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Entrepreneurship, Second Edition by Andrew Zacharakis, William Bygrave

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8.5. Comparable Method

How can you tell whether your projections are reasonable? In the comparable method, look at how your company compares to industry averages and benchmark companies. The first thing to do is gauge whether your revenue projections make sense and then see whether your cost structure is reasonable. Comparables help you validate your projections. For instance, a good metric for revenue in retail is sales per square foot. The bookstore is projecting sales of $1 million in 3,000 square feet, which equates to $351 per square foot. Secondary research into the average per bookstore[] and also into what one or two specific bookstores achieve is a good place to start.[] For example, $351 is in line with independent bookstores ($350/square foot) but higher than Barnes & Noble ($297/square foot).

The projections seem reasonable considering that you will be selling certain items like maps, which have a much higher ticket price than books, but there are a couple of caveats to this estimate. First, it is likely to take a new bookstore some time to achieve this level of sales. In other words, the income statement that has been derived might be more appropriate for the second or third year of operation. At that point, the bookstore will have built up a clientele and achieved some name recognition.

Second, you should run some scenario analyses. Does this business model still work if your bookstore only achieves Barnes & Noble's sales per square foot ($297)? Also run a few other ...

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