Well, there is obviously no right or wrong revenue estimate. It is often a reflection of the vision and aspiration of the entrepreneurs
However, among the many mistakes that many entrepreneurs make while estimating revenue, the two top ones clearly are:
- Estimating too little
- Estimating too much
Here’s an oversimplification of how you could think about the revenue targets that you aim for. Obviously, this is an oversimplification but it does give you a good view of what you could potentially aim for.
The hypothesis of this oversimplification is that investors like to back potential market leaders. If so, assuming the market potential for the concept you are pursuing is around INR 1000 cr., and given that in most categories the market leaders will have anywhere between 25 – 40% market share, it will be good for you to at least aim to be a Rs.250 – Rs.300 cr. company in a reasonable time frame.
This at least gives you a good shot at being among the top 3-4 players in that category.
On the other hand, if in a market with a potential of Rs.1000 cr revenue, your startup aims to have a revenue of Rs.50 cr in the next 4-5 years, you are most likely to be a marginal player and hence will not be exciting for investors.
Do also remember that in some categories there is a ‘winner takes all’ scenario. E-commerce in some categories, especially in generic / multi-category retail, is a one-horse-game in many markets.