HomeHome SitemapSitemap Contact usContacts

Sales And Marketing Management Denver » Sales Forecasting Where Marketing And Finance Come Together

Expected Sales - Forecasting Revenue

Looking out over the year and trying to build a budget, the best place to start is with the revenue. Forecast revenue seems to be a very difficult process for most people. In the start-up world, forecasting is difficult because the companies either don't know what they are selling or don't know how to sell it.

If you can't describe your product, how it will be priced, sold, and delivered, then you are still in the development phase and will not have a sales forecast. If you are raising venture capital, you will probably have determined your five year revenue forecast using market size, market share and penetration rate. If you do not have a bridge between this top-down approach and the bottom-up approach, you will probably have a pretty low valuation.

Once you have a product to sell and know the appropriate price, you can complete a bottoms-up approach towards forecasting revenues.

  • How many sales people do you have?

  • Are they at full capacity? New salespeople will need at least six months to get up to full capacity.

  • What is each salesperson's expected contribution? Early stage companies and new sales reps may only be expected to bring in $1 million per year. A more mature sales rep in an established company should be able to generate $2 million per sales.

  • What is the total sales force productivity? In general, not every sales person will bring in his or her full quota every year.

    • Let's say you have two mature sales people and one new sales person. Each salesperson is expected to bring in $1 million. Experience or market research has shown that productivity levels are 80% in your industry.

    • Sales booked = 2.5*1*.8 = $2 million

    Using the $2 million revenue number assumed that all sales are recognized when the sale occurs. If you are performing long-term contracts, you will have to spread the sales over the length of the contract, meaning not all of that revenue will happen in the year the booking occurs (revenue recognition). This is how you determine backlog - what is leftover after recognizing the revenue that belongs in this year.

    If you are unsure as to how your revenue should be recognized, speak with your accountant. Being able to get a good handle on your revenue projections will give you a good handle on your business. You will be able to estimate what you can spend and still make a profit. You can use the number to track the performance of your salespeople. If your revenue projections are strong, they will lend credence to your story when you are raising venture capital or trying to get a bank loan.

    Written by C. Worrall. Please visit my website for more small business finance advice: http://cfoyourself.com

    Source: www.articlesbase.com