Revenue forecasting
Revenue forecasting is the projection of a company's future revenue from existing data, planned projects and expected orders. It estimates early what revenue can realistically be achieved in the coming weeks, months or financial years. In project business that revenue depends heavily on project progress, utilization and client orders.
What is revenue forecasting used for?
For financial planning and budgeting, liquidity planning, workforce planning, investment decisions and the strategic management of the business. A realistic projection lets a company assess where it is heading, see risks at an early stage and make informed decisions while there is still time to act on them.
Which methods of revenue forecasting are there?
Four are common. Historical analysis projects past revenue trends forward. Pipeline-based forecasts start from proposals, opportunities and planned projects. Project-based forecasts use planned project revenue, progress and billing models. Capacity-based forecasts use available capacity, planned utilization and average hourly rates. In practice several of them are combined.
Why is revenue forecasting harder in project business?
Because revenue depends on things that move during delivery: project start dates and durations, employee utilization, billing models, delays and scope changes. A forecast built from sales data alone misses them. It also has to include planned budgets, planned hours, current utilization and project progress, the operational side of the business.
Where does the data for a revenue forecast come from?
From several sources that have to be connected: sales data, project planning, time tracking, resource planning and billing data. Combined, they produce a current, data-based projection that can be calculated automatically and updated regularly, rather than rebuilt by hand for every planning round.