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Revenue Forecasting
A revenue forecast is an estimate of your revenues over a fixed period of
time.This time period can be anything, but is usually limited to a quarter or
year.
A revenue forecast is based on several data points. Just as the
weatherman looks at precipitation, wind speed, and local factors to
forecast the weather, you’ll consider past financial performance, market
sentiment, and sales pipelines to forecast revenues.
For instance, financial analysts consider Apple’s past sales, product
line-up and consumer demand to forecast revenues for upcoming
quarters. Investors can then rely on these forecasts to decide whether
the stock is worth buying or not.
How Revenue Forecasting Works
There are effectively two models of forecasting revenue:
• Judgment forecasting: This is where you use your intuition and
experiences to estimate the business’ growth over a period of time. While
you can and should use hard data (such as revenue numbers for the
previous period), judgment forecasting is largely focused on qualitative,
subjective insight.
• Quantitative forecasting: As the name suggests, this is where you use a
scientific, numbers-focused process to forecast revenue.You’ll consider
historical records, current pipeline, expenses, and market conditions to
make a prediction.
Steps you need to follow for Forecasting Revenue
1. Establish Timelines
Before you delve too deep, it’s important to know that establishing timelines is
the first step in forecasting your revenue.
A quarterly forecast might be unnecessary for a smaller agency. The resources
required to put the forecast together at such frequent intervals can outweigh its
benefits.
Rather, consider the cadence of your agency. How long does each project usually
last? What is the average length of each campaign? How long is an average sales
cycle?
These will help you establish timelines. If your business tends to close campaigns
and deals within 6 months, it might be smarter to adopt a semi-annual
forecasting model. If it takes longer, opt for an annual timeline.
Steps you need to follow for Forecasting Revenue
2. ForecastYour Expenses
Predicting your expenses is a relatively straightforward process, and it’s
important to have accurate estimates.
No matter the age of your agency, you’ll most likely have data to supplement
your estimates: past expense reports if you’re an existing business; detailed
forecasts if you’re a new business or startup.
Generally speaking, there are two primary expense
categories:
Fixed Costs: Commonly referred to as overhead, these are expenses that remain unchanged each month.
Below are some common fixed costs:
• Rent and utilities
• Phone bills/communication costs
• Accounting/bookkeeping
• Legal/insurance/licensing fees
• Technology products
• Salaries
Variable costs:These expenses fluctuate over time, based on demand, economy, sales volume or other
factors. Some common variable costs include:
 Goods sold (materials, supplies, and packaging)
 Labor costs (customer service, sales, and marketing)
It’s usually easy to predict fixed expenses – since you make the same payments month after month.
But variable costs can be hard to estimate, especially if the market is turbulent or if you rely on expenses that
vary a lot.
In such situations, a guesstimate will do. Just make sure to err on the side of overestimation than
underestimation when it comes to forecasting expenses.
Steps you need to follow for Forecasting Revenue
3. ForecastYour Sales
Forecasting sales can be a daunting task – there are far too many moving
parts to accurately predict how much you’ll sell over a year.
But in reality, forecasting sales is essentially an act of analyzing raw data and
making logical assumptions. If you make an average of Php. 100,000 per
client, convert 10% of your pipeline, and have 40 promising leads, you can
reliably forecast an additional Php.500,000 in sales.
Some of the factors you need to consider when
forecasting sales include:
• Sales cycle length
• Current sales pipeline
• Lead generation metrics and approach – is it scalable and predictable?
• Total number of new business , their average close rates, and productivity
• Lead-to-client conversion rate
• Average revenue for each client-type
• Client-types in existing pipeline
It is inherently difficult to predict sales in the agency business.You might land a “whale” that
gives you 2x your revenue from all other clients combined. But getting such clients can be
difficult to predict.
Just go with the numbers you already have, then pepper in your own estimates based on
market conditions and your agency’s direction.
Steps you need to follow for Forecasting Revenue
4. Consider the market
The three steps above are all inward-focused.The next step is to look outward for
shifts that could affect the demand for your services or the ability of customers to
pay.
