International market budgeting for export expansion into new countries is a subject many companies and international business professionals struggle with. Budgeting for international sales feels like a mix of scientific data analysis and some kind of mythical dark art in order to get it right.
It’s easy to lose sight of the details and the budget control for global sales meaning that if you’re not careful, it’s easy to find that, six months into a project, you realise everything is costing way more than expected to get real traction in a new market. So, let’s dive into this, starting with return on investment (ROI). I’ll cover a 2nd part where I’ll talk about which expenses need to be considered.
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How important is it to establish realistic expectations when entering a new market?
This is crucial. As an export manager, you have to set realistic expectations not only for yourself but also for your boss, company owners, or whoever you’re reporting to.
You need to give them a clear picture of the time, money, and resources needed, and the potential return on investment. It’s not just about your time—it’s also about the time and resources from other departments within the company. You might even need to make product adjustments. So, upfront, you have to grasp the full market potential and decide if it’s worth entering a new country relative the amount of localisation that will be necessary.
If you have an unlimited budget to investigate these opportunities, then you can stop reading now, and go commission a market study to tell you exactly what you need. For most companies, budgets for these kinds of projects are limited so you need to get a little more creative in your approach & that’s what I’ll be talking about here.
Estimating sales is a key foundation for international market budgeting
In this post we’re looking at the internal calculations for deciding if a market is worth it, rather than setting targets for distributors (that’s a whole different topic of its own!). For a distributor, you might just set activity targets in the first year aimed at listing your products in retail and gaining marketing traction, whereas for your internal calculations, you need a full budget.
In my experience, companies struggle more with sales estimation than with costs. Estimating sales, particularly in a new market, is often one of the most challenging things to do. You have lots of data points, but they’re rarely specific to what you need. Most companies don’t have the budget for comprehensive market studies, so you need to pull together different data points and make an educated estimate.
Start broad when creating budgets for export markets
Let’s say a Polish company wants to export a speciality hand cream to three or four Middle Eastern countries. First, they would gather as much free information as possible. This could be from top level reports by companies like Euromonitor or Mintel, government data, trade associations, the CIA World Factbook, or even platforms like Volza, which track import quantities by HS code (= harmonised system code – global system of allocating codes to product categories and used by customs authorities the world over). While this data won’t be specific to niche products, it gives you a sense of the overall market size and trends.
You might find this kind of secondary research data also in industry magazines or online report summaries. The full details (if available) probably cost thousands of euros, but the top level overview may be freely available if you’re prepared to spend the time digging around a little online.
Don’t forget to ask your country’s Trade Commission in the market you are targeting – they may have specific industry reports related to your category which will really help with creating budgets for export markets.
What are your competitors up to?
Which of their products are selling the best? How large is their range in the market? Which sales channels are they using? How is the price point compared to in your home market?
If you have a large competitor who is a publicly listed company then annual reports can also be a source of valuable market intelligence. It won’t be a full market analysis but may well give you indications that will help with your own estimations. You can probably see already, that international market budgeting for a new market is a bit like following a breadcrumb trail of clues…
If your main competitor isn’t in a specific market, that doesn’t necessarily mean there’s no potential – it could be a massive opportunity for you, but you need to do your homework and check.
Don’t forget about adjacent product categories
If we take the example of our hypothetical Polish hand cream company, they might they know a Polish colleague selling face cream in the same markets, and who might be willing share insights. This could be about the size of the market, the growth rates or also recommendations for distribution partners.
This isn’t just a strategy for new markets or for export budgeting strategies. It’s something that can help you at all stages of the journey, if you are able to exchange experiences with a colleague who is in a similar non-competing space and who shares the same values as you.
Using proxy markets for budget projection for global trade
What do I mean by that?
Well, assuming our Polish hand cream company know the value of a benchmark market (eg Germany) and their sales development there, they might be able to use that information to make a projection about Austria or the Czech Republic, where retail dynamics are similar.
This isn’t an exact science by any means, but if you know that the market you are targeting has 70% of German purchasing power and the population is 25% that of Germany’s then you can make a calculation about the market size, that you can then use to make a projection of your own sales development.
These have all been relatively “top-down” approaches based on estimating total category size, but you can also try the bottom up approach.
Bottom Up Budget Planning for Foreign Markets
This is perhaps my least favourite approach in emerging markets because I’ve been “burnt” so badly by it in the past. The risk is that it sounds so plausible and logical, but doesn’t really take into account the unpredictable nature of the market. It’s an approach that works best in more developed markets, where your category is fairly stable, but the person who is doing the calculation shouldn’t be new to the category.
In this case, you look at how many chains and how many points of sale (often referred to as “doors”) you think you will be able to be listed into. You then consider how many pieces per store you expect to be able to sell per week or month, and calculate with an average price (if you know this data about your products, otherwise you need to make an assumption (& make a not of this for your financial department, and yourself)).
