Predicting Revenue

Often when someone takes over a new position where they are responsible for, dare I say it, the sales funnel, one of their goals is to predict revenue. Most firms try to predict revenue, albeit with different levels of success. Some firms use a backlogs or potentials method for proposal tracking, others ask the professionals to maintain a rolling 12 month projection, and others may simply set a target hoping for the best. One thing is for sure, targeting revenue in professional services is different than for products but a level of predictability is still required.

Companies that sell widgets need to know how many widgets to make at any given time. The ability to forecast sales is essential for production. Professional services concerns are related to human capital, office space, team availability, and the list goes on and on. Predictability enables us to consider different options that allow us to maintain costs, ensure client needs, and provide staff with the appropriate amount of work so that they can perform at their best. The leadership of the firm understand this and do a great job of it, however there is a lot that can be done to make their jobs easier.

Starting with annual targets and planning. Professionals need to be realistic about what work they see coming from their clients. Don’t predict a 5% growth in revenue if you know the client plans on taking more work in-house. This requires a better understanding of the clients business and fundamentally what the client plans on doing in the coming year. If the client does not anticipate growth through acquisition, than revenues from M&A are likely not going to happen so don’t plan for it. On flip side, if you know your client has ambitious plans for the coming year, you need to seriously consider if the staffing levels in place will allow for you to capture that revenue growth.

One of the difficulties in prediction is that everyone will look at it differently. There are optimists and pessimists and judging what they really mean can be a challenge. After one email exchange, one staff person may say they have an 80% chance of closing the deal whereas another may feel that it is only 10%.

The best tools for revenue prediction include simple standards that are applied to all files and all clients. There is no question that each client is different with different attributes, however, predictability can be standardized. Opportunities are easily tracked with something as unsophisticated as a spreadsheet. They can be measured using a rating scale so that everyone employs the same criteria for prediction. We can be honest with ourselves about client needs.

The need to predict revenue is not new. How we choose to go about it may require a re-think.