Building revenue projections is no small task. Many companies, especially those that are small or just starting up, often overlook the importance of revenue projections because accuracy requires hours of research. Maybe you think that time is better spent on sales, which is understandable, especially if you don’t have the historical information needed to make accurate estimations. On the other hand, few investors will take a second glance if you haven’t done the legwork of creating revenue projections. The research required is time-consuming, but it will likely help you better understand both your business and your target markets.
1. Don’t expect to get revenue projections right the first time.
Creating accurate revenue projections take time and lots of trial and error. Don’t hesitate to start this process because the more practice you get in creating these resourceful documents, the more accurate you’ll be in the future. This year’s revenue projections will undoubtedly inform next year’s, and so on. The sooner you start the process the more data you’ll have to work with. You will also gain understanding of how your business is actually operating as opposed to how you expect it to operate. Further, you will learn where the happy median is between your overly conservative estimates, and what you hope for your business in your wildest dreams. This is an important tension to understand in a new business.
2. Begin with expenses.
If you have very little data because you have a new business and aren’t sure where to start in making revenue projections, are your ticket. They provide a great basis for where a new business currently stands and can expect to stand in the future. Many people overlook expenses in revenue projections and assume that they will simply fluctuate based on the money you’re bringing in, but this isn’t realistic either for new or legacy companies.
3. Use historical trends.
If you have data collected over the years, use it! Oftentimes people overlook their existing corporate data because it isn’t accessible. If this is the case, it’s time for a change. Your company’s financial history is a gold mine when it comes to creating revenue projections. This is one of the biggest cases for investing in that catalogues all financial data in easy and accessible ways.
4. Base revenue projections on a target market.
Your revenue projections should be based on target markets for a few reasons. First, it narrows your scope as a business. This positions you to cater to a specific industry, instead of running in circles because you’ve cast too wide a net. Secondly, showing your expertise of a target market shows investors and stakeholders that your vision is specific and streamlined. Third, when you’ve picked a specific market, you can find realistic numbers for what your competitors are charging for products and services, giving you more accurate numbers to work with.
Revenue projections can be daunting, but they can also be one of the most helpful financial resources you can create for yourself. With the help of budgeting software, the process can be much less grueling because you will already have all your data and tools in one place.
We here a Questica want to help. With over 600 public and non profit customers we have expertise knowledge on the ins and outs of forecasting budgets. Visit our website to learn more how we can help you and your organization for your budget, performance management and transparency needs. Like what you see? Schedule a demo to see our software in action, today!