Revenue Forecasting

Jul 24, 2020

Sayings like “Red sky at night – sailor’s delight”

Long before the evening news contained a daily weather outlook, people were making forecasts based on the things they noticed in the world around them.  Sayings like “Red sky at night – sailor’s delight” have stuck around because the forecasts were proven accurate.  Our ancestors took visible data (the sky) and found a correlation between the color of the sunset and the weather.  They took this knowledge and planned their daily lives around it.   They knew that April showers would bring May flowers and that it was important to make hay while the sun was still shining.

What about the life of your business?

What are you using to plan your month, quarter, or year?  Do you know if you should hire new employees?   Are you growing?  Should you purchase new technologies for your business now or wait?  Would it be better to allocate money toward hiring more people or strengthening the skills of the people you have now?

A prediction based on accumulated data

Revenue forecasting is a prediction about your income in a certain amount of time.  It is not wishful thinking, but a prediction based on accumulated data.  Well done revenue forecasting can answer the above questions and more.  It can help you make decisions that you are confident in and even help your company leapfrog your competitors.

New services, personnel changes or global pandemic?

When developing a revenue forecast, you begin with research.  A look at last year’s data is an excellent start.  Hopefully, your data architecture is such that you can easily see the patterns and information your organization has gathered over the year.  Consider the variables.  Are there new products or services?  What about significant personnel changes? Maybe even a global pandemic!  Each variable is important, and the data attached to that variable may seem insignificant at first glance, but when all the analytics are run and the data is combined, even small changes can result in huge results. This intense data analysis is called quantitative forecasting.  It is data driven and objective.

Of course, there is always a human element to any successful company.  Judgement forecasting is part of the human element.  Experiences and intuition can’t be quantified and they are certainly not objective.  But these two things can not be dismissed either.  Using both quantitative and judgement forecasting can result in a solid forecast regarding revenue.  Data analysis paired with keen discernment contributes to a well-founded budget, enhanced decision making, and thoughtful hiring.

Always changing

Here in Texas we check the forecast often; our weather is always changing.  Remember that your revenue forecast is not something to stick in a file cabinet each year.  It is a living document that you are continuously viewing, updating, and consulting. A revenue forecast can help you make hay while the sun shines and weather the April showers with the knowledge of coming flowers.