Your revenue-forecasting technique should account for changes to competitors or
customers. Are you competing with more agencies? Or fewer? Or perhaps a
competitor is aggressively seeking business with lower prices. Any of these scenarios
could affect your ability to land clients.
Similarly, are customers dealing with trends in their markets that could affect how
much they can or will pay you? Or are they particularly satisfied or dissatisfied with
your services to the point that they will increase or decrease the business they do
with you?
Incorporating an evaluation of customer satisfaction and market conditions into your
forecasts will help you increase their accuracy.
Revenue forecasting is an essential skill for agency leaders. Learn how to master it in
this detailed guide.
Do you know how much money you’ll make next month, quarter, or year?
I’m not talking about a back-of-the-napkin estimate; I’m talking about a reliable
forecast of your revenue and expenses.
If you’re like most agencies, your answer will likely be “no”.
Revenue forecasting, when done right, can ground your decision making in realistic
fact instead of optimistic fantasy. It helps you understand what you currently make,
what you need to make, and the resources you need to bridge the gap.
With better agency financial data and more integrated tools, it is easier than ever to
forecast revenues.
9Tips for More Accurate Revenue Forecasts
1. Available resource bandwidth
In our people-focused industry, your revenue is directly tied to the “busyness”
of your resources. If you have ample available bandwidth, it means that
you’re not truly maximizing your revenue potential.
Mapping your resource bandwidth, thus, can give you insight into your
revenue forecasts. Overtaxed resources can imply a revenue dip (since you
need to hire new resources). Underutilized resources can mean that there is
headroom for growth.
9Tips for More Accurate Revenue Forecasts
2. Past project revenue
Your past projects will help define future ones. Not just from a project planning
standpoint, but also from the task of helping to forecast the next project’s earnings.
Whether your project was a dud or a stud, it has a certain value to it when analyzing
the revenue and resource utilization for the next project.
Avoid the temptation to look at the highest performing project and dismiss all of the
others as ones that are not indicative of your team’s ability. And on the other side of
the coin, don’t solely rely on your low performing projects to define a revenue
forecast either.
Take an educated glance at prior work and remove anything from the field that seems
to be an outlier.Then use that average for your baseline with revenue forecasting.
In this way, if your next project over- or under-performs, you can anticipate the
following work to be on the other side of the line and things will even out.
9Tips for More Accurate Revenue Forecasts
3. Recent changes
Did you just start work with a new client or multiple clients? How about
adding more creative staff that might need some time to get used to the way
your team works.
These can both impact the bottom line of a project, increasing the hours
spent while not always increasing the value of the project.
On the other hand, maybe you have a seasoned team of creatives that are
working with a longstanding client.You can expect that things may exceed
the historical average.
With either situation, be sure to take your revenue forecasting with a grain of
salt.
9Tips for More Accurate Revenue Forecasts
4. Cast a wide net
Don’t just rely on one project, or the past month’s worth of work. Instead,
look back at least a full quarter to see what has and has not worked.
Often, if you base your project budget off a small historic window, you can
have a lot of variability that might come back to bite you. If you’re looking at
a larger window, there will still be variability, but you can see the range and
have a baseline of what you’ll need to plan for.
9Tips for More Accurate Revenue Forecasts
6. Learn from previous projects
Are there trends to learn from?Your project budget should follow a pattern,
so figure out what has been successful and what you can learn from and
change in the future.
If there is no pattern that you can see, then that can be helpful on it’s own.
Knowing that you’ll need to be prepared for a wide range of possibilities is
worthwhile in and of itself.
9Tips for More Accurate Revenue Forecasts
7. Give yourself some breathing room
Unless you’re always hitting the same numbers in a specific project budget
area, you can’t accurately predict what the next project might hold. Even if
your numbers are tight, it doesn’t mean that the historical budget amounts
will hold true for the future.
If you give yourself enough wiggle room to absorb any fluctuations, you’ll be
able to handle anything that’s out of your control.
