What is the right revenue estimate?

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:

  1. Estimating too little
  2. 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.

Advertisements

Author: Prajakt Raut

Prajakt Raut is the founder of Applyifi.com, and author of the book for startups - ‘Starting Up & Fund Raising’ Prajakt personal goal in life is to encourage and assist a 100,000 people to become entrepreneurs. _____________ Prajakt is the founder of Applyifi - an online platform that provides startups a 36-point scorecard and assessment report on the venture's investment readiness [www.applyifi.com], and helps them improve their odds of getting funded. Prajakt is also the founding partner of The Growth Labs, a platform where growth-stage companies get sharp, incisive advice from senior professionals and experienced entrepreneurs. [www.thegrowthlabs.in] Before starting Applyifi, Prajakt was the head of operations at IAN, founding member of a leading incubator, and the Asia-Director for TiE (2004 - 2007). Previously Prajakt had co-founded Orange Cross, a healthcare services company, and was part of the founding team member of Idealake Technologies. While in college Prajakt had founded a printing business and has spent over 10 years working in leading advertising agencies. Prajakt’s book, ‘Starting Up & Fund Raising’, helps startups understand an investor’s perspective, and helps them improve their odds of getting funded. The book also helps entrepreneurs understand the building blocks of a business.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s