» REVENUE & COST PROJECTIONS
REVENUE & COST PROJECTIONS
Premier Business Experts’ Accurate Sales Revenue Projections Improve Profits!
On the Business Startup page of this website, the following note was made:
“IT IS TYPICALLY MUCH MORE DIFFICULT TO ASSESS THE REVENUE POTENTIALS THAN THE COSTS OF A NEW BUSINESS VENTURE. HOWEVER,THE PROFESSIONALS AT PREMIER BUSINESS EXPERTS ARE THE BEST WHEN IT COMES TO EXAMINING WHAT SIMILAR BUSINESSES ARE DOING, DETERMINING WHICH OF HUNDREDS OF VARIABLES HAVE INFLUENCED THEIR FINANCIAL PERFORMANCES AND BUILDING HIGHLY-ROBUST, MATHEMATICAL MODELS THAT PREDICT THE LOWER-BOUND AND MOST-LIKELY SALES, TYPICALLY WITH A GREATER THAN 95% ACCURACY! THE RESULTS HAVE BEEN EXPEDITED FINANCING FOR NOT JUST MANY BUT, MORE IMPORTANTLY, MOST VENTURES WHERE THOSE AT PREMIER BUSINESS EXPERTS HAVE CONDUCTED THE FEASIBILITY STUDIES AND PREPARED THE BUSINESS PLANS! (AFTER YOU READ THIS PAGE BE SURE TO GO TO THE FEASIBILITY STUDIES & BUSINESS PLANS PAGE ON THIS WEBSITE.) ADDITIONALLY, YOU SHOULD KNOW THAT THE TEAMS AT PREMIER BUSINESS EXPERTS ARE GREAT WHEN IT COMES TO ASSESSING THE VALUE OF AN EXISTING BUSINESS, WHICH ONE MAY BE CONTEMPLATING BUYING OR SELLING! FOR SMALLER, ‘LIFESTYLE’ BUSINESSES SUCH AS DRY CLEANING AND RESTAURANT OPERATIONS, WITH A SOLID HISTORY, THE TIME AND COSTS ARE VERY LOW, ESPECIALLY WHEN ONE CONSIDERS THE COSTS OF A BAD DECISION!”
This said the reasons that it is generally more difficult to predict the sales revenues than the costs, for an existing business, have to do with (1) multiple suppliers normalizing prices and (2) the individual challenges faced by each company. Especially challenging to those at Premier Business Experts was the airline industry, which its professionals handled in the manner shown below.
How those at Premier Business Experts Addressed the Need for Accurate Sales Revenue Predictions at an Airline
With the airline industry, Premier Business Experts addressed the problem of sales revenue forecasts in steps. First, the professionals at Premier Business Experts determined the overall demand for all flights going between an origin and a destination on a given day. They then determined the number of passengers on a given flight going to a particular destination. Explained differently, if you are traveling from Kennedy Airport in New York City to Los Angeles International Airport you can take a nonstop or a direct (e.g., you stay on the same plane but touchdown in a place like Chicago) or an online connect (e.g., you travel on United for the whole journey, but transfer planes in Saint Louis) or an interline connect (e.g., you travel part of the way on Delta and part of the way on Northwest Airlines), and the problem becomes even more difficult when you realize that you can go extremely far “out-of-the-way” to say Miami. Thus, there are truncation rules on how far one can realistically go “off course,” as well as mathematical algorithms that give preference to (1) nonstop over direct over online-connect over interline-connect options, (2) certain types of planes (e.g., jets are preferred over turboprops), (3) set times of the day, (4) specific days of the week, (5) carriers having a larger presence at an airport (e.g., Southwest has an edge at Love Field in Dallas), etc. Then, once the passengers on a plane for a certain type of trip (e.g., the passengers on a trip from Chicago to Dallas at 7:00 PM on a Monday in the middle of June who are headed to Houston) are known, they are summed to get the total number of passengers on the plane. Yet, the problem becomes even more complicated when you realize that first class passengers often book close to when the flights take place, while “discount travelers” often book their flights weeks in advance. Hence, Premier Business Experts had to develop “spill and recapture” models where for instance a person wanting a “cheap seat” three weeks in advance is “spilled,” meaning told that none are available. This was due to the airline wanting to “hold back” some seats to serve the anticipated high-paying customers. Yet, if at the last-minute there were not enough high-paying passengers to fill the plane, the airline wanted to “recapture,” some of the discount travelers, by offering some low-priced seats. The reason had to do with the airline industry being the “ultimate perishable product,” meaning that if a seat went empty on a flight there was no way to ever recapture that lost revenue. Making the problem even more difficult was how much cargo (i.e., especially first class mail) should have been taken on a given flight to maximize profitability, with the realization that extra fuel (with a sizable safety margin) had to be put in the tanks to carry the added weight. Yet, the talented individuals at Premier Business Experts have handled these difficult types of problems with excellence, and they have improved the accuracy of sales revenue projections by more than 15%. More importantly, Premier Business Experts can handle your sales revenue forecasting needs with great dexterity!
In terms of other forms of transportation, meaning new models of automobiles, the professionals at Premier Business Experts have mailed promotional materials to random samples of households, gotten back the results and then built and tested mathematical models predicting the probabilities that a household would go into a dealership and buy a particular model of vehicle. (If you have ever received a key in the mail asking you to go to a dealership, within a set time frame, to see if your key starts a car, you are likely part of a sample, and your odds of winning a vehicle are probably about one in 60,000.) Once those at Premier Business Experts built, tested and settled on a model, they then ran it to give every household in America a probability score between 0% and 100% of buying the vehicle so that nice brochures could be sent to “breakeven and better” households, with the bottom-line, positive impact on profits of this approach, versus others, being in the tens of millions of dollars per new car mailing!
