Planning for the future of your business, whether it be for the immediate future or for the years to come, is always important. In times like these, in which the economy is tumultuous due to an ongoing pandemic, strategic planning is more imperative now than ever before. This is where the benefits of revenue forecasting will come in.
When it comes to making plans for your company – in terms of making new hires, deciding when is a good time to release a new service or product, or when to launch a fresh marketing campaign – revenue forecasting can help. But that’s not all it can help with. It helps you set your budget, allocate targets, gain investments, and much much more.
In this article, we take a look at all the benefits of revenue forecasting that your business can leverage.
What Is Revenue Forecasting?
For those who might not have a full understanding of the concept, or may be confused about whether there is a difference between revenue forecasting and sales forecasting, not to worry. We’ll do a quick run-through of what it is before we show you all the benefits of revenue forecasting.
To explain it in the most basic and understandable way, a revenue forecast is an estimate – which has taken relevant calculations and information into account – of how much money will come into your business in the year ahead.
Many have moved on from old methods of forecasting which includes tiring and time-consuming spreadsheets to instead making use of forecasting software, which makes the process much easier.
Of course, there is a lot more to know about the concept, but to understand the benefits of revenue forecasting, the basics are enough.
What Are The Benefits Of Revenue Forecasting?
Armed with only a basic definition of what revenue forecasting is, it may be unclear as to what the benefits are. However, as you will see, the benefits are plenty.
Here are some of the best and most alluring benefits of revenue forecasting.
1. Cash Flow And Credit Management
Being potentially one of the top motives for making use of the practice, cash flow and credit management is one of the most significant benefits of revenue forecasting.
By effectively and efficiently supervising the flow of cash from your business or into your business, you can better ensure that your company makes all of its payments on time, and receives all the necessary payments on time. As a result, your business will not make any late payments.
Furthermore, in terms of generating credit, revenue forecasting is also important. Through the use of revenue forecasting, you will be able to broker for more appropriate or manageable terms in times when you need credit.
2. Product And Sales Analysis
Another one of the important benefits of revenue forecasting is the way that it contributes to both sales and product analysis.
Here, there are two ideas to keep in mind. First, when you perform revenue forecasting, you should be paying attention to the places your money is being derived from, rather than simply how much money you are collecting. Second, more often than not, revenue forecasting and sales forecasting go together.
Combined, the two types of forecasting will show you the growth potential of each product or service that your business sells or provides. Also, they show you the contribution of each product or service made towards your gross profit.
This is beneficial because it allows you to make good decisions about what products or services to discontinue, based on margins or sales that are too low. You can then replace these items with things that are more beneficial to your gross profit, which is good for your company, of course.
By forecasting your revenue, you will be able to set out appropriate budgets before things get going. This allows you not only to be prepared for the upcoming year but also gives you a point of reference for when you want to take a look at your progress at a later stage in the year. Moreover, this allows you to stay on track with your spending goals.
Here, it is important to note that to reap the benefits of revenue forecasting, you need to ensure that your forecasts are correct “or rather as accurate as possible.” Reliable tools and services – like those that revVana provides – to generate revenue forecasts come in handy.
4. Decision Making
Further to the point of decision making, as mentioned with products and sales, revenue forecasting also allows for better decision making in terms of making new hires and other resource procurement.
The practice gives your business the knowledge (and power) to make solid, educated, well-informed decisions about expanding teams. It gives you insight into how many new employees you may be able to hire, and even will let you know how much you will be able to pay each one of them.
Revenue forecasting and strategic planning go hand in hand. And, strategic planning is massively beneficial for businesses.
The practice of revenue forecasting allows for more effective strategic planning, and also, gives you insight into when you will be able to begin with the implementation of the plans that have been made. For example, you will have a clear understanding of when is best to invest to get the most out of it.
6. Production Scheduling
Having an idea of your expected revenue beforehand allows you to better direct the scheduling of production. Consequently, this leads to an avoidance of sales losses that may come with bottlenecks when production is not managed well.
Furthermore, it gives you insight into when you may experience downtimes, which result in payments to employees who have almost nothing to do. Similarly, it lets you know when your company may have a busy period where business is moving fast and you may have to pay overtime to those who work at this time.
By using revenue forecasting, you can plan your production so that it’s evenly spread.
7. Investor Interest
Revenue forecasting goes a long way with investors, particularly when it is paired with market trends. A clear, detailed, and thorough revenue forecast can tip the odds in your favor when it comes to convincing investors to put their money into your business.
8. Customer Relationships
The final one of the benefits of revenue forecasting that we will mention is one that is of tremendous value. And, that benefit is gaining insight into your customers.
By looking at common patterns that customers follow and combining this with sales data, your business can have a good grasp of customer behavior and sales that may be made in the future.
Having more knowledge about your customers also allows you to better plan for new products – and the advertisement of those products – which keeps customers happy and coming back for more.
Implement Your Revenue Forecasting Plan Today
By now it should be clear that the benefits of revenue forecasting are too good to pass up. It benefits your company in terms of managing money, planning, strategy, customer and investor relationships, scheduling, and so much more. To say no to a practice that can do so much for the future of your company can only be thought of as a massive missed opportunity.
So don’t miss the opportunity to ensure that your business makes it to the next level of growth, by doing proper, accurate revenue forecasting. Get started today!