Revenue forecasting or revenue project is the process of predicting what your sales will be over a period of time. You can do this by looking at past trends and making educated guesses based on what you know about your customers, competitors, and industry as a whole.
Issuing guidance, and determining what revenue projections to share, is a collaboration among executive leadership and investors. But missed guidance is on the rise, and companies are having trouble beating the numbers. This is a disservice to shareholders, employees, and the organization as a whole.
Missed or inaccurate sales forecasts can impede business growth, seed internal mistrust, and hamper efforts to attract and retain investors. Unfortunately, the challenge is a common one. Gartner reports that 55% of sales leaders don’t have a high degree of confidence in their sales forecast accuracy.
Today, there’s software and artificial intelligence to help you forecast revenue accurately. Let’s learn how to calculate revenue projections with revenue intelligence software in this blog post.
What Is Projected Revenue?
Projected revenue is the amount of money a company expects to earn in the future. It’s usually calculated by looking at past performance and predicting future performance.
Projected revenue can be used as a guide for planning budgets, developing revenue optimization strategies, setting prices, and making other important decisions.
How to Calculate Revenue Projections
Revenue projections represent the money an organization estimates will be earned within a specified time period. For sales organizations, revenue projections refer to the sales revenue generated from the product or service they sell
When calculating revenue projections, there are a few key metrics you’ll want to keep in mind.
First, go to your customer management software and look at the total number of customers. If you don’t have that system, make sure to use a spreadsheet or Google Sheets to track your number of customers.
Then, you’ll want to take a look at your monthly recurring revenue (MRR). This metric represents the total amount of recurring revenue you’re generating from your customers every month. It’s basically like your net income—but instead of coming from one-time sales, it’s coming from people who have signed up for your service and are paying for it on a monthly basis.
You’ll also want to forecast what your revenue growth is going to be over time. This will help you determine how much revenue you’re expected to bring in each month. If you know what that number will be, it’ll be easier for your team to plan accordingly and put their efforts toward activities that will bring in more money down the line!
Finally, don’t forget about revenue churn. Churn is how many customers leave your service each month due to cancellations or other reasons. The lower this number is, the better.
Revenue Projections Models
Revenue forecasting is a crucial part of business planning. Without sales forecasts, you can’t really know how much money you’ll have at any given time in the future—and that can be a big problem when it comes to making strategic decisions like whether or not to expand your operations or hire new employees.
Here are some models you can use to forecast revenue:
1. Historical Forecasting
Historical forecasting is one of the simplest revenue forecasting models. It involves taking past data and projecting it into the future by applying an assumed growth rate to each line item.
This model can be effective if you have a lot of historical data. That said, it can also lead to inaccurate forecasts if your past data isn’t sufficient or if the market conditions change significantly over time.
2. Length of Sales Cycle Forecasting
Length of sales cycle forecasting is a method of predicting how long it’ll take for customers to purchase from your business. This includes getting in touch with you, evaluating options, making a decision, signing contracts and agreements, and finally paying for their purchases.
The length of the sales cycle can be used to predict revenue because it tells you how much time you have to ramp up production and get enough inventory on hand before your customers demand it. Knowing how long the sales cycle is for a product or service can also help you anticipate which products and services will be most profitable over time.
3. Test Market Analysis
This revenue forecasting model helps you determine if there is a market for your product/service by testing it on a small scale before launching it on a large scale. It’s like an experiment—you’re testing out whether or not people are interested in your product and whether it’s worth investing in an actual launch.
4. Multivariable Analysis
This model takes into account many different factors: how much demand and supply there will be for your products, what kinds of promotions or advertising campaigns you’ll run, and so on. It also considers things like seasonality (how sales tend to fluctuate throughout the year) and macroeconomic factors like interest rates and inflation rates.
Revenue Projections Software
If you’re looking for a tool that can help you understand the revenue of your business and give you a forecast of how it’ll perform, then revenue projection software like Revenue Grid is a perfect solution for you.
Revenue Grid is an all-in-one platform that helps analyze how your business is performing and calculate your projected revenue. You can get an accurate picture of how much money you’re bringing in, how much money is being spent, and how that compares to your revenue goals.
It only takes a couple of clicks to get a revenue forecast report that shows what your sales are going to be like over time, where they’re coming from, and what trends are affecting them. You’ll also get instant signals whenever there is any change in your sales pipelines.
Sales forecasting 101: how to forecast sales with Revenue Grid
When the sales forecast is accurate and predictable, companies can invest in the business confidently. When it’s not, it can wreak havoc across departments.
Luckily, with all the tools and data available to revenue teams today, it’s gotten a lot easier for reps and managers to call their numbers with a very high degree of accuracy, making it possible for sales leaders to build a culture centered on accurate forecasting.
Revenue intelligence platform is a unique tool that can help build a well-designed sales forecasting process and improve sales forecasting accuracy in your organization. Here’s how to forecast sales with Revenue Grid revenue intelligence solution:
1. Submit accurate forecasts across your sales team and update them in time with sales forecasting cadences:
- Standardize weekly, monthly, and quarterly forecast submission process across your team’s hierarchy (VPs, AЕs, Managers, reps)
- Create forecasts for a specific business segment (for example, new business)
- Submit and adjust individual and team forecasts for future periods
- Review your quota, override, and track changes across all forecast categories (Commit, Best Case, Pipeline, Booked revenue)
- Slice and dice any forecast by vertical, product, or time period.
2. See the pipeline growth during the selected period with pipeline evolution reports and adjust your revenue projections when needed
- See the total pipeline value at the beginning and end of a selected period
- Analyze opportunities across Forecast Categories
- Understand the Forecast Category and Opportunity Stage relationship
3. See exactly where you’ll end your quarter with Salesforce-native forecast evolution reports
- Create reports for forecast categories (Commit, Best Case, Pipeline, Booked revenue)
- Perform retrospective analysis per specific sales teams or reps
- Understand what has changed since the previous week’s forecast call with a single click
4. Guide your team at each stage of sales forecasting process with Revenue Signals
- Set up Revenue Signals to remind your team to submit forecasts on time.
- Update forecast figures in one click as soon as the opportunity category changes
- Receive Revenue Signals about important changes in the forecast in real-time
- Utilize Signals as Salesforce task reminders with specific time and date
- Create, assign, modify or resolve Revenue Signals right from Microsoft Teams without opening Salesforce
Following these simple steps with a revenue intelligence solution will make your revenue process more efficient and predictable, and your forecasts more accurate