Six Tips to Help You Improve Your Revenue Forecasting
Sales forecasting is an important tool for managing both your business’ finances and overall strategy. Estimating future sales enables your company to make data-driven business decisions and predict future performance. It’s also a tool that’s tricky to rely on because you never know if it’s accurate until the numbers are in.
It might be tempting to create one forecast to rule them all, but you can create different forecasts to drive different decisions. The finance team is looking at potential expenses, while product management wants to investigate how well a certain product will do. These different perspectives will unearth projections that may not appear in a comprehensive forecast. Each of these forecasts is useful for its intended purpose, and also helps senior management form a complete picture of the company.
2. Develop a process, and commit to it
Accurate forecasting is more than just looking at past sales and taking an average. Forecasting should be a flexible process taking many factors into account. Managers need to understand how the entire sales process works, from the salesperson to the delivery, to make accurate forecasts. Management teams should commit to reviewing forecasts regularly (e.g. monthly) to review data and make decisions.
3. Keep modeling consistent
If you’re reading this post, you may be looking to improve on your revenue forecasting. Before you throw the old model out the window, carefully evaluate other options first. Whichever model you use needs to be consistently applied so forecast numbers are standardized. If you change your model every quarter, you’ll be even less likely to get an accurate picture of your business.
4. Let technology help
Most businesses don’t have mathematicians and statisticians crunching forecast numbers all day. Much of the math in forecasting can be handled by software and applications that ingest your data. You can use software that works with your CRM to match data with other factors like customer, salesperson and product. Forecasting doesn’t need to be overly complicated.
5. Be inclusive
All departments need to be involved in the forecasting discussion. Leaving some people out will lead to inaccurate numbers, making them less trustworthy. If employees don’t think the forecast number are accurate – especially those on the team that wasn’t included – the numbers won’t be used for decision-making. Forecasting should be a collaborative process, with managers from each department participating. The resulting forecast will be more accurate and more useful to company strategy.
6. Don’t live and die by the forecast
Forecasts are inherently inaccurate, but you should still focus on the exceptions where the forecast line and the sales data differ. Take what you’ve learned from the exceptions and see how you can tweak your forecast, but have patience. The ideal forecast for your business develops after months of adjusting and learning. The goal is to improve with each forecast. Experts suggest a forecast included monthly data for the next year, and annual data for years two and three. That’s about as specific as you can realistically predict.
Do you have questions about sales forecasting and financial modeling for your business? Contact one of our financial modeling specialists at Patin and Associates today.