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10 Replies Latest reply: Jul 1, 2008 6:52 PM by SCORE55 RSS

Projecting sales for an online retailer

aeiras Newbie
Currently Being Moderated
Hi!

I am working on my business plan for a toy store online that I have. Can anybody give me advice/tell me how do I project sales for an online business?
I have done BPs before, and used market research on a particular mall, average sales per sq feet, median HH income, etc, but I just don't know how to do this with an online business because my market is virtually everywhere in the US. Also, I know that online businesses take a long time to build traffic, and the overall dynamic for online retailing is different than for a brick and mortar.

So, if I want to project sales for 1 year, how do I do it?

Thanks very much for all of your suggestions!

Ana
  • Re: Projecting sales for an online retailer
    LUCKIEST Master
    Currently Being Moderated
    Projecting sales for an online retailer, Welcome

    "So, to project sales for 1 year, how do I do it?" Try "predictive analytics",
    My automated crystal ball will with uncanny accuracy predict sales by sifting through mountains of data.

    Maybe you have to work backwards. Develop a monthly operating budget for the first year.
    How much are you going to spend on purchases?? How large an inventory??
    Are you going to have the toys on hand or "IN INVENTORY" when the orders come in??

    Can I read your Business Plan??

    LUCKIEST
    • Re: Projecting sales for an online retailer
      aeiras Newbie
      Currently Being Moderated
      Thank you Luckiest!

      What do you mean by "predictive analytics"? I studied economics and I can forecast but you have to have something to build that forecast on --which is what I don't have here. I don't have any variable to "predict" a sales revenue for 1 year.... Where does traffic come from? How often? Average sale?

      I am not sure I understand how knowing your inventory will tell you how much you will sell per month..... I could be accumulating inventory for many months without a single sale.

      Thanks!
      Ana
      • Re: Projecting sales for an online retailer
        LUCKIEST Master
        Currently Being Moderated
        Projecting sales for an online retailer

        Lets hope that you DO NOT accumulate inventory for many months without a single sale

        A business plan serves as a tool to reaffirm the viability of your ideas.
        *For your plan, this means starting with your goal and working
        backwards.*
        You will need to know how much revenue you expect to brings in. (GUESS by month)
        *You'll also want to
        build in room for error, in case
        the economy goes into a tailspin.*

        Good luck, LUCKIEST
  • Re: Projecting sales for an online retailer
    Lighthouse24 Master
    Currently Being Moderated

    According to D&B, all 173 toy retailers in their database that have an on-line presence are linked to brick-and-mortar stores. Likewise, the Toy Industry Association does not include any members with on-line only operations. So it may be hard to find good industry data on which to base your projected financials. If you have a specialty niche of some kind, it might be easier to come up with something for that (but you didn't indicate it in your post).

    You mention that your market "is virtually everywhere in the U.S." The D&B report notes that there are about 60 million children in the U.S. The number of toy buying households is steadily shrinking, and the amount spent per child is holding steady at best (about $415 a year). Contrast that with over 700 million children in India and China where the amount spent per child on toys is $34 a year. To paraphrase one D&B analyst, "Retailers in the toy industry may have to attract the attention of children around the world if they hope to sustain growth." I don't know if you wanted to think that big or not, but a global marketing strategy seems to offer a lot of potential opportunity for an emerging on-line seller.

    Anyway, to answer your question, I would develop your complete marketing plan first, calculate your unit costs and margins, and then do PRO (pessimistic, realistic, optimistic) estimates on response rates, conversions, returns, etc. based on a cross-section of Internet retailers that have utilized the same marketing approaches you intend to use. It may not be simple or elegant, but at least it would confirm if you're in "this could definitely work" or "uh oh" territory.

    Hope that helps. Welcome to the community and best wishes.
    • Re: Projecting sales for an online retailer
      aeiras Newbie
      Currently Being Moderated
      Thank you very much for answering my question. Your answer helps me a great deal. Let me give you a bit more of info.

      I am a specialty toy retailer. That means that I carry toys that people typically can't find in mass market stores (such as toys R us, target, wallmart, etc.) The average price point is a bit higher than for the mass market retailer, but unless you live in a large city, you can only get these toys online. Most of them are designed in Europe, made of wood, more original in their design and color and are considered educational toys. I know that I won't sell in mass, but there is a fairly large market for these toys and, at the moment, I have three main competitors, none of which have a brick and mortar presence (so far.)

      I would love to sell to children anywhere in the world and, in fact, I don't have restrictions to do so, except that with today's fuel prices the shipping prices are outrageous. That is why I said that my market was the US.

      Could you tell me a bit more about the cross section internet retailers?

      Again, thank you for taking the time to answer. You helped me a lot!

      Ana
      • Re: Projecting sales for an online retailer
        Lighthouse24 Master
        Currently Being Moderated

        By "cross-section," I meant a representative sample of on-line sellers that are using the same marketing techniques and targeting the same demographic as you -- even though they may be selling a different product. (For instance, you might find that on-line sellers of children's vitamins use PPC campaigns to target your prospective customers -- so you could glean a lot from their response statistics if that was the case.) As I said, not elegant, but a valid basis for a projection.

        Have you visited InternetRetailer.com? You might find a lot of useful planning resources there (some free, some not) for the type of venture you are describing.

        There are also industry trade groups for specialty toys and educational toys -- and niche industries like that do have a lot more "on-line only" retail businesses. So if you can connect with one of those trade groups, you might find lots of valuable info.

        It sounds like a neat business to get into, and you seem very excited about it -- so again, best wishes to you!

        • Re: Projecting sales for an online retailer
          aeiras Newbie
          Currently Being Moderated
          Thank you. This is very valuable advice. I appreciate it.

          I have gone to a trade show already and will check out the site that you suggest.

          Many thanks

          Ana
          • Re: Projecting sales for an online retailer
            SCORE55 Newbie
            Currently Being Moderated
            Another way to get a fix on market size is to use a keyword site such as http://freekeywords.wordtracker.com/ . This will give you and idea of how many times a day someone searches for your keywords. If you assume some percentage of those people make it too your site (I have heard 2- 10% depending on page ranking) and some percentage of those purchase (2-20% depending on page, offer, and item), then you can project the number of average sales. Multiply that number by your average sale and you have an idea of what kind of sales you can expect.

            If you are using something in addition to search to generate leads, then you can add the leads to your site total.

            Today I am getting 4426 hits for toys. If you use 2% for click thru and 2% for conversion, you get an average of 1.69 sales per day or 617 per year. At a $50 average sale, you would be looking at over $300K in yearly sales. The question would be whether you could get on the first page for toys competing with other major retailers. Your odds improve as you get more specialized keywords, and, of course, the numbers tend to go down.

            It would be interesting to know if anyone has compared these averages to actual results.

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