A Retail Store Business Plan – Projecting Revenue

There are two main methods to project revenue for your retail store when creating financial projections for your business plan: a top-down approach and a bottom-up approach. It is advised to use both methods to make sure that your projections are reasonable to readers.

Top-Down Approach

A top-down approach would be to start with an average sales per square feet benchmark for your type of retail establishment. This is defined as total net sales divided by the square feet of selling space. While looking for an industry average, check if there are geographic differences that would affect your store. You can assume that, upon launch, you will be below the industry average, but be able to climb closer to it or above it over time.

You can look for this average sales per square foot with trade associations and publications and in business publications at a library. To get examples, you can apply some calculations to the numbers in annual reports of the large public companies in your industry. You can even ask owners of similar businesses in other states who aren’t in direct competition with you.

However, if you find, for example, that Target has sales of $50 per square foot per year, $50 may be difficult for your store to achieve. Target operates with extreme economies of scale, has a recognizable brand, and has been around for many years. Unless you have reason to believe the specific opportunity for your store will lead to a much greater volume of sales, don’t assume you can do better than industry giants on sales per square foot.

Bottom-Up Approach

To project revenues from the bottom-up, look at your specific situation, starting with the location you expect to be operating at. Estimate the customers who will enter your doors on a given day (adding those who are passing by with those reached through your intended marketing methods), multiply by the percentage you expect to make a purchase, and multiply by the average purchase price. Certainly, a lot of subjective thinking goes into each of these numbers, but, if they are based in some rational process, the end result should be a revenue projection specific to your store.

Compare the number achieved through this method to the top-down approach. You may choose to tinker with the numbers in your bottom-up estimate in order to come closer to the top-down, especially if your estimate exceeds the top-down estimate. In any event, be prepared to explain your methods and sources to funders who may want to know how you thought through these projections.