Recent statistics say that 46% of sales people at established software firms fail to meet their quotas. And this causes an annual churn of over 25% of these same salespeople in these most established firms. But perhaps the problem is not with the sales people but with their quotas. Maybe these firms are basing quotas on flawed revenue forecasting.
You can look at revenue forecasting as an art or a science. There is a bit of both required to be successful. The best approach though is to apply the science before you add the art. The material on this page is devoted to the science of forecasting as I can teach you the science and let you add the art.
4 Methods for Revenue Forecasting
There is no one right way to forecast revenue. That’s why you need to look at a few different ways and compare the results.Four ways to forecast revenue are:
Market based forecasts
Market based forecasts make assumptions about the size of the market, how fast it is growing and what percentage of the market you’ll get to arrive at forecasted revenue.
Funnel based forecasts
Funnel based forecasts don’t use assumptions. Instead, they rely on your understanding of the causal relationship between activities and results to determine what you need to do to reach revenue goals.
Salesperson based forecasts
The Salesperson based forecast relies on industry benchmarks to figure out what is possible for an individual salesperson.
Adword based forecasts
Adword based forecasts are for companies that sell primarily through the Internet (although this technique can be used to calculate leads generated as an input for the Funnel Based approach.
And if You Have lots of Time to Watch a Video
And if you have a bit more time to spend, here’s a video of a lecture I gave on the subject of revenue forecasting several years ago at MaRS.