Use former projects to help you decide how much wiggle room is truly
necessary. A history of similar budget amounts indicates you might be able to
get away with slightly less breathing room than an area that’s all over the
map.
9Tips for More Accurate Revenue Forecasts
8. Staff experience
How many combined years of experience does your project team have?
If you have a bunch of rookies, you can’t expect them to accomplish the same
amount of work in the same amount of time as a team full of seasoned veterans.
Likewise, you can assume that the experienced team can get through a project with
less billable hours than the one that has mostly novices.
When looking at your revenue forecasts, take the experience of each project team
into account.This way, you’ll avoid completely missing the mark on how many hours
each deliverable will require. Even if you can’t give an absolutely precise number for
revenue forecasting, as long as you can account for personnel changes from one
project to the next, you’ll be able to get a close estimate.
9Tips for More Accurate Revenue Forecasts
9. Review your forecasts regularly
Lastly, your revenue forecast isn’t meant to be a one-and-done affair. Rather,
it is a living document that should be updated frequently.
Revisit the forecast regularly, especially if something about the business has
changed. Maybe you added a new client. Or maybe a new legislation just
passed that would help you win more clients.
Aim for neither irrational exuberance nor extreme conservatism. Instead, opt
for the sweet spot in between for highly impactful forecasts.
Despite your best intentions, problems can and do crop up in most forecasts.
5 Common Revenue Forecasting Mistakes (and
How to FixThem)
1. Relying on qualitative assumptions
In the creative realm—where many campaigns are dictated by intangible
metrics—it’s easy to speculate using qualitative data.
The truth is that assuming conditions and outcomes only leads to false hopes.
And while it’s completely normal to make assumptions in the thick of a
project, it’s important to never rely on vague qualitative metrics.
The fix: Rely on quantitative data—cold, hard facts.Whether you use
internal research or third-party data, make sure that your assumptions are
backed up by verifiable, reliable sources.
5 Common Revenue Forecasting Mistakes (and
How to FixThem)
2. Ignoring cost assumptions
Average cost flow assumption is a calculation used to monitor inventory goods by
determining the cost of your services or products sold against ending inventory. And
any revenue project is based on cost assumption.
The biggest mistake for most businesses? Ignoring these cost assumptions
completely.
Without an understanding of your assumptions, no one will know what your projects
are based on.
The fix: Have a clear understanding of all your agency’s cost assumptions, such as
market conditions, production costs, overhead estimates, and resource costs.
Make sure you are able to explain these assumptions within your revenue
projection documents. Also, make sure you can explain what they each entail.
5 Common Revenue Forecasting Mistakes (and
How to FixThem)
3. Bad math
On the surface, this one seems simple to avoid. But you’d be surprised how
many revenue projections are botched because of simple math.
It’s not rocket science – make sure every column and row adds up and makes
sense. Bad math simply implies a lack of attention to detail.b
• The fix: Double-check your work as you work. Don’t wait until the entire
project is completed to cross-reference your totals. Have a trusted
coworker triple-check your work as well.
5 Common Revenue Forecasting Mistakes (and
How to FixThem)
4. Failing to adapt
Whether you’re forecasting annually, quarterly, monthly, or even by the
project, traditional forecasts are usually out of date.
Think about it: a month-old snapshot inevitably ignores changing variables of
your business or industry. And failing to adapt your projections—or simply
running a campaign based on old metrics—can lead to disaster.
The fix: Utilize an automated accounting software platform to keep
updates in real-time. Not only will collaborative software allow team
members to stay on the same page, it clearly displays all vital signs of your
business and enables you to track changes and update your forecasts.
5 Common Revenue Forecasting Mistakes (and
How to FixThem)
5. BeingToo Conservative
Like most creative firms, you’ve probably been in a situation where
conservative reality trumped an otherwise aggressive dream state. And when
it comes to finances, it is easy to err on the side of caution.
Rather than completely ignoring optimism, however, we’re here to say that
you should embrace a middle ground and create revenue projections that
cater to both sides of the equation.
The fix: Build two sets of revenue projections: one aggressive, one
conservative.This will force your agency to make the necessary
conservative assumptions, but also unleash the undeniable power of
thinking big.
Thank you

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ppt Revenue Forecasting.pptx

  • 1. Revenue Forecasting A revenue forecast is an estimate of your revenues over a fixed period of time.This time period can be anything, but is usually limited to a quarter or year. A revenue forecast is based on several data points. Just as the weatherman looks at precipitation, wind speed, and local factors to forecast the weather, you’ll consider past financial performance, market sentiment, and sales pipelines to forecast revenues. For instance, financial analysts consider Apple’s past sales, product line-up and consumer demand to forecast revenues for upcoming quarters. Investors can then rely on these forecasts to decide whether the stock is worth buying or not.
  • 2. How Revenue Forecasting Works There are effectively two models of forecasting revenue: • Judgment forecasting: This is where you use your intuition and experiences to estimate the business’ growth over a period of time. While you can and should use hard data (such as revenue numbers for the previous period), judgment forecasting is largely focused on qualitative, subjective insight. • Quantitative forecasting: As the name suggests, this is where you use a scientific, numbers-focused process to forecast revenue.You’ll consider historical records, current pipeline, expenses, and market conditions to make a prediction.
  • 3. Steps you need to follow for Forecasting Revenue 1. Establish Timelines Before you delve too deep, it’s important to know that establishing timelines is the first step in forecasting your revenue. A quarterly forecast might be unnecessary for a smaller agency. The resources required to put the forecast together at such frequent intervals can outweigh its benefits. Rather, consider the cadence of your agency. How long does each project usually last? What is the average length of each campaign? How long is an average sales cycle? These will help you establish timelines. If your business tends to close campaigns and deals within 6 months, it might be smarter to adopt a semi-annual forecasting model. If it takes longer, opt for an annual timeline.
  • 4. Steps you need to follow for Forecasting Revenue 2. ForecastYour Expenses Predicting your expenses is a relatively straightforward process, and it’s important to have accurate estimates. No matter the age of your agency, you’ll most likely have data to supplement your estimates: past expense reports if you’re an existing business; detailed forecasts if you’re a new business or startup.
  • 5. Generally speaking, there are two primary expense categories: Fixed Costs: Commonly referred to as overhead, these are expenses that remain unchanged each month. Below are some common fixed costs: • Rent and utilities • Phone bills/communication costs • Accounting/bookkeeping • Legal/insurance/licensing fees • Technology products • Salaries Variable costs:These expenses fluctuate over time, based on demand, economy, sales volume or other factors. Some common variable costs include:  Goods sold (materials, supplies, and packaging)  Labor costs (customer service, sales, and marketing) It’s usually easy to predict fixed expenses – since you make the same payments month after month. But variable costs can be hard to estimate, especially if the market is turbulent or if you rely on expenses that vary a lot. In such situations, a guesstimate will do. Just make sure to err on the side of overestimation than underestimation when it comes to forecasting expenses.
  • 6. Steps you need to follow for Forecasting Revenue 3. ForecastYour Sales Forecasting sales can be a daunting task – there are far too many moving parts to accurately predict how much you’ll sell over a year. But in reality, forecasting sales is essentially an act of analyzing raw data and making logical assumptions. If you make an average of Php. 100,000 per client, convert 10% of your pipeline, and have 40 promising leads, you can reliably forecast an additional Php.500,000 in sales.
  • 7. Some of the factors you need to consider when forecasting sales include: • Sales cycle length • Current sales pipeline • Lead generation metrics and approach – is it scalable and predictable? • Total number of new business , their average close rates, and productivity • Lead-to-client conversion rate • Average revenue for each client-type • Client-types in existing pipeline It is inherently difficult to predict sales in the agency business.You might land a “whale” that gives you 2x your revenue from all other clients combined. But getting such clients can be difficult to predict. Just go with the numbers you already have, then pepper in your own estimates based on market conditions and your agency’s direction.
