How to Track and Reach Your Revenue Projections
Setting and reaching revenue projections is an essential aspect of any business. Creating accurate revenue projections–and achieving those projections–helps with budgeting, decision-making, and tracking the growth of your business.
Building a revenue tracking system helps you compare your projections versus your actual revenue. You can use this information to help formulate reports and create insights that set you up for long-term success and growth.
In this article, we’ll look at how to accurately estimate revenue and track your revenue against your projections.
Importance of Accurate Revenue Projections
Accurate revenue projections are essential to the long-term success of a business. A business that doesn’t have an accurate estimate of its revenue can’t accurately plan its budget. An accurate revenue projection, on the other hand, works as a roadmap for business planning.
Your projections can help guide you in:
Resource allocation and management
Budgeting and cash flow forecasting
Risk management
Performance evaluation of sales, marketing, and customer service efforts
Strategic decision-making based on current market trends
Additionally, accurate revenue projections can be a key element in securing financing and gaining investor confidence. Say there are two companies seeking investors. Company A regularly provides accurate revenue projections that align with its sales goals and are based on historical revenue numbers. Company B often over-inflated its revenue projections and consistently falls behind in actual revenue. Investors are more likely to provide funding for Company A than Company B.
Setting Realistic Revenue Projections
You know you need accurate projections, but you might be wondering how to actually set realistic projections for your business.
Your first step should be to look at your historical sales and revenue data. Your past revenue is often one of the best indicators of future revenue. You can start your projections by reviewing the previous years’ revenue statistics to gain an estimate of potential revenue for your current forecast.
In addition to past revenue data, there are two main aspects to creating realistic financial projections:
Understanding Your Market
Analyzing market trends and current customer behavior can give you a leg up when creating revenue projections. As you analyze trends, you can build insights into what your customers currently want–and are willing to spend on your products. Plan to incorporate your market insights into your revenue projection models.
Considering External Factors
Customer trends aren’t the only factors that will affect your revenue. External factors, such as economic conditions and greater industry trends can influence your revenue as well. You can account for these external factors by building flexibility into your projections to accommodate unexpected changes out of your control.
Choosing the Right Revenue Projection Model
There are many revenue projection models you can use to estimate your company’s revenue. Not all models will work with every business. In fact, most business owners find a certain type of projection model works best for their type of business, while other models give less accurate projections.
When selecting a projection model, consider your business dynamics and goals. For example, a larger business with numerous sales departments and regions may want to use a bottom-up forecasting model. This system compiles sales and revenue forecasts from each department to create a revenue projection for the company as a whole.
Continuous Monitoring and Adjustments
As with most financial projections, forecasts, and budgets, your revenue projections shouldn’t be set in stone. Instead, you should plan to regularly review actual versus projected revenue figures. Regular reviews of your projections can help you stay on track to meet revenue goals by adjusting to ongoing market trends or external factors.
To get the most out of your financial projections, get into a routine of reviewing financial performance against your projections. This allows you to identify early signs of potential deviations from your estimated revenue. In turn, you can use these insights to create strategies that help you adjust your goals and stay on track to meet projections.
Key Performance Indicators (KPIs) for Tracking Revenue
Key performance indicators, or KPIs, are perhaps the most essential factor in accurately tracking and projecting revenue. Tracking the right KPIs makes creating future revenue forecasts easier while also giving you the information you need to make data-driven revenue decisions.
Like forecasting models, different businesses may find different revenue and sales KPIs to be more beneficial for projecting and tracking revenue. However, most businesses will benefit from tracking:
Sales metrics
Expense management metrics
Sales Metrics
Sales data KPIs generally monitor the sales performance of a company. This might include total sales by dollar amount, sales by department or sales team member, or the number of products sold in a timeframe. Whatever sales data you use, comparing sales to revenue projections is an easy way to track the success–and limitations–of your revenue projections.
Expense Management KPIs
Sales data gives you insights into pure revenue from products, services, and other income. However, sales KPIs can limit insights when compared to revenue projections by only showing one side of the story.
Adding expense management KPIs into your revenue projection tracking can help give you a more complete picture of your projections compared to actual revenue numbers. This ensures a balanced approach between revenue growth and cost controls to maintain or expand that growth. Expense KPIs help you analyze expenses and the cost-effectiveness of producing and selling your products.
Focus on Continuous Improvement to Reach Your Revenue Projections
An effective revenue projection management system offers businesses many long-term benefits, including:
Improved financial stability
Enhanced decision-making capabilities
More efficient resource allocation
Increased competitiveness and growth
Flexibility to adapt to market changes
Not sure where to start when creating revenue projections? Accounting Made Accessible is here to help. We help business owners and leaders like you accurately and efficiently manage their revenue and other business financials. Our team has the experience you need to build an accurate revenue projection–and achieve it.
Reach out to us today to get started.