Revenue forecasting - ring a bell? Maybe not! Revenue forecasting is essential but often overlooked by agencies. What is revenue forecasting, exactly? Revenue forecasting is your agency’s process to predict how much revenue the business will produce in the coming months (or years).
Forecasting doesn’t have to be a tedious task. We get it, you want to go with your gut and say you expect x, y, and z to close like typical months, but it’s important to lay it out and actively track deals and current relationships. You could be leaving revenue on the table, and this number helps you indicate how to scale your business.
So what exactly are some steps you can take to forecast? Let us help you lay out a basic framework.
First things first - you need to set a revenue goal for the year. After setting your goal, you need to analyze and track specific performance metrics.
Start with your revenue recognized to-date, then current contracts, then delivery backlog, and finally, pipeline. Your current contracts can help you clearly understand what revenue you have secured, what revenue you have earned, and what’s still left to deliver.
Breaking down your pipeline is more complex, and oftentimes the part where agency owners fall short. It’s key to have distinct stages in your pipeline and to regularly practice good pipeline hygiene. In other words, make sure you document the movement of deals and their expected close date on a regular basis. If your pipeline is clean and accurate, you can then project an expected outcome of your deals by applying a weighted average outcome based on their stage in the pipeline and when the revenue is expected to be realized. We call YTD revenue + backlog to be delivered + weighted outcome of revenue from pipeline “stacking.” The total gives you your revenue forecast for the coming months. If there’s a shortage between your forecast and goal - we call this a “go-get number,” in other words, you have more work to do!
It will be challenging and frustrating to forecast without accurate data to help you make decisions - so be sure to update your numbers on a regular (weekly or monthly) basis. Forecasting isn’t just about knowing how much more revenue you need to generate, it’s also the determining factor for hiring decisions, growth investments, and in bad times, staff reductions.
For a deeper dive into forecasting and why it’s important for your agency, check out our Creative Outcomes Podcast: