants(NAICS 722) to see what they did in your MSA: https://www.bls.gov/iag/tgs/iag722.htm

I forget how (as it's been a while) but you can lookup your NAICS code in your area and see all of your reported economic activity. It's not super accurate but good enough to get a rough idea.The NAICS code is for a distillery is 312140 (https://www.census.gov/econ/isp/sampler.php?naicscode=312140&naicslevel=6). I wouldn't use that as a good indicator of business though. The stats are for production without regard to export or local sales. If you're in a MSA with Jack Daniels your stats will be way higher than in a MSA without any distillery. It won't result in a good estimate of sales. I would go with the restaurants as a better guide to economic activity in your area.   

Share this post


Link to post
Share on other sites
Huffy2k    24

Once you settle on your numbers (whatever they may be) do this simple adjustment:

Multiply your expense forecast by 2 and divide your revenue forecast by 2!  :lol:

Share this post


Link to post
Share on other sites
BoydLabBuck    0

Wow, thanks everyone for the responses, this blew up fast.  I'll try to go through one by one.

 

On 2/20/2017 at 7:20 AM, JoshGreenDoorDistilling said:

Can you answer the following questions? And maybe members can chime in afterwards. 

Rural or suburban location?  Suburban

Tourist area?  Somewhat, but not primarily.  Prime location I'm scouting is near a handful of hotels used for business travelers primarily.

Walking distance to other attractions?  As above, prime location is a to-be-developed area.  City plan is to turn outdated corporate parks into office/restaurant mix with potential for condos/light residential.  Not so much "attractions" I'd say.

Selling bottles out of the tasting room?  Absolutely

Cocktail bar or just samples?  Brewpub style restaurant/bar

Distribution in the first year or just the tasting room?  Distribution locally, hopefully statewide within 3 years.

Selling merchandise in store and online?  Assumed store only, although maybe minimal stuff online?  If it's profitable I'm not opposed to it.

Selling the tasting room as a venue?  Possibly, but assumption is small (20 people) private room initially.  I would hate to disappoint regular dinner customers by having the place rented out every Saturday night.

The list could go on.... but i think that might be enough to throw some ballpark numbers around.

 

Share this post


Link to post
Share on other sites
BoydLabBuck    0
On 2/20/2017 at 7:23 AM, Silk City Distillers said:

Why not just assume zero for the first two years, and understand how that impacts your business model?  Then model some realistic and optimistic cases on top of that, and build out a probability-weighted average?  

Nobody has a crystal ball.

It was useful for me to build out an Excel model that took into account startup costs, in addition to fixed and variable operating costs, which took in various sales scenarios and calculated P&L, etc, etc accordingly.

The probability weighted average, along with a dynamic spreadsheet, allows you to start playing to various scenarios (including hugely pessimistic ones).

This way, you can adjust your planning accordingly to account for various scenarios.  So while we hope the optimistic forecast plays out, we can at least have some confidence that the pessimistic forecast won't result in short-term failure.

 

I'm having a hard time getting approved for a SBA loan or having investors given two years without revenue.  I've started doing something similar, my concern is just when someone asks me to justify my sales forecast and I go ¯\_(ツ)_/¯

Share this post


Link to post
Share on other sites
BoydLabBuck    0
On 2/20/2017 at 9:13 AM, Foreshot said:

Another one: Are you selling aged or unaged spirits? Aged spirits take time to age... 

Both.  Ideally whiskey and rum, but I can't see a scenario where I can go two years without revenue.  Vodka is easy enough, and I personally don't care for gin but I know it's the trendy spirit (to some) at the moment.

Your question misses the biggest factor in the equation: Where are you? To answer your question really well it would require local knowledge. Without it we can only give you generalizations. 

Without giving away too much, a suburb of a moderate sized midwestern city.

Two big factors are local population and your location. If you are in a larger population area you're probably will be fine with a "B" or "C" retail location. In a smaller population area you need to be in "A" or "B" retail or else make yourself out to be a destination/anchor. If you locate near on a major road and you have good signage consider part of your rent/mortgage to be advertising. "A" retail = major anchor or mall nearby, "B" = no major anchors close but on a major road or close, "C" = on a larger road or near a cluster of smaller retail. Most retail is sold with either a foot traffic or a "cars per day" estimate as well as income for 5,10, 20 miles or so. Unless you plan on being a destination then stick to "C" or better retail. For a destination you need to have something special for people to come and see. 

You can also help foot traffic by locating near a similar business, be it beer, wine, or another distillery. In that case it's called an economic corridor. It creates a location that people that want your product are more likely to go as it reduces the search cost for an item. It creates the destination for them. Most car dealerships do this by clustering near each other. 

I'm looking at a new development that will combine commercial office space, retail and restaurants with residential nearby or possibly included.  I would love to have a nice property on the outskirts of town, but without a name I'm worried about being it's own destination.

If you're doing distribution are you going with a distributor or self distributing? That will change things. Each state and distributor is different in this. Local knowledge matters a lot with that. 

We're an ABC state.  I'm targeting for my management team a guy with a couple decades of experience with beer sales and distribution locally.

For sales forecast as other have said it's going to be a guesstimate but you can try this: 

How many people are in your area within: 5, 10, 30, 50, 100 miles. The further they are the less likely they are to come to your store. 

What is the market for your product? I don't know where you're at so I don't know whom you could ask for this info or than looking at national sales trends. SCORE and the SBA could also help with more localized data. 

I've looked at national trends and even high level statewide data, but finding more detailed information hard to come by.  I'd really like to know what my (soon to be) competitors are doing, but I'm sure everyone wants that.

How many people are going to know about your product based on marketing? Most advertising is sold on impressions so it's fairly easy to work with them to figure out a percentage. 

I'll need to dig into this more.  Luckily my wife was in digital sales for a while.

Of the people that know about your products, how many people are going to be willing to go to your store (or website) and buy something?  How do you know until you've tried?

What kind of retail space are you in? A,B or C? Each one lowers the # of people in the door.  Targeting B, a mix of visibility and reasonable price of land.

 

You'll end up seeing some really large numbers get whittled down to some small numbers. Don't be discouraged, be realistic. If you have a really good product, people will know and spread that fact by word of mouth. Marketing is going to be your biggest issue to getting people in the door. If you don't have experience with marketing find a business that can help. You'll probably spend more money on it than you want but it's how you get customers. 

Good luck!   Thanks for the detailed response!

 

Share this post


Link to post
Share on other sites
BoydLabBuck    0
On 2/20/2017 at 3:39 PM, Foreshot said:

To answer the question of how many people live in your area you can lookup your MSA: http://www.census.gov/population/metro/data/def.html

Estimated census for the MSA's (updated yearly): https://www.census.gov/programs-surveys/popest.html

https://en.wikipedia.org/wiki/Metropolitan_statistical_area

Pittsburgh MSA on Wiki, as an example, smaller metros are less detailed: https://en.wikipedia.org/wiki/Pittsburgh_metropolitan_area

There's tons of info related to MSA on the BLS wesbite - https://www.bls.gov/. Most those of that is more useful in a B2B business. You can look up restaurants(NAICS 722) to see what they did in your MSA: https://www.bls.gov/iag/tgs/iag722.htm

I forget how (as it's been a while) but you can lookup your NAICS code in your area and see all of your reported economic activity. It's not super accurate but good enough to get a rough idea.The NAICS code is for a distillery is 312140 (https://www.census.gov/econ/isp/sampler.php?naicscode=312140&naicslevel=6). I wouldn't use that as a good indicator of business though. The stats are for production without regard to export or local sales. If you're in a MSA with Jack Daniels your stats will be way higher than in a MSA without any distillery. It won't result in a good estimate of sales. I would go with the restaurants as a better guide to economic activity in your area.  

I've browsed some of this already, but thanks for the NAICS information.  I was not aware of being able to pursue that route.

Share this post


Link to post
Share on other sites
BoydLabBuck    0
On 2/20/2017 at 9:26 PM, Huffy2k said:

Once you settle on your numbers (whatever they may be) do this simple adjustment:

Multiply your expense forecast by 2 and divide your revenue forecast by 2!  :lol:

My current career is capital equipment / production engineering.  I'm well versed in the multiply by 2 experience!

Share this post


Link to post
Share on other sites
Huffy2k    24

All kidding aside, you don't have to wait 2 years for whiskey. While that is preferable, quicker aging is possible (albeit expensive) in small casks. Fill small casks first while gradually transitioning to larger and larger casks. Not optimal but it sure beats 2 years waiting for revenue...

Share this post


Link to post
Share on other sites
Foreshot    12
12 hours ago, BoydLabBuck said:

I'd really like to know what my (soon to be) competitors are doing, but I'm sure everyone wants that.

SCORE or the SBA may be able to help you with this.

Or you can run a credit report on them. It won't give you a great picture of sales but will at least tell you if they are keeping up or not. Trades matter, the Non-trades vary based on the owner. If both are good the company is probably pretty solid. If trades are bad then it's bad sign for them.

 

12 hours ago, BoydLabBuck said:

I'm looking at a new development

That's a good idea, they will be advertising heavily and getting people there. Maybe even negotiate something with them to see if they would help you with co-op advertising or highlight your business.

 

 

Share this post


Link to post
Share on other sites
Scalawag    6

Some of the best advice I saw posted on this forum regarding start up was; Your starting a marketing company that sells booze. Locally that has played out exactly that way. You don't need to make good spirits to be successful, you need to sell lots of spirits to people that don't know the difference. If you can't survive two years loosing money you may want to try something else. I have always said that I am driven by passion and purpose not fame and fortune. Our focus has been to make the best spirits possible. Eventually that will win the day'. But not in the short run.UNLESS, you are a marketing company selling booze. If you make it they will come only works in the movies. If you love to make spirits, make spirits. If you love to make easy money, do something else. Its easy to make spirits. Its hard to make good spirits and even harder to sell it.

  • reaction_title_1 1

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now

×