Do you know how much revenue your business will generate for the next year? If not, you probably need to consider investing in revenue forecasting software. Come to think of it, even if you have a good idea, the software can serve you well.
Revenue forecasting software gives you deeper insights into your business’s revenue data and allows you, through the use of analytics, to see how much revenue your business is most likely to bring in in the upcoming year. In turn, this helps you plan and budget better and make better decisions.
More importantly, revenue forecasting can help you manage your cash flow effectively. And this is critical as a recent study found that 61 percent of small businesses globally struggle with cash flow and cannot pay their suppliers, credit installments, and even their employees.
But what is revenue forecasting software, and why is it important? In this post, we’ll look at these questions in more detail.
What Is Revenue Forecasting Software?
To understand what revenue forecasting software is, it’s essential to understand the math behind revenue forecasting first. In simple terms, revenue forecasting is a calculated estimate of how much revenue your business will generate over a specified period. This period could be of any length, but because change is inevitable, businesses usually forecast revenue for the next year or quarter.
Typically, revenue estimates are based on several data points, such as your historical sales figures, the current market conditions, and the state of your sales funnels when forecasting revenue.
And this is where one of the major challenges of revenue forecasting comes in. To make forecasts, you’ll need a lot of data. Traditional forecasting methods relied on managing and analyzing this data by using inefficient tools like spreadsheets. Manual spreadsheets can get out of control quickly and take a lot of time and effort to maintain. You could instead spend that time running your business and generating revenue.
Inefficient processes and inaccurate data is precisely what revenue forecasting software solves. It allows you to automate forecasting and, as a result, eliminates the time-consuming manual processes to gather, maintain, and manage data and makes the process much simpler.
Why Is Revenue Forecasting Software Important?
Now that we’ve seen what revenue forecasting software is and looked at the problem it aims to solve, it’s time we take a deeper dive into the reasons why revenue forecasting is so important. At first glance, you might think that revenue forecasting only helps with planning and budgeting, but there are additional benefits as well.
With that in mind, the benefits of revenue forecasting include:
• Budget and planning. As mentioned earlier, this is probably one of the most apparent benefits of revenue forecasting. Simply put, when you have a reasonably good idea of the revenue your business will generate in the coming year, quarter and month, you’ll be able to plan and budget better.
Now, this could help you in a variety of circumstances. For example, it might help you decide whether you can afford to invest in infrastructure or develop new products. Likewise, revenue forecasting will show you how much you have left to spend on marketing campaigns or justify your investment in new business tools or services.
• Cash flow management. As we’ve mentioned before, cash flow management is one of the significant struggles many business owners face. With revenue forecasting, you’ll be able to see more accurately how much revenue you can potentially generate in the coming year or quarter and when you’ll get this revenue. In turn, this allows you to implement the necessary measures to ensure that you always have cash on hand to pay your expenses and avoid missing payments and the dreaded late payment fees. It can also help when it comes to planning for and paying your taxes.
• Credit management. Revenue forecasting also allows you to manage your credit more effectively. Apart from allowing you to make your credit payments on time, revenue forecasting also gives you the ability to know well in advance when you’ll need access to credit. And when you do, you’ll have time to find the right offers and negotiate better terms.
• Sales analysis. When you forecast your revenue, you’ll, by implication, also forecast your sales. This will give you deeper insights into your sales data and show you how much a specific product contributes to your total revenue. Armed with this information, you’ll then be able to focus your efforts on those products with the highest profit margins or those that bring in the most revenue.
• Hiring. Obviously, as a business owner, it’s vital that you have the best talent on your team. In turn, to hire the best talent, you’ll need to pay them a competitive salary. With revenue forecasting, you’ll be able to see whether you can hire new employees and how much you’ll be able to pay them. But it goes further than this, though. Through revenue forecasting, you’ll also see the revenue-generating capacity of new employees, which means you’ll be able to justify hiring decisions better.
• Investors. Let’s face it, at some point in time, you’ll need access to extra capital. Now, here you’ll have a choice of accessing credit or finding investors. If you plan on doing the last mentioned, revenue forecasts can be extremely helpful. This is simply because investors want a return on their investments, and a detailed revenue forecast will show them that investing in your business would be a good investment decision.
• Decision-making. Ultimately, considering the above, revenue forecasting allows you to make better business decisions. In other words, you’ll be able to make better decisions regarding cash flow, credit, hiring, where you should allocate resources, and how to manage your business’s finances.
Where Does Marketing Fit In?
We mentioned earlier that, when calculating revenue forecasts, you’ll typically take into account several factors like historical revenue, market conditions, and how well-developed your sales funnels are.
For example, if your revenue grows by 10 percent year over year, the market conditions are favorable, and you have many promising leads in your sales funnel, then you could likely say that your revenue will once again increase by 10 percent.
Your revenue projections should also take into account your marketing activities and data. This is simply because your marketing activities directly impact revenue. So, when you consider these marketing activities in your revenue forecasts, you’ll arrive at estimates that are much more accurate.
For instance, using the example above, if you plan on investing more into effective marketing strategies, your revenue could likely increase more than the stated 10 percent. Likewise, suppose your 10 percent growth was based on years where you invested heavily into marketing and plan to invest less for the coming year. In that case, your revenue will decrease no matter the market conditions or your historical performance.
Yet, despite this, most revenue forecasting software only looks at sales activities and completely negates the impact of marketing on your sales funnel.
The obvious solution is to integrate your marketing data into your revenue forecasts which will, in turn, allow you to plan, forecast, and predict revenue growth more accurately.
RevOptics allows you to do this by eliminating data silos and turning disparate data into actionable insights and intelligent answers. To find out more about RevOptics and how it can help your business, request a demo today.