Switching from cars to books being sold through the mail by book clubs and major publishers, the professionals at Premier Business Experts have often sent different mailers (i.e., with varying prices and unique creative designs) to random samples of households on a database. Besides determining the proper price and proper creative, those at Premier Business Experts have used the results to determine which households on a client’s database (or a purchased database) should receive a mailer. Thus, the approaches, which the teams at Premier Business Experts have used for the direct marketing of books, have been similar to those that they have used for new automobile mailings.
Other types of situations, which those at Premier Business Experts have skillfully handled, have involved how much to charge different types of magazine subscription customers. One such case is described in the following story:
How Premier Business Experts Helped a Seller of Magazines Make More Money
The amount to charge different types of individuals, for magazine subscriptions, represented a particularly interesting problem for the professionals at Premier Business Experts. The reason is that individuals, who have consistently renewed their subscriptions every time they are offered, and for the maximum periods offered, are as a whole “price inelastic” (i.e., price insensitive), when compared to people who, for one reason or another, dropped their subscriptions. Thus, in the “selling-of-magazines industry,” those who are the most loyal magazine subscribers often face a “volume surcharge price” when compared to those who are price elastic. In essence, the situation is similar to that you may have faced if you bought the largest containers of goods like peanut butter and paid more on a per ounce basis than if you had bought the smaller jar. This is despite the larger sizes costing the producer less to make on a per ounce basis, due to the amount of glass, per ounce of the food product, being less for the larger jars. With this being the case, Premier Business Experts put together experiments and determined the profit maximizing prices for the seller of magazines. As it turned out, the best customers did indeed pay the most money for their subscriptions!
================================================================================ Still another complex problem handled by Premier Business Experts involved determining the additional revenue a Consumer Packaged Goods (CPG) company would receive when its products were “on deal” This is shown by the below story.
How Premier Business Experts Predicted the Revenues a Consumer Packaged Goods (CPG) Company Would Receive By Offering Price Promotions
Problem: A Consumer Packaged Goods (CPG) company wanted to know if, and when, to offer lower prices on the beverages it made in order to maximize its profits.
Solution: The professionals at Premier Business Experts examined the historical pattern of price promotions for this leading manufacturer. In so doing, they found an ideal number of days, for running a price promotion, before the customers interpreted the lower prices as being firmly established. Additionally, the teams at Premier Business Experts found the incremental increases in sales volumes during the price promotion periods versus the sizes of the decrements immediately after the post-promotions ended. As for the sharp increases in sales, which Premier Business Experts observed, they were primarily due to the “taking of sales from competitors,” while the slightly lower sales for a very short period, after a promotion ended, were attributable to loyal customers who had “stockpiled” the products while they were on sale. After performing analyses to ascertain such effects, as well as the impacts of days of week, presence or absence of a holiday, etc., those at Premier Business Experts built a sales forecasting system, which told when, where and for how long to run price promotions for more than 200 different products in over 1,200 areas of the United States. The results were that the company boosted its bottom-line profits by 6% and increased its market share by 8%!
Premier Business Experts’ Accurate Cost Predictions Improve Profits!
As noted above, determining revenues is generally more difficult than determining costs. This is especially the case if you are dealing with readily available commodities and/or components. However, if you have a situation with ingredients and/or components having high prices, you might want to build an autoregressive integrated moving average (ARIMA) model or an exponentially smoothed equation (e.g., a double exponentially smoothed algorithm with seasonality multipliers or triple exponentially smoothed model that accounts for rapid accelerations, etc.) to predict costs. This said the professionals at Premier Business Experts have performed such work for transportation industries (which see fluctuations of fuel prices at certain times of the year), chemical manufacturers and even governments interested in helping companies relying on petroleum feedstocks (e.g., light ends and waxes), which was the case for the story on the Useful Business Reports page of this website.
Therefore, as a reader of this website, you may find the following situation, which those at Premier Business Experts encountered, to be of greater interest. This is especially the case if you just read the above story dealing with the system that Premier Business Experts developed on behalf of a Consumer Packaged Goods (CPG) company.
Interesting Situation of Costs Not Matching What They Should Have Been
As revealed by the above story, Premier Business Experts developed a system telling a leading Consumer Packaged Goods (CPG) company, when, where and for how long to run promotions to maximize profits. Additionally, the system told when to make and ship various products so as to reduce inventory holding costs of both the final products and the raw materials used in the manufacturing processes. However, some additional details are now in order. During a price promotion period, the beverage manufacturer provided the product at a discount to the independent distributors. Half of that discount was to be relayed to the ultimate buyer of the products and the other half was to be used for advertising purposes in the local market. Yet, in the case of one major distributor, the sales showed no “upward bounce” during the price promotion period and no “post-promotional-dip” immediately after the price promotion ended. Further digging revealed that the distributor had no increases in his advertising costs surrounding the “on deal” period and that the ultimate buyers in that city had not seen his beverages on sale. In short, the distributor was simply pocketing the money associated with the discount, rather than doing what he was supposed to do. As for the solution that those at Premier Business Experts recommended, it involved a carrot and a stick approach. The carrot was to show the distributor that he would make more money, if he performed according to the beverage company’s instructions, and the stick was that if he continued to not follow policies the beverage manufacturer would exercise its rights to terminate its relationship with him. As for the results, the owner of the distributorship, with tens of millions of dollars in annual sales, quickly changed his ways and rapidly became an exemplary distributor!
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