  • 8. Steps you need to follow for Forecasting Revenue 4. Consider the market The three steps above are all inward-focused.The next step is to look outward for shifts that could affect the demand for your services or the ability of customers to pay. Your revenue-forecasting technique should account for changes to competitors or customers. Are you competing with more agencies? Or fewer? Or perhaps a competitor is aggressively seeking business with lower prices. Any of these scenarios could affect your ability to land clients. Similarly, are customers dealing with trends in their markets that could affect how much they can or will pay you? Or are they particularly satisfied or dissatisfied with your services to the point that they will increase or decrease the business they do with you? Incorporating an evaluation of customer satisfaction and market conditions into your forecasts will help you increase their accuracy.
  • 9. Revenue forecasting is an essential skill for agency leaders. Learn how to master it in this detailed guide. Do you know how much money you’ll make next month, quarter, or year? I’m not talking about a back-of-the-napkin estimate; I’m talking about a reliable forecast of your revenue and expenses. If you’re like most agencies, your answer will likely be “no”. Revenue forecasting, when done right, can ground your decision making in realistic fact instead of optimistic fantasy. It helps you understand what you currently make, what you need to make, and the resources you need to bridge the gap. With better agency financial data and more integrated tools, it is easier than ever to forecast revenues.
  • 10. 9Tips for More Accurate Revenue Forecasts 1. Available resource bandwidth In our people-focused industry, your revenue is directly tied to the “busyness” of your resources. If you have ample available bandwidth, it means that you’re not truly maximizing your revenue potential. Mapping your resource bandwidth, thus, can give you insight into your revenue forecasts. Overtaxed resources can imply a revenue dip (since you need to hire new resources). Underutilized resources can mean that there is headroom for growth.
  • 11. 9Tips for More Accurate Revenue Forecasts 2. Past project revenue Your past projects will help define future ones. Not just from a project planning standpoint, but also from the task of helping to forecast the next project’s earnings. Whether your project was a dud or a stud, it has a certain value to it when analyzing the revenue and resource utilization for the next project. Avoid the temptation to look at the highest performing project and dismiss all of the others as ones that are not indicative of your team’s ability. And on the other side of the coin, don’t solely rely on your low performing projects to define a revenue forecast either. Take an educated glance at prior work and remove anything from the field that seems to be an outlier.Then use that average for your baseline with revenue forecasting. In this way, if your next project over- or under-performs, you can anticipate the following work to be on the other side of the line and things will even out.
  • 12. 9Tips for More Accurate Revenue Forecasts 3. Recent changes Did you just start work with a new client or multiple clients? How about adding more creative staff that might need some time to get used to the way your team works. These can both impact the bottom line of a project, increasing the hours spent while not always increasing the value of the project. On the other hand, maybe you have a seasoned team of creatives that are working with a longstanding client.You can expect that things may exceed the historical average. With either situation, be sure to take your revenue forecasting with a grain of salt.
  • 13. 9Tips for More Accurate Revenue Forecasts 4. Cast a wide net Don’t just rely on one project, or the past month’s worth of work. Instead, look back at least a full quarter to see what has and has not worked. Often, if you base your project budget off a small historic window, you can have a lot of variability that might come back to bite you. If you’re looking at a larger window, there will still be variability, but you can see the range and have a baseline of what you’ll need to plan for.
  • 14. 9Tips for More Accurate Revenue Forecasts 6. Learn from previous projects Are there trends to learn from?Your project budget should follow a pattern, so figure out what has been successful and what you can learn from and change in the future. If there is no pattern that you can see, then that can be helpful on it’s own. Knowing that you’ll need to be prepared for a wide range of possibilities is worthwhile in and of itself.
  • 15. 9Tips for More Accurate Revenue Forecasts 7. Give yourself some breathing room Unless you’re always hitting the same numbers in a specific project budget area, you can’t accurately predict what the next project might hold. Even if your numbers are tight, it doesn’t mean that the historical budget amounts will hold true for the future. If you give yourself enough wiggle room to absorb any fluctuations, you’ll be able to handle anything that’s out of your control. Use former projects to help you decide how much wiggle room is truly necessary. A history of similar budget amounts indicates you might be able to get away with slightly less breathing room than an area that’s all over the map.
