Often times companies struggle to forecast revenue performance. They blue sky or set stretch goals, or just as bad, try to manage the business to a budget.
If you’re leading a company it’s important to set goals for revenue performance. Creating a top line revenue forecast moves the focus of the company towards growth while creating the cash to build a budget to support the forecast.
Experience suggests a few simple steps to creating a forecast:
- Baseline current sales performance. Start by looking at Year to Date and the previous year’s sales. Study the results to evaluate trends by month, quarters, or business cycles that are typical to the business.
- Gauge cause & effect factors of sales & marketing activities, pricing actions, product news or challenges, etc. Any particular customer events?
- Review the sales pipeline activity of your organization. What are the steps and activities the sales organization is taking that affect conversion to sales, and over what period of time does it take to close sales from the beginning of their activity cycle?
- Develop assumptions for your forecast based on the facts and critical, yet constructive, questions you ask from the 1st 3 steps. Are there probabilities observed between activities, events and the final results that offer some visibility and predictability of what to expect in the forecast?
- Can you measure progress against a forecast on a weekly or monthly basis to see if the trend is going as expected?
- If you can go through the 1st 5 steps, then ensuring your organization is onboard with the forecast is the most critical aspect. Ideally, your team has been working on the 1st 5 steps with you so they can understand how the forecast has been created and how the dashboard will be tracking trends to forecasts.
After working through these steps one realizes meeting the forecasts comes down to execution. Obviously, the quality and commitment of people to execution of the plan to meet the forecast will determine if your company grows or stalls. The benefit now is that you and your organization are working towards the sames goals, and can make changes as circumstances dictate.
Peter Klinge, Jr. has more than 20 years of business experience working in small to F100 companies. He uses his experience as an operating executive and board advisor to help small to mid size companies achieve their growth objectives.