The document discusses 4 methods for forecasting revenue: market-based forecasts, funnel-based forecasts, salesperson-based forecasts, and Adword-based forecasts. For each method, it provides details on the key steps and assumptions needed to generate a revenue forecast. It emphasizes that forecasts should compare results from multiple methods and assumptions should be regularly checked and updated with new data to improve forecast accuracy over time. Accurate forecasts are important for setting realistic sales quotas.

1. 4 Methods for Forecasting Revenue
material minds

2. Introduction
material minds

3.
Slide
3
material minds
Recent statistics say that 46% of sales
people at established software firms fail
to meet their quotas.

4.
Slide
4
material minds
And this causes an annual churn of over
25% of these same salespeople in these
most established firms.

5.
Slide
5
material minds
But perhaps the problem is not with the
sales people but with their quotas.
Maybe these firms are basing quotas on
poorly calculated sales forecasts

6.
Slide
6
material minds
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.

7.
Slide
7
material minds
Four ways to forecast revenue are
• Market based forecasts
• Funnel based forecasts
• Salesperson based forecasts
• Adword based forecasts

8.
Slide
8
material minds
Before you start you
must know
• Your target market
• Your business model
• Your go-to-market
strategy

9. 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

10.
Slide
10
material minds
Many people start by trying to figure out
how big the market is
• Gartner says the market is $50 billion
• We’re going to get 1%.
• But this is just wrong

11.
Slide
11
material minds
First you need to figure out how many
potential users there are out there.

12.
Slide
12
material minds
Then you’ve got to make a few guesses
as to the rate of adoption by the market.

13.
Slide
13
material minds
This will give you your total market size at
any point in time.

14.
Slide
14
material minds
Next you have to figure out what share
of the market you’re going to get.

15.
Slide
15
material minds
When you
put it all
together you
get market
based
revenue
forecasts.

16. 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.

17.
Slide
17
material minds
Lost of people start their
revenue forecasts with a
plug.
• Lets see, $100k the first
month….
• Increase it by 5% a month
• But this too is just wrong.

18.
Slide
18
material minds
First you have to
start with a sales
funnel

19.
Slide
19
material minds
Sales funnel
• Lead
• Discussion
• Proposal
• Evaluation
• Trial
• Order
• Install

20.
Slide
20
material minds
Figure out how long each stage of the
funnel takes.
Stage
Time
Lead
Start
Discussion
1
Month
Proposal
1
Month
EvaluaBon
2
Months
Trial
2
Months
Order
1
Month
Delivery
2
Months
Total
Time
9
Months

21.
Slide
21
material minds
Then figure out the conversion rate from
one stage to the next.
Stage
Stage
Conversion
Conversion
Rate
Lead
100%
100%
Discussion
50%
50%
Proposal
40%
20%
EvaluaBon
50%
10%
Trial
50%
5%
Order
80%
4%
Delivery
75%
3%
Total
Conversion
3%

22.
Slide
22
material minds
Calculate how many real leads you can
generate per year.

23.
Slide
23
material minds
Then work use these formulas to
calculate expected sales

24. Salesperson Based Forecasts
The Salesperson based Forecast relies on
industry benchmarks to figure out what is
possible for an individual salesperson.
don’t make assumptions.

25.
Slide
25
material minds
This approach starts with how much
revenue an experienced salesperson in
an established firm can generate.

26.
Slide
26
material minds
Then discount that if:
• Your company isn’t as established
• Your product isn’t competitive
• Your sales person is new
• Etc.

27.
Slide
27
material minds
In fact, you may need to discount it by
50% to 75%.

28.
Slide
28
material minds
If your primary way of reaching the
market is through sales people then how
many of those do you plan on having?

29.
Slide
29
material minds
And then look at lead times from when
you bring on a sales person.

30.
Slide
30
material minds
Finally multiply the number of
salespeople you have in any month
by the sales you expect them to
have that month to arrive at
revenue numbers.

31. 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.
don’t make assumptions.

32.
Slide
32
material minds
First you have to start with how much
you intend to spend on adwords to
generate click-throughs.

33.
Slide
33
material minds
Then figure out what percentage of click-
throughs result in trials.

34.
Slide
34
material minds
And how many of those trials convert to
paid purchases and even perhaps to
repeat purchases if appropriate.

35.
Slide
35
material minds
And then what your churn rate is.

36.
Slide
36
material minds
Then work use these formulas to
calculate expected sales

37. And then what?

38.
Slide
38
material minds
Compare all of these approaches to
arrive at a workable forecast. (And
don’t be surprised if you find you’re
wrong.

39.
Slide
39
material minds
Check and re-check your assumptions
over time

40.
Slide
40
material minds
Revise your forecasts every
month

41.
Slide
41
material minds
The key to all of these methods is that
you must know how your customers buy,
how your sales engine sells and how the
two relate to create sales.

42.
Slide
42
material minds
And you must keep re-evaluating this
model and adjusting your forecasts
accordingly.

43.
Slide
43
material minds
material minds
Helping individuals,
managers, and
entrepreneurs improve
strategy execution.
Charles Plant
416 458 4850
cplant (at)
materialminds.com
Consulting
Coaching
Workshops
Speaking
Teaching