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Tips for better revenue forecasting

To guide investments and make sound business decisions, your organization needs to use the right revenue forecasting models. In this article learn and understand the new landscape for revenue projections and learn three ways to improve your revenue projection model process.

Coming out of one of the most tumultuous times in recent memory, organizations are looking to regain control. Strengthening your method of building and applying revenue forecasting models is one of the most effective ways you can help your organization see around the next corner to make informed decisions.

Revenue forecasting is a crucial business exercise. An accurate revenue projection model allows leaders to make smarter decisions about key organizational priorities including goal-setting, budgeting, and hiring. As a trusted partner to professional services organizations (PSOs) around the world, we are excited to help improve revenue forecasting methods that enhance the impact and effectiveness of our customers.

The key to success is to keep your revenue forecasting models and techniques simple, even as you deal with the complex. It’s easier said than done. But done correctly, you will not only understand the numbers better, but also improve the way you share and act on insights to achieve better results.

Building the revenue projection model    

Revenue forecasting methods entail both science and art. The science is in choosing the right models to predict future revenue. The art is in matching your chosen method of revenue modelling and forecasting to how you guide future decisions. Revenue projection models affect every part of the organization that need investment, that needs to include costs, adjust staffing, re-train personnel, and other strategic moves.

Many financial planning & analysis (FP&A) professionals start with a basic revenue forecast example. These include well-documented approaches including:

  • A straight line forecast that uses historical figures and trends to predict future revenue growth, based on a constant growth rate.
  • A moving average forecast, which uses smoothing techniques to find an underlying pattern in a data set on which to establish an estimate of future values.
  • Simple linear regressions to analyze the relationship between variables for prediction purposes, such as the link between advertising spending and customer engagement.
  • Multiple linear regressions to build a revenue projection model when two or more independent variables are required for a projection.

While these techniques are all useful in some circumstances, they can never tell the full story for revenue modelling and forecasting because they lack context. In people-driven organizations, the most important place to start is not with modeling or analysis, but with collaboration.

The rise of continuous planning      

Collaboration is at the heart of building and updating revenue forecasting models that align with your organization’s needs. After all, the objective of revenue forecasting is to steer business decisions. In an era of fast change and a rapidly evolving business environment, developing more agile dynamic planning is crucial for long-term benefits. This means bringing the FP&A team in close contact with business leaders to map scenarios and determine the impact on revenue forecasting.

Continuous planning is a supplement to traditional annual business planning. But instead of the annual plan’s rigid, time-consuming process that includes firm targets and strict governance, the continuous process rapidly quantifies the impact of new scenarios on your revenue projection model. Faster “what if” scenarios replace slower actuarial models.

Unit4 partners welcome this environment because they have the right tools to collaborate quickly and effectively. “Because it doesn’t have spreadsheets’ limitations, Unit4 FP&A is able to support what I call ‘continuous planning’” notes Robert Kugel, SVP Research, Ventana Research. “This is a highly collaborative approach to planning that relies on frequent short cycles to create and rapidly update integrated company-wide operational and financial plans.”

Improve revenue forecasting

So, to build high-value revenue forecasting models in a fast-changing business environment, your organization needs to encourage collaboration and generate new insights. Here are three ways to get beyond standardized revenue forecast examples and accomplish your organization’s unique goals.

Ditch Excel to embrace a single version of the truth     

While Excel is a popular tool when building a revenue projection model, Excel falls short of many requirements. It is not an effective tool to communicate and collaborate with other people. Manual data entry and often-shaky version controls introduce doubts about the data quality, leading to excessive time required for data reconciliation and cleansing.

Put simply, spreadsheets do not deliver the dimensionality and interactivity you need to create revenue forecasting models.

New collaborative financial tools make forecasting far easier and more efficient. When everyone is working with a single version of the truth, everyone can share information. By removing organizational silos, your data will be more coherent, whichever revenue forecasting methods you choose.

Organizations are getting smarter about the shortcomings of Excel. In October 2020, the BARC Topical Survey: Sound Decisions in Dynamic Times found that 56% of organizations are actively looking to introduce or modernize their software for planning and forecasting purposes.

Integrate business intelligence into forecasts      

To be effective in a collaborative, people-centric environment, FP&A teams need the right self-service tools to access data independently, and to communicate their revenue projection models in context. The best FP&A software offers self-service analytics that enable FP&A teams to create reports, simulations, analysis, and dashboards all by themselves, and add meaning to the numbers through storytelling techniques.

The tradition of producing revenue forecasting model reports from the general ledger falls short. Ledgers hold financial transactions, which are necessary but not sufficient to create accurate revenue prediction models. 

Effective forecasting entails gathering, accessing, and analyzing more data than ever before. Internal data covers your organization’s performance, and external data that describes the business and economic environment. Much of this data is likely to be unstructured: email messages, Word documents, audio files, video, presentations, etc. Your revenue forecasting methods must account for this variability.

The good news is that with new technology, your FP&A team is empowered to deliver forecasts that account for all this data. You can better align revenue projections with corporate strategy and transform reports from historical measurements into more meaningful forecasts.

Harness AI to reduce workload and generate insights     

AI can help you build more effective revenue forecasting models in two ways: reducing workload and generating new insights.

To reduce workloads associated with building revenue projection models, choose software that intelligently automates administrative tasks. FP&A can become far more efficient through automation of repetitive and manual tasks, such as completing management reports. Modern revenue modelling and forecasting tools are powered by AI  so you don’t have to worry about determining forecast values or automatically checking data entries. This leaves you free to focus on more strategic, value adding tasks.

AI-enabled FP&A tools can provide greater intelligence for your revenue forecasting models. For example, you can discover patterns in your data better than ever before. Statistics-based data mining algorithms spot trends in all kinds of data – in your text and numerical information and now also across every information source. This boosts your data-driven insights and helps you gain new benefits from revenue prediction models.

The future of financial planning & analysis

Unit4 Financial Planning & Analysis embodies the future of FP&A, which includes helping you build more effective revenue forecasting models. It’s a modern, future-proofed solution. Empower your teams with intuitive, self-service tools that deliver access to a single source of truth.  

Learn more

To learn more about how Unit4 can help you create better revenue project models, visit our budget and financial forecasting software page.

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