Most firms are in desperate need of improving their forecasting revenue growth process. Everyone knows that getting your revenue forecast wrong is one of the most disastrous mistakes a Sales VP, CFO, or CEO can make. Failing to present an accurate revenue forecast can result in your stock price plunging and your shareholders and members of the board being furious. However, preparing an exact revenue forecast is almost impossible for firms in these rapidly changing times.
So, what do successful companies do to increase their accuracy when it comes to revenue forecasting and analysis? They implement rolling re-forecasting — a method that ensures new information is continuously integrated throughout the progression of the fiscal year. Nevertheless, this type of revenue forecasting can be rather intimidating for companies who have previously struggled with even completing a single annual budget.
To help you out, here are five tried and tested methods for better revenue forecasting.
1. Get the details right
Different areas of revenue forecasting need to be generated at varying levels of detail. Some components of each revenue forecast are always more essential than others, so it is crucial to discern which items need to be forecast in substantial detail and which ones can be aggregated. For example, your firm might choose to re-forecast every size of quick-moving Category A products by modeling current sales orders; however, for slow-moving Category C, your firm may decide to simply project a forecast and then generate a SKU-level forecast for production, based on the mix of recent orders. If your firm is operating in a market where the growth trends of singular products fluctuate between separate geographies, market segments, and channels, revenue forecasts will need to be performed at more microscopic levels and across numerous dimensions. This is the best way to achieve peak accuracy.
2. Preach collaboration
Smart revenue requires the involvement of people who have specific knowledge of key customers, business channels, and markets, and giving them the capacity to contribute their intelligence into the forecast. Doing this ensures that your firm is not overlooking important factors that may otherwise be overlooked in the revenue forecasting process. In order to involve all the key people, your firm must utilize a planning solution that supports both web and mobile access.
3. Consider sales channel productivity
When working in B2B markets, revenue forecasts regularly need to reconcile with the company’s sales resources. The only way to work out pragmatic revenue targets is by understanding what can be accomplished and how quickly salespeople can convert prospects into customers. Given that, since sales force productivity, closing rates, and a realistic number of potential customers must be taken into consideration, effective territory and quota planning must be a precursor to revenue forecasting.
4. Revisit your forecasting revenue growth assumptions throughout the year
The method of revenue forecasting that yields the most accurate numbers is one that is grounded in highly granular customer, sales rep, or pack size modeling. These types of bottom-up approaches allow for greater insight and comprehension of how small changes in underlying assumptions affect revenues.
5. Run checks of revenue forecasts against a macro view of the market
Because revenue forecasting is very rarely rational, it is important that your firm runs checks of revenue forecasts against a macro view of the market. Adding this step to your revenue forecasting process is quick and easy and helps to remove any disparities in market size, market growth, and market share.
Revenue planning is vital to most companies when conducting budgeting, forecasting and reporting. Whether its production plan integrates costs and revenue with sales unit volumes, or for retail it means planning new store ramp-up, or even for non-profit organizations to plan for membership, pledge drives or other fundraising events. Kepion Revenue Planning and Sales Forecasting Software automatically integrates with all your sales & demand data from your CRM or other systems, conducts what-if analysis based on different revenue scenarios and assumptions, models driver-based planning modules to drive costs, staffing, capital assets from the sales plan, and spreads values over time for upcoming revenue and sees immediate impact to bottom line. Kepion covers the spectrum of planning scenarios in need for dimensions such as product and customer, and for driver-based planning using variations of units times price.