One of the steps to creating a valuable business is creating a revenue forecast in your budget. The accuracy of your entire budget is highly dependent on you getting your estimated revenue correct. If you are too far reaching, your budgeted expenses will also be off. The ability to accurately forecast your revenue is highly dependent on two factors:

A recurring stream of income: Recurring revenue means that you have a stream of income coming in at regular intervals. The frequency could be daily, monthly or annually with monthly being the most common type.

A predictable lead generation or marketing system: If you have been in business for a while, you should have developed a sense of the frequency of leads or customers from the various marketing methods you use. If your marketing methods do not produce a predictable amount of leads, then it’s time for you to examine new marketing methods or traffic sources. You might even need an overhaul of your marketing system. The estimated number of customers you get will not be perfect but you should be able to predict fairly accurately.

Steps to forecast revenue

• To start the revenue forecast process, you will need to list all your traffic sources or marketing method. Common marketing methods are: hiring a sales force, email marketing, phone marketing, social media marketing, radio, television, and mailing coupons and special offers.
• Next, look at your past records and estimate how many new clients you can expect on average from each marketing method you use.
• Determine the average amount of revenue a potential client spends with you.
• Figure out the amount of revenue you can expect from new marketing sources by multiplying the estimated number of new clients by your average revenue.
• Next, look at your records for recurring revenue customers.
• Estimate the amount of revenue you expect from recurring revenue customers. Do not forget to figure in potential attrition. In general, estimating revenue from a recurring customer base is usually the most reliable form of revenue estimation.
• Add the number of new clients you expect from traffic sources and the income you get from your recurring customer base to get your forecasted revenue.
• If the amount is lower than you like, you will need to take a look at your marketing system as it is the #1 predictor of revenue. Some questions you will need to ask yourself are:
  • Can you increase your conversion rate from existing traffic sources or marketing methods
  • Should you explore new marketing methods or traffic sources
  • Should you consult with a marketing expert

Developing a marketing system is a trial and error process so don’t be afraid to try new things. However, if you have a proven marketing system, then doing more of what works, will generally produce predictable results. Do not try to fix your marketing system if it’s not broken.

Trends to consider when forecasting revenue

Forecasting revenue for your business should not be done in isolation. You should watch the general economy and your industry for trends that my foster or hinder your business. For example, if there is a new legislation that requires people to order more of your product, you should be aware of that and plan for the estimated growth due to this legislation. Also, if your industry data indicates that customer tastes are changing, you may want to see how you can use your current resources to diversify your customer offerings. For example, it does not matter how good you are at selling cds, the market for cds are declining and you will be wise to move to digital music.

Summary

This article has focused on steps to forecast revenue for a small business which has been existence long enough to have reliable marketing data. New companies will have to learn by trial and error as they develop their formula. In the past, predicting revenue for a small business was an almost impossible tasks. Today with better marketing methods and traffic sources available to the small business owner, the process of revenue forecast has become so much easier and more predictable. Never before has there been so much marketing data available to the small business owner. Knowing how to read this data and make predictable forecast is vital for the small business owner who wants to grow.