Everything you need to know about Forecasting Revenue
Everything you need to know about Forecasting Revenue 👇
Your revenue build is the most important area of your forecast
It's the area where you'll spend the most amount of time
And the area that can contribute the largest to your cash flows
Revenue builds are like snowflakes ❄
No two are the same
But there are certain patterns & similarities you can use...
Your projected revenue can come from any of the below 3 sources
➡ 𝐑𝐞𝐯𝐞𝐧𝐮𝐞 𝐟𝐫𝐨𝐦 𝐄𝐗𝐈𝐒𝐓𝐈𝐍𝐆 𝐜𝐮𝐬𝐭𝐨𝐦𝐞𝐫𝐬
These are customers who are already using your product / service.
Here you'll want to understand when their contracts are up for renewal, and forecast out churn, expansion, and contraction
➡ 𝐑𝐞𝐯𝐞𝐧𝐮𝐞 𝐟𝐫𝐨𝐦 𝐏𝐈𝐏𝐄𝐋𝐈𝐍𝐄 𝐜𝐮𝐬𝐭𝐨𝐦𝐞𝐫𝐬
These are potential customers who are currently in your CRM, and you feel can close in the near future
Here you'll want to forecast out your sales from these customers by taking their projected close date, multiplied by a close likelihood.
It's common to attach a close likelihood based off of the stage they are in
➡ 𝐑𝐞𝐯𝐞𝐧𝐮𝐞 𝐟𝐫𝐨𝐦 𝐍𝐄𝐖 𝐜𝐮𝐬𝐭𝐨𝐦𝐞𝐫𝐬
This is where the real heart of your forecast lies - forecasting sales from customers who you've never spoken to, but can reasonably expect to close in the future via your business model
It's here where you'll ask yourself the most fundamental questions on your business model
❔ How do you acquire customers? Is it via sales reps? ad spend? partnerships?
❔ How long do customers stay with you? a month? a year?
❔ What products / services do they purchase once they convert to paid customers?
❔ Do they repurchase / renew? Do they expand / contract along the way?
❔ How are other areas of your financials affected, like Deferred Revenue, Accounts Receivable, Commissions etc.?
Your revenue build will be the largest area an investor will focus,
and they'll want to see strong evidence that you have a tight grasp on your business model
Get it right, and you gain the crucial visibility that your startup needs to scale
Get it wrong, and you run the risk of losing your 2 most precious resources...time & money
What other suggestions would you add for forecasting revenue?