For example: Our Polish hand cream company expects to be able to list into Chain 1 (their top 20 stores) from February, with a listing in the other 30 from May, and into Chain 2 with 10 stores from April.
So a calculation of sales might look something like this if you multiply the numbers all together:
| Chain | Number of Outlets | Number of Months listed in Year X | Number of items listed | Pieces sold per item per month | Average FOB value/ item in € | Sales value (€) |
| 1 | 20 | 11 | 5 | 20 | 10 | 220 000 |
| 1 | 30 | 8 | 3 | 15 | 10 | 108 000 |
| 2 | 10 | 9 | 5 | 35 | 10 | 157 500 |
| TOTAL | 60 | 13 | 70 | 485 500 |
This is at least a starting point for your calculations, just remember it can be wildly off target, especially in times of market volatility.
You can also do this type of estimation based on the total market combined with an estimation of your level of success.
Eg. The market for imported handcream is €10 000 000, and we estimate that we can gain 1% in the first year of business (ie €100 000 of sales).
or
There are 2 million women aged 21-30 in our target market. If 1% of them converts to buy our product, and buys on average once per quarter, then our sales would be (based on the FOB price in the example above and the calculation):
2million*1% =20 000
20 000*4 pcs per year = 80 000 pieces sold
80 000*€10 = €800 000 of FOB level sales
You can see there are different ways of approximating these kinds of results, but it’s important to understand the potential weakness of each one, especially when you start to build your budgeting for international sales on them, and you bring multiple assumptions together. That’s why it’s so important to note your assumptions – that way you can reconstruct how you arrived at your results at a later date and make corrections going forward if needed.
Don’t forget social listening when doing your international market budgeting
A lot of market intelligence is published on platforms such as LinkedIn based on the observations of experts. There are often posts or articles with analysis based on market studies where you might not have access to the original yourself, but can use the insights of someone posting on LinkedIn.
You can also make your own observations based on other forms of social media activity. This can really help you to gauge consumer interest in a market. Social media is underutilised for market research, especially by more traditional professionals.
Visit the Market
Go and see for yourself how the products look on the shelf. That is really the only way to get a proper picture where you understand the market dynamics.
It’s one thing knowing that Walmart has 50 stores in a country, or Lotte only has 3 outlets, but until you’ve visited and truly experienced them you won’t have a full picture. When the first Metro opened in Vietnam, they were completely overrun with consumers buying in the initial phase of their business. If you can get a listing in a chain on that kind of a wave then it can give you a massive initial boost.
On the other hand, it could be that a store opens to almost crickets and it takes months to gain consumer trust and spending.
Or you might find that the shop feels completely different to the version you are used to from other markets. Carrefour in Taiwan feels like a cheap discounter, whereas Aldi in China has had a far more premium feel to it.
Talk with Potential Distributors when Budgeting for International Sales
As part of considering entering a new market, it’s helpful to identify potential distributor partners, interview them, and gather their insights on the market for your product—this can provide invaluable intelligence, both around sales potential and of course costs.
If we’re talking about estimating your sales (& you plan to enter the market with a distributor) then you need to consider that imports are not the same as selling into the market. So you might sell one truck or container of product (or several pallets) to your new importer and she might need a few months to actually turn those over on the market, depending on how fast listings can be achieved and whether you can get fast traction as a result of marketing or perhaps existing brand awareness.
The 2nd order will come later (hopefully in time to replenish stocks without being unable to fulfill any deliveries to retail). Understanding that dynamic and when retail will hopefully list your products will definitely help with budgeting for international sales.
International Market Budget Planning isn’t an Exact Science
You really have to gather information from as many sources as possible when creating budgets for export markets, before applying your own knowledge of your products and brand to pull everything together into a reasonable sales forecast.
You have to combine multiple, diverse data points and estimations to create a realistic sales projection, recognising it will likely take longer to achieve than anticipated. Sales in the first couple of years of entering a new market in the FMCG space are virtually impossible to forecast correctly (this is where scenario planning comes in) so you have to embrace the fact that you are preparing a “guestimate” based on the available information.
Accept the fact that you need to have a continuously monitored update on the results to recognise when your sales forecasts are vastly diverging from your original annual forecast. That way you can decide whether the costs also need to be adapted, and discuss with owners and other stakeholders exactly how to proceed.
This is true if it feels like things are moving really slowly, but equally so if your sales “blow up” and you need to find ways to cope with a sudden influx of unexpected orders that can put pressure on your operations team and the supply chain.
A sales forecast is just one part of the equation though. If you are budgeting for international sales and have to present realistic expectations to company owners and stakeholders, you additionally need to consider time, money, and resources. I’ll take a look at the cost side of this in part 2.
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Kathryn firmly believes that business is done between people, and therefore places her focus on building strong relationships that form a solid foundation for doing business.
When she's not travelling around the world, Kathryn enjoys playing clarinet in her town's wind orchestra or sharing her love of the outdoors with her Scout group.