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Aprovenmethodforaccuratelyforecastingannualrevenue|KimbleApps
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Having an accurate 12 month revenue forecast is a vital component of the budgeting and
planning process in a Professional Services organisation.
Get the forecast too high and you
could end up taking on too much cost too soon.
Get the forecast too low and you wont be
able to resource up in time to take advantage of your business pipeline.
Either way you are
impacting your profitability negatively.
Unless your business pipeline has a large proportion of annuity contracts surely it is near to
impossible to get a 12 month forecast correct with any degree of confidence? Youd think
so, but that isnt the case. Over the past 15 years I have been using a simple approach which
every year has proved extremely accurate if you have at least 10 customers and prospects.
Ill be honest I dont know fully why it works, but history proves it does in practice.
I also
know that everyone who has tried it in other organisations I have spoken to has had similar
results and found it a straightforward and valuable sales planning technique.
So this is how
it works if you want to try it
Step 1 gather the initial data
Organise a session with each of your account owners to review their active accounts and
prospects.
Ask them to provide estimates of the revenue opportunity at a headline level for
each of these accounts over the next 12 months against three different estimating criterion.
The three estimates are know as low, medium and high and are derived based on the
following classification:
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use their best judgement I wont be setting targets based on these individual numbers
(and indeed you should not see my blog on setting incentive sales schemes).
High this is the best guess of the revenue you would win if you won every opportunity in
the account over the next 12 months and you had no resource constraints (i.e. you could
staff every project you won fully).
Note that the 3 numbers should be cumulative.
For example, a $100,000 forecast as low and
additional $200,000 forecast at the medium level and an additional $150,000 forecast as
high would be expressed as:
low
$100,000
medium
$300,000
high
$450,000
Step 2 validate the data
You should review these estimates face to face with the account owner.
Simply getting the
account owner to describe out loud their thought process in deriving the estimates has the
effect of teasing out where they have under estimated or over estimated (tends to be the
former).
If you are in a organisation where multiple people are involved closely with
business development (for example, where you have a Project Manager/ Consultant leading
an account from a delivery perspective as well as a Sales Person assigned to the account)
then try and get each person independently to come up with the estimates and then bring
them together to seek consensus.
Step 3 consolidate the data for your company
Consolidate the information from each of the account owners and you are now left with
something like the following:
Client Name
Owner
Low
Medium
High
Acme
John
$100,000
$500,000
$1,000,000
Archilles
Brian
$-
$-
$3,000,000
Brandon Plastics
Jane
$250,000
$250,000
$250,000
Chumley
Pharmaceutical
Jane
$1,000,000
$1,100,000
$1,200,000
http://www.kimbleapps.com/2011/04/aprovenmethodfortheannualrevenueforecastingprocess/
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Detroit Cars
Jane
$200,000
$500,000
$2,000,000
Franklin Motors
Brian
$10,000
$1,000,000
$1,500,000
Mangrove Estates
John
$250,000
$250,000
$450,000
Norman
Engineering
Emma
$700,000
$1,000,000
$1,300,000
Peidmont Wines
Emma
$50,000
$100,000
$250,000
Quiver
Brian
$-
$-
$500,000
Reed Electronics
John
$450,000
$650,000
$900,000
Stream Solutions
Keith
$40,000
$100,000
$200,000
Wright Brothers
John
$30,000
$400,000
$600,000
Zelstra
John
$500,000
$1,000,000
$2,000,000
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Low
Total
$3,580,000
Medium
$6,850,000
High
$15,150,000
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Owner
Low
Medium
High
Archilles
Brian
$-
$-
$3,000,000
Franklin Motors
Brian
$10,000
$1,000,000
$1,500,000
Quiver
Brian
$-
$-
$500,000
Norman
Engineering
Emma
$700,000
$1,000,000
$1,300,000
Peidmont Wines
Emma
$50,000
$100,000
$250,000
Brandon Plastics
Jane
$250,000
$250,000
$250,000
Chumley
Pharmaceutical
Jane
$1,000,000
$1,100,000
$1,200,000
Detroit Cars
Jane
$200,000
$500,000
$2,000,000
Acme
John
$100,000
$500,000
$1,000,000
Mangrove Estates
John
$250,000
$250,000
$450,000
Reed Electronics
John
$450,000
$650,000
$900,000
Wright Brothers
John
$30,000
$400,000
$600,000
Zelstra
John
$500,000
$1,000,000
$2,000,000
Stream Solutions
Keith
$40,000
$100,000
$200,000
For example, typically I dont like a business development person to be allocated too many
http://www.kimbleapps.com/2011/04/aprovenmethodfortheannualrevenueforecastingprocess/
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accounts which only have speculative opportunities this would be indicated by a large
difference between low and high numbers.
Additionally, if there is little or no difference
between the low, medium and high numbers then the account is better managed by a
delivery focused person than a business development/ salesperson.
In the above example
there seems little point in having Emma working on business development at Brandon
Plastics as there is no upside and it would be better managed by a Project Manager or Lead
Consultant with some sort of profitability target.
Another thing you can do is have more than 10 accounts allocated to an individual business
development/ salesperson then you can start to use the derived low/ medium/ high
forecast total across their accounts to verify sales targets.
In Kimble we allow you to record and analyse this information.
Id be really interested what
your experiences of trying this approach are.
byMarkRobinsonon28thApril2011inManagingProfessionalServicesFirms
It was acquired by
Whittman Hart for cash and stock valued at $35m in November 1999. Following the
successful sale of Fulcrum, he co-founded IT consultancy Edenbrook, this time with external
investment.
At the time of its acquisition in 2009 by Hitachi, Edenbrook had reached over
400 people based in the UK and India. In Kimble Mark is responsible for business
development, channel management and Market analysis.
View all posts by Mark Robinson
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