Revenue forecasting models help you estimate how your marketing agency will perform in the future. You’ve no doubt felt the inherent friction when trying to forecast your revenue in a conservative (some may say realistic) but also aggressive way to keep your team motivated. Below are four different options to choose from or combine to forecast your revenue.
1. Straight-Line Method
Probably one of the simplest and most often used forecasting methods for marketing agencies. In this method you use historical growth rates in your agency to predict future revenue growth. Say your growth rate was 12% last year. Assuming the growth rate stays constant, you can use 2019 revenue and multiply it by your 12% growth rate to forecast 2020 revenues.
2. Historical Performance + Δ
As an agency owner, you are forever an optimist. When you forecast revenue, you assume that you’ll do as well as you’ve done in the past. Using your historical performance as a baseline, you look at your delta i.e. what has changed internally and externally to determine how it may impact revenue.
3. Pipeline Method
This involves looking at your sales pipeline and trying to solve for two unknowns (1) dollar value of each lead and (2) percentage of the opportunities that may turn into client work. Although this method is easy to understand, it helps to have insight into your prospects to make reasonable estimates.
4. Work Under Contract
This method looks at the total amount you have under contract but have not earned. Unlike the pipeline method, you don’t have to factor in uncertainty. There are many agency owners that use the Work Under Contract as an anchor and combine it with the big dreams approach of the Pipeline Method to build a seemingly accurate revenue forecast.
Why Revenue Forecasting Matters
Revenue forecasting helps you make an educated prediction about how much money you will bring in, how much money you can spend, and how profitable your marketing agency will be in the upcoming year.
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