  • 16. 9Tips for More Accurate Revenue Forecasts 8. Staff experience How many combined years of experience does your project team have? If you have a bunch of rookies, you can’t expect them to accomplish the same amount of work in the same amount of time as a team full of seasoned veterans. Likewise, you can assume that the experienced team can get through a project with less billable hours than the one that has mostly novices. When looking at your revenue forecasts, take the experience of each project team into account.This way, you’ll avoid completely missing the mark on how many hours each deliverable will require. Even if you can’t give an absolutely precise number for revenue forecasting, as long as you can account for personnel changes from one project to the next, you’ll be able to get a close estimate.
  • 17. 9Tips for More Accurate Revenue Forecasts 9. Review your forecasts regularly Lastly, your revenue forecast isn’t meant to be a one-and-done affair. Rather, it is a living document that should be updated frequently. Revisit the forecast regularly, especially if something about the business has changed. Maybe you added a new client. Or maybe a new legislation just passed that would help you win more clients. Aim for neither irrational exuberance nor extreme conservatism. Instead, opt for the sweet spot in between for highly impactful forecasts. Despite your best intentions, problems can and do crop up in most forecasts.
  • 18. 5 Common Revenue Forecasting Mistakes (and How to FixThem) 1. Relying on qualitative assumptions In the creative realm—where many campaigns are dictated by intangible metrics—it’s easy to speculate using qualitative data. The truth is that assuming conditions and outcomes only leads to false hopes. And while it’s completely normal to make assumptions in the thick of a project, it’s important to never rely on vague qualitative metrics. The fix: Rely on quantitative data—cold, hard facts.Whether you use internal research or third-party data, make sure that your assumptions are backed up by verifiable, reliable sources.
  • 19. 5 Common Revenue Forecasting Mistakes (and How to FixThem) 2. Ignoring cost assumptions Average cost flow assumption is a calculation used to monitor inventory goods by determining the cost of your services or products sold against ending inventory. And any revenue project is based on cost assumption. The biggest mistake for most businesses? Ignoring these cost assumptions completely. Without an understanding of your assumptions, no one will know what your projects are based on. The fix: Have a clear understanding of all your agency’s cost assumptions, such as market conditions, production costs, overhead estimates, and resource costs. Make sure you are able to explain these assumptions within your revenue projection documents. Also, make sure you can explain what they each entail.
  • 20. 5 Common Revenue Forecasting Mistakes (and How to FixThem) 3. Bad math On the surface, this one seems simple to avoid. But you’d be surprised how many revenue projections are botched because of simple math. It’s not rocket science – make sure every column and row adds up and makes sense. Bad math simply implies a lack of attention to detail.b • The fix: Double-check your work as you work. Don’t wait until the entire project is completed to cross-reference your totals. Have a trusted coworker triple-check your work as well.
  • 21. 5 Common Revenue Forecasting Mistakes (and How to FixThem) 4. Failing to adapt Whether you’re forecasting annually, quarterly, monthly, or even by the project, traditional forecasts are usually out of date. Think about it: a month-old snapshot inevitably ignores changing variables of your business or industry. And failing to adapt your projections—or simply running a campaign based on old metrics—can lead to disaster. The fix: Utilize an automated accounting software platform to keep updates in real-time. Not only will collaborative software allow team members to stay on the same page, it clearly displays all vital signs of your business and enables you to track changes and update your forecasts.
  • 22. 5 Common Revenue Forecasting Mistakes (and How to FixThem) 5. BeingToo Conservative Like most creative firms, you’ve probably been in a situation where conservative reality trumped an otherwise aggressive dream state. And when it comes to finances, it is easy to err on the side of caution. Rather than completely ignoring optimism, however, we’re here to say that you should embrace a middle ground and create revenue projections that cater to both sides of the equation. The fix: Build two sets of revenue projections: one aggressive, one conservative.This will force your agency to make the necessary conservative assumptions, but also unleash the undeniable power of thinking big.
  • 23.