What are the steps to forecasting revenues for a feasibility study?

1 Define the project scope

The first step is to define the scope of your project, which includes the location, size, design, quality, and function of the proposed construction. The scope will influence the demand, supply, and pricing of your project, as well as the legal, environmental, and social factors that may affect it. You should also identify the target market and customer segments for your project, as well as the competitors and substitutes in the area.

2 Conduct market research

The next step is to conduct market research to collect and analyze data on the current and future trends, opportunities, and challenges in your project's industry and location. Market research can help you estimate the demand and supply of your project, as well as the price elasticity, customer preferences, and market share. You can use primary sources, such as surveys, interviews, or focus groups, or secondary sources, such as reports, publications, or databases, to gather relevant information.

3 Develop revenue assumptions

The third step is to develop revenue assumptions based on your market research and project scope. Revenue assumptions are the key variables that affect your revenue forecast, such as the occupancy rate, sales volume, rental rate, fee structure, or subsidy amount. You should also consider the timing and frequency of your revenue streams, as well as the potential growth or decline over time. You should use realistic and conservative values for your assumptions, and document the sources and methods used to derive them.

4 Calculate revenue projections

The fourth step is to calculate revenue projections based on your revenue assumptions and project scope. Revenue projections are the expected income generated by your project over a certain period of time, usually expressed in annual or monthly terms. You can use different methods to calculate revenue projections, such as the market penetration method, the average revenue method, or the discounted cash flow method. You should also account for the inflation, taxation, and depreciation effects on your revenue projections.

5 Perform sensitivity analysis

The fifth step is to perform sensitivity analysis to test the robustness and reliability of your revenue projections. Sensitivity analysis is a technique that examines how your revenue projections change when you vary one or more of your revenue assumptions. You can use different scenarios, such as the best case, the worst case, or the most likely case, to evaluate the impact of different factors on your revenue projections. You should also identify the key drivers and risks of your revenue projections, and how to mitigate them.

6 Review and validate revenue forecast

The final step is to review and validate your revenue forecast with stakeholders, experts, or peers. You should compare your revenue forecast with similar projects, industry benchmarks, or historical data, and check for any errors, inconsistencies, or gaps in your calculations, assumptions, or data. You should also solicit feedback and suggestions from others who have relevant knowledge, experience, or perspective on your project. You should revise and update your revenue forecast as needed, and document the rationale and evidence for your final figures.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?