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Revenue Forecasting: Going Back to Basics

We were recently engaged to help an agency put together a revenue forecasting process for their Client Services team. The brief was straightforward: keep it simple, focused, accurate and (above all) make it stick! It was a systems agnostic project, so it gave us the
opportunity to go back to basics and build the forecasting process without a system in mind.

Over the years we have seen a lot of forecasting workflows, and even more spreadsheets. With more and more agency management
systems providing functionality in this area it can be easy to
over-architect a solution or to think the system will do all the work for you.

Taking the systems aside there are a few golden rules we’d like to share, to help you build a forecasting process, that can be used to build accountability around revenue goals.

1. Be clear about how you want to recognise revenue: are you basing this on when it is earned or billed?

There are pros and cons of both of course – with hardcore believers in both methods. Though more of the holding companies
demanding the former. Here are the options laid out simply:

Revenue Earned
This is based on a % complete or % of revenue delivered method.
Systematically there are a lot of ways to get to this percentage:
burn over budget
an AM/PM qualitatively estimating the %
looking at burn value over the estimated burn at completion.

This final method looks at the value of time burnt over the total
forecast spend on the job, multiplied by the approved budget.
EAC (estimate at completion) is arguably the most accurate, yet
arguably the most complicated for a busy and mathematically
average person to calculate or forecast on a weekly basis.
It also requires decent agency finance systems to manage effectively.

Revenue Billed
Based upon revenue billing dates only.

So now that you have the answer to this question, you can
communicate how you would like people to forecast their revenue.

2. How do you want to format the revenue forecast?

…Do you want to break your forecast down by how certain the
revenue is?

The most common practice we see is a three-tiered approach, with agencies wanting to know what is guaranteed, what is probable and what is possible. In the ‘guaranteed’ bucket would sit all of your
retainers and jobs in progress that are on track and have signed
contracts. Probable revenue would come from jobs where there are just some final negotiations on the timeline, jobs with a
verbal approval from current clients and jobs in progress but still
requiring the relevant contracts. Possible revenue would be from jobs that are briefed in but still require some sell in, scoping or
negotiation before being committed as Probable.

…Do you wish to track how the revenue came about?
For example, a traditional tracking method is to look at whether
revenue was generated by hunting or farming activities.

…What else do you need to know about the basics?
Job Number? Job Name? Campaign? Client? Account Manager or New Business bod?

…Finally, if something slips, moves forward, or falls off completely, do you need any extra commentary?
Maybe and maybe not… You may feel that a regular meeting and
discussion can capture this. Alternatively, you may wish to record this information digitally to ensure you are holding people
to account for forecast movement. Recording critical information on lost revenue also makes it easier to track trends where revenue slips or losses are happening. Remember, the upside of more data needs to balance the downside of someone having to enter that data.

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So, now you know what the revenue forecast looks like and the data
it holds.

3. Find a process to manage your forecast

A simple task, done regularly, is hands down the best way to make this stick. The best processes we see look something like this:
Update your forecast weekly at a set time each week
Then have a weekly meeting with the senior account team to review and discuss the forecast document in a group session.
The session should be quick since the data has already been
entered, but the format of having the meeting to discuss the
forecast keeps the process focused, collaborative and an exercise
that drives accountability and understanding.

For more information on making the pieces of your business work better together contact info@tangramconsulting.com.au 

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