Revenue makes everything else possible. It’s what powers the business engine. And the better we are at forecasting revenue (a.k.a. sales), the more effective we can be at planning for the other parts of the business – operations, staffing, product development, marketing, etc.
But sales forecasting is too often perceived as a ‘crystal ball’ activity… where we hope for some sort of cosmic intervention to give us the answer.
But if you don’t have a working crystal ball, the more likely scenario is this… your boss gets asked in December what he or she wants “next year’s revenue goal” to be. And the response is usually something like, “Well, we did a million dollars this year… and I’d like to see 20% growth… so let’s shoot for $1.2 Million next year.” And it’s done!
And while no one can predict the future, a little process can go a long way. If you’re willing put in some time to work through the following 3 steps, you can come up with a more realistic, more attainable and – ultimately – more accurate sales forecast.
Step 1 – Existing Clients
Let’s assume it’s near the end of the calendar year. You should have a very good idea of what total revenue will be from your current batch of clients for the year. Then the question becomes, “How much revenue will these same clients produce for us next year?”
If you’ve got a relatively small number of clients, we would strongly encourage you to take the time to do an account-by-account review (include management and the person responsible for sales, if appropriate) to discuss:
- What’s gone on with each one – a history of activity
- What’s the opportunity for each moving forward (and why)
- What it will take for you to make it happen
If you have a lot of clients, then break the process into two parts. First, do an account-by-account review of your largest (and potentially largest) clients. Then, do a batch review of all the rest. In both cases, answer the same questions as above… what’s gone on with each, what’s the opportunity and what will it take for you to be successful?
Then add it up… that’s Step 1.
Step 2 – Your Current Pipeline
Selling never stops. So, from a business development perspective, what prospects are in your sales pipeline right now? What’s their status? What’s the opportunity? What’s the [realistic] probability that each of them will become a client? What still needs to happen for you to earn their business?
Discuss it, record it, then add it up… that’s Step 2.
Step 3 – New Opportunities
OK… you’ve worked through the “known.” Now it’s time for a little of the “unknown.” While you don’t know what sort of revenue opportunities will develop in the coming year – or how many there will be – you can make some educated guesses based on:
- What’s happened over the past few years; on average, what sort of revenue opportunities have you been able to develop and what kind of opportunities just fell into your lap?
- What sort of marketing activities are you planning for next year to support sales?
- What sort of selling activities are you planning for next year?
- What’s happening in the Market Research industry that could have an impact – positive or negative – on your revenue opportunities?
- What’s happening in the vertical industries you serve that could have an impact on your revenue opportunities?
- What changes are you planning internally – e.g. a new product launch, a key hire, etc. – that could have an impact?
Further, don’t just think of revenue as one thing. It can be viewed through a number of lenses, each of which might help you to think in greater critical detail about your sales forecast. For example:
- Growing revenue starts by attracting new clients. How many new clients can you secure next year? What kind? Any commonalities between them?
- If appropriate, think about revenue targets in each of the different vertical industries you serve.
- Do you work across ‘horizontals’ (e.g. HR managers) or in certain markets (e.g. seniors) that you need to think through?
- And certainly, consider your revenue forecast by product or service line.
Then add it all up… that’s step 3.
Now, add up the data from all three steps and you’ll have your sales forecast for next year.
How accurate will this be? Only the crystal ball knows for sure… but you can be completely confident that it will be far more accurate (and usable) than any blind stab you take at it or any number your boss throws at you.
And the more accurate the sales forecast, the more effective you and your colleagues will be at managing your business.
If you’d like a free Excel template to help with your sales forecast, just Click Here to download it – no email required.