Modeling Sales Assumptions in Excel: A Practical Guide for Product Innovators

For any product manager or entrepreneur, testing your assumptions before building a product can mean the difference between success and wasted effort. Modeling sales assumptions in Excel is an amazing tool that gives you confidence by showing potential outcomes. Whether you're planning a new feature or launching an entirely new product, a simple sales model can clarify if your ideas are worth the pursuit.

Introduction

The process of bringing an idea to life often starts with assumptions. Excel lets you model those assumptions into tangible sales or revenue outcomes. In this guide, we break down the value of a basic sales model and offer a real-world case study. By the end, you’ll see how modeling can answer tough questions and boost your confidence in your venture.

What You’ll Learn:

• The importance of modeling sales assumptions
• How to build a simple sales model in Excel
• A case study on solving real problems for influencers and Shopify merchants
• Steps to estimate outcomes and validate business ideas

Estimated reading time: 5 minutes

1. Why Model Your Assumptions?

Before investing time and resources into building something new, you need to know if it will work. Modeling your assumptions in Excel helps you:

• Visualize potential revenue and sales outcomes
• Identify key variables that drive success
• Adjust your strategy based on realistic data
• Gain confidence in your business idea

Note: A well-thought-out sales model is not just a spreadsheet. It's a tool for learning and refining strategies.

2. Case Study: Toro – Connecting Influencers with Shopify Merchants

Consider the challenge faced by many influencers and Shopify merchants. Influencers often struggle to monetize their audience unless they have a substantial following (over 100,000 followers) and a dedicated agent managing sponsorship deals. Meanwhile, Shopify merchants have difficulty sourcing influencers at scale, relying on the wild-west method of direct messaging.

To address these issues, a team of friends built an MVP called Toro. The idea was simple:

• For influencers: Select your niche on an app and discover offers from brands (for example, tech brands like Logitech or Razer). You then receive a unique link to track clicks and sales.
• For Shopify merchants: Use a plugin to turn existing campaigns into influencer-driven campaigns with just a few clicks.

Although the project did not take off due to a lack of passion, the exercise of building a sales model remains a priceless artifact. It highlights the power of quantifying assumptions and understanding the potential impact of your idea.

3. Building a Simple Sales Model in Excel

Here’s a breakdown of how you can structure your model:

Step 1: Define Your Variables

• Subscription Price: For instance, $1,500 per year or $125 per month per seat.
• Number of Users: Segment your model by user type (e.g., corporate, Shopify user) or by influencer count.
• Conversion Rates: Assume different conversion percentages (e.g., 10% vs. 5%) to see how sales vary.

Step 2: Build Your Assumptions Table

Create a table that displays the number of years, different subscription types, and the impact of influencer usage. For example:

• Calculate total subscription sales based on your assumptions.
• Project your revenue by applying growth rates and retention percentages.
• Model different scenarios—for instance, what happens if you have 10 million influencers and a certain percentage of them convert.

Step 3: Analyze and Iterate

Use your model to explore different questions:

• What is the revenue potential with a 10% conversion rate?
• How does the revenue shift if only 5% convert?
• What subscription fee would work best for a scaling user base?

Tip: Adjust your numbers and re-run the calculations. A simple Excel model lets you see how sensitive your outcomes are to different assumptions.

4. Real-World Applications of Sales Modeling

Modeling out your sales assumptions is not limited to influencer marketing. You can apply this method to almost any product challenge. For example:

• New Feature Pricing: Assess the impact of a new pricing model on your restaurant delivery service. Test assumptions like a service fee of $399 or $299 with varying conversion percentages.
• Market Penetration: Determine what percentage of a user base (say, 100,000 people) needs to convert to make your new feature viable.
• Business Scaling: Estimate growth by modeling operating expenses and revenue streams as your user base expands.

In each case, a basic sales model in Excel gives you a clear view of whether the effort is justified by the potential rewards.

Conclusion

Building simple models in Excel is a fundamental skill for any product manager or entrepreneur. It allows you to:

• Translate ideas into numbers
• Set realistic expectations and forecasts
• Make data-informed decisions to steer your business
• Gain the confidence to pursue bold new features

Whether you're revisiting a past project like Toro or planning a new product upgrade, giving Excel some attention can change the game. Embrace modeling as a critical step in your process, and let the numbers guide you toward success.

If you found this guide helpful, explore more topics on product management and business modeling on our channel. Happy modeling, and may your assumptions always lead to exponential wins!