I'm currently working on creating a nonprofit (Lights Out, Green In) that is geared toward promoting conservation, and I'm filling out the revenue projection part of the tax form. Is there any resource that would allow me to better project our revenues? With the Web and the plan we're putting together, the nonprofit could take off or it could simply slog along making just $5,000 a year. If the revenue is underprojected, I'm sure the IRS would have many questions.
The reason that I'm doing the revenue projection drives the method that I select for the estimate. If it is for a cash flow projection and I don't want to run out of money, then I'm going to use a very conservative method for estimating revenue over time. One such method would be to estimate the revenues, past and present, for similar services. When starting out, it's hard to anticipate all of the challenges, so looking to the experience of others is a good way to get a clear-eyed estimate of the revenues over time. If the revenue projection is going to be used to size the organization, I prefer to use a bottoms-up process. (A bottoms-up model focuses on very detailed and easy-to-understand variables to give estimates for the whole business. Example variables include: number of visitors who visit a web site, percent of visitors who register, percent of registered visitors who buy an item, and the average cost of an item.) An advantage of the bottoms-up process is that you can run tests to find out the true values of the key variables as you roll out the business and determine where the opportunities are for increasing revenues. Lastly, I avoid using top-down estimates for revenue projection because the errors can be so large. These estimates take the form of "the whole market is $500 million, and I'll get 0.5 percent in the first year, 1 percent in the second year, etc. Getting customers to click "buy" is hard, and looking at the market as a whole ignores that challenge.
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