Accurately forecasting revenue is an essential part of your technology company’s financial picture. Revenue forecasts help you manage cash flow and spending on marketing, administration, and operations. In addition, such forecasts help you set sales goals for your company to achieve in the coming year. Unfortunately, none of us can see into the future and predict exactly how much revenue our companies will bring in. Many unforeseen factors can influence and change markets, making accurate sales forecasting a daunting task. There are different steps you can take to improve the accuracy of your revenue forecasts to maintain a healthy financial picture.
- Start from the bottom up.
When you start by considering the entire market for your technology and estimate your piece of the pie, you can easily overinflate your sales forecasts since the tech market is larger than most people imagine. Instead, start from the bottom and work your way up to your forecast. Start by determining your possible share of the market by considering how many potential customers your company can realistically reach through your marketing methods. Out of that target market, how many companies will actually respond to an ad or call? Of those companies, how many will actually make a purchase? Consider the average amount you think those customers will spend, and you can more accurately forecast your revenue.
- Consider “units” instead of “dollars.”
Many people focus on the dollar figure they estimate their sales will bring in. However, this focus can keep you from carefully considering the details of your products, such as the pricing. If you don’t make a certain dollar amount, it could be that your sales record was high, but your products weren’t priced high enough. If you consider units instead of dollars, you can pay closer attention to how pricing affected the outcome, so that you can make adjustments for the future.
- Look at shorter time periods.
When a company is starting up, it is advisable to forecast on a monthly basis instead of annually. However, examining shorter time periods as you become established can continue to help with more accurate forecasting. You can identify which time periods are typically slower than others, so you can account for the possible dip in sales and work within a reasonable revenue forecast.
- Use visuals.
Theoretical numbers of customers, units, and dollars can be difficult to wrap your mind around. Make graphs or charts of your forecast and compare the visuals to the previous year. You can better identify any sharp increases or drops in expected revenue and rationalize how or why those will occur. Then, make charts or graphs for each month and compare them to your forecasts to identify any factors that may have led to inaccuracies.
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