Published on Saturday, October 19, 2019
Revenue forecasts play a huge role in many aspects of your business. However, creating an accurate and reliable forecast can be a tricky task. You need to collect lots of data, understand forecasting methods, and you must be equipped with the best software to ensure that you get it right.
As you will see, there are consequences for your business if you incorrectly forecast your revenue. However, there are also major benefits that you can leverage when you do it well! We want to help you ensure that you take advantage of these benefits by creating great forecasts.
In this article, we’ll tell you everything you need to know about revenue forecasting, and we’ll explain how to forecast revenue from your pipeline. Read on to find out more.
Revenue Forecasting: An Overview
In essence, a revenue forecast (to be differentiated from a sales forecast) estimates the total amount of money that you expect to come into your organization over a set period of time. In other words, it is a prediction of the money you will make by doing business within a pre-determined time period.
The estimation or prediction is not just based on experience, although that does factor in. Instead, the forecast takes into account historical data, market behavior, pipeline data, and much more. Using this information, a well-informed, data-based revenue forecast can be created.
Of course, there are different methods that you can use to create a revenue forecast, and each method will take different information into account. As you will see later in this article, the method that uses your pipeline will consider little more than the information that exists in your CRM.
Why Is Revenue Forecasting Important?
Revenue forecasting is imperative for several reasons. It can give your business direction. It gives you an overview of where your business stands currently, where it was in the past, and where it is headed to. This enables you to make the best possible decisions and make plans for the future based on hard evidence.
This means that you can ensure security – particularly in terms of finances – with an accurate and reliable revenue forecast. Important to note here is the accuracy of the forecast. An inaccurate forecast, based on incorrect information, can cause you to make decisions that are detrimental to your business. So, you need to be careful about the data and methods you are using to create your forecasts.
What Other Benefits Can You Leverage?
There is a multitude of ways that a revenue forecast can benefit your business. As we mentioned, it helps executives make better decisions and allows them to plan better for the future. How else can it help your business?
It can help with the analysis of product and sales, cash flow and credit management, budgeting, production scheduling, generating investor interest, and even customer relationships. To find out how it can benefit you in these areas, read the full article on the benefits of revenue forecasting.
Forecasting Revenue From Your Pipeline
Revenue forecasting can be done using a variety of different methods, as we mentioned. For example, many organizations used to use spreadsheets to do this. However, the method is quite outdated and time-consuming. These days, there are methods that are easier, more efficient, and less prone to errors. One such method is predicting revenue from your pipeline.
Before we tell you how to do this though, we have to make some clarifications. Firstly, for those who are unsure, a pipeline is essentially a record of the opportunities, deals, and orders that your organization hopes to sell at a set date. The revenue forecast follows from this – it is essentially how these deals and orders will be recognized as income through time. This is also known as revenue recognition.
How To Forecast Revenue From Your Pipeline
Below we detail the method to forecast revenue based on your pipeline. If you follow these steps closely, you should be good to go. Before you start on your forecast, read through each step and ensure that you understand it.
Step 1: Assign Closing Percentages To Deal Stages
Before you can do anything, you need to ensure that you have properly defined stages in your sales process and are keeping track of them in your CRM (like Salesforce). Your stages may be as follows: discovery, demonstration, proposal/quotation, negotiation, closed deal. Each organization may have different stages, however, this is a general example of what the stages may consist of.
From there, you need to allocate a percentage to each stage. This percentage is a representation of the likelihood of closing the deal.
Step 2: Use Percentages To Calculate Expected Revenue
Next, you should take the percentage and multiply it by the value of the deal.
I.e. Value of Deal x Percentage (or probability of closing) = Weighted Value
Then add all the values together to find the total expected revenue.
Consider the example below.
Your percentages are as follows:
- Discovery – 10 percent
- Demonstration – 25 percent
- Proposal/quotation – 50 percent
- Negotiation – 80 percent
You have several deals at different stages in the pipeline, and together they are valued as follows:
- Discovery – $200,000
- Demonstration – $120,000
- Proposal/quotation – $75,000
- Negotiation – $50,000
So the calculation is:
(200,000 x 10/100) + (120,000 x 25/100) + (75,000 x 50/100) + (50,000 x 80/100) = $127,500
Step 3: Add Closed Deals
After you’ve calculated the above, add the value of all closed deals to the sum.
Step 4: Remember Time Frame
While you’re doing all of the calculations, you need to remember what period you want to forecast revenue for. For example, if you want to forecast revenue for the upcoming month, then you should only consider the deals that are expected to close within that time frame.
Use revVana For More Accuracy
With revVana, your revenue forecasting efforts can be even easier, particularly because the platform can draw insights and information straight from your Salesforce account. revVana is the only platform for Salesforce that automates revenue forecasting from run-rate and pipeline to bookings and recognized revenue. Now, you can instantly identify revenue delays and reductions with dependable forecasts tied to actual.
You can instantly generate revenue forecasts from your pipeline, create real-time revenue visibility, and build revenue projects mapped to your existing financial processes.
What’s more is that with revVana, you can take your forecasts and analysis thereof above and beyond. With revVana insights, you can analyze, compare, or contrast your planned sales commitments against changes to those commitments, as well as other scenarios such as actual revenue, corporate budgets, and sales quotas. Using this information, you can maximize your revenue realization. You will not be left wanting with the revVana platform.
While revenue forecasting is not an easy task, it will be worth it in the end. You can leverage several benefits from this type of forecasting, including better business decision-making, better budgeting, attracting investors, and so much more. You want to ensure that you don’t lose out on these advantages so that you can remain ahead of your competitors.
One of the best ways to do this is by forecasting revenue from your pipeline. By following the steps provided in this article, you can create a reliable forecast, from which you can plan for the future. And remember, you don’t have to do it alone. Simply contact revVana to ensure that your forecasting process is smooth and easier than ever!