At MAP, we’re on a mission to empower agencies to become the best they can be and to hit all their objectives. We believe that revenue forecasting plays a critical part in giving you every chance of reaching those goals. Here are the five key features of the best revenue forecasts.
1. They’re based on the value of work to be completed per month rather than what is being invoiced or what cash is being received.
First of all, it’s a required accounting principle to prepare financial statements in this way, but more importantly, it makes the forecasts all the more powerful in running your agency day to day. If you’re about to embark on a £100k project which will be delivered over 4 months, you want to have this in the forecast as £25k per month for 4 months. A smaller £10k project might be delivered 90% in the first month and the remaining 10% the next month. It allows you to understand what resource is required per month and how the activity is going to compare to what your capacity is with the current team.
2. They include only guaranteed revenue and it is split between project and retainer.
It’s always better to air on the side of caution rather than being overly optimistic when you’re forecasting. I’ve seen agencies fall short of targets because they’ve had unconfirmed work in the forecast and they’ve not been kept on their toes with bringing it over the line. Only include work that’s 100% signed off by the client, and then the only thing you’re estimating in the forecast is the value you’ll be completing each month.
3. They have an additional section at the bottom to include pipeline revenue that you’re 90% sure will come in.
Separate to a revenue forecast the top agencies are using a sales CRM and management tool such as Pipedrive to track the progress of leads
through the sales cycle. When prospects reach a level of certainty, it’s time for them to come into the revenue forecast. When combined with the guaranteed revenue from point 2 we’ll have visibility of how our confirmed work compares to budget, and what prospects we have close to converting that could make up any shortfall, allowing the sales team to prioritise accordingly.
4. It is split by departments.
It will be slightly different agency to agency depending on the services you provide so tailor it how you see fit. If you have a small number of key clients it could also be fitting to split by client too. It allows the department heads to be held accountable for their own performance and also to be rewarded accordingly. The best forecasting meetings that I’ve been a part always include a healthy discussion between the sales and delivery teams, with the Finance Director, sat in the middle making sure it’s all being brought back to the numbers.
5. Finally, it compares against budget and against capacity.
At all times you should have visibility of how the guaranteed work compares to both your budget and your capacity allowing you to make key decisions before it’s too late. If we’re under capacity/budget what can we do sales wise to make up the difference? If we’re above capacity it’s a great problem to have, but we need to have a discussion about the timing of delivery or bringing in additional resource to cover it. If you have visibility by the department from point 4 it makes the conversations all the more powerful.
At MAP, we go beyond the compliance and help you to create accurate forecasts to predict revenue, profit and cash. Get in touch here.