Do you have an organized approach to forecast your revenue? Have you looked at your revenue projections for the next year? Do you know how to do this?
The very first step in building a financial model for your business, or any organization for that matter, is to have a revenue plan. Where is your income coming from? Why should you do this?
Below are 5 reasons this is important:
So now that you are convinced, here are the steps to accomplish this:
It is very important to consider all revenue opportunities from existing clients. They are the quickest way to grow your revenue plan. I remember when working at a digital marketing agency that the revenue growth from existing clients year-over-year was over 50% many years. Some clients go away, but the ones that stick with you will grow if you are adding the value that is necessary to keep them with you for the long-term. Create a chart like the first one above, but add a column for probability and another for annual revenue. See below for an example. Also, add any new services that are being launched.
So how do you decide on the probability of closing new revenue from existing clients? I would use 25%, 50%, 75% and 90% probability to decide.
You may not need all these categories if you are smaller, but review all possibilities on a regular basis. When you approach your clients with other services and products, it shows that you desire to add value to their business which is valuable in and of itself.
This approach can be used for products rather than services. You may adjust quantities or price also if that is a possibility.
We should all be looking for revenue from prospects if we desire to grow. Once you start having a conversation in which there is realistic interest, you should add this prospect to the new revenue report. Some people call this a pipeline. Once again you are going to assess the probability for close as I listed above.
For those who sell tangible products, you have to consider variables such as quantity, price, and of course, product margin. You may have many customers, so it isn’t feasible to list all of them. You might group them by region or target market. At least have a category for new customers and assign a probability for all products.
In summary, forecasting revenue is essential for the success of your business. First, understand how your existing clients, services, and products are trending for the next 12 months. Second, consider all ways you can add more value to your existing clients through new services and products and forecast that revenue by probability. Finally, list out all of your prospects and assign a probability based on where they are in the sales cycle.
Once you have completed your existing revenue and new revenue forecasts, you can look more closely at expenses and profit. We will be talking about this more next week.
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