Over the last few years we've seen the appearance of Revenue Forecasting tools and platforms, software designed to take your sales pipeline data from your CRM and give you more insight into your Sales Forecast.
With it, businesses are finally beginning to see the amount of value sitting in their data, but they're potentially only just scratching the surface of how a data led approach to commercial growth can look, and the level of future visibility that can be achieved with the data.
Sales forecasting and revenue projecting are two essential elements of financial planning for businesses and whilst they are both used to predict future revenue, they are different in terms of scope, accuracy, and complexity. Understanding the differences between these two concepts is essential for businesses to plan in a more accurate and sustainable way.
Below I'll walk through what both Sales Forecasting and Revenue Projection are, how they are different and how you and your business can use them to create a more comprehensive and accurate view of future revenue.
Sales Forecasting
Sales forecasting is pretty well understood, both in simple terms and complex application - The process of predicting future sales based on past sales data, and estimations around how current pipeline and opportunity will convert. In simplistic terms, it's typically used to estimate the amount of revenue a business will generate in the near future.
Sales forecasting is often used to plan for inventory, staffing, and marketing needs. It's usually done on a short-term basis and relies heavily on opinion, historical data and almost entirely on good CRM hygiene.
Revenue Projecting
Revenue projecting, on the other hand, is the process of predicting future revenue based on long-term trends and market conditions. It takes into account factors such as hiring (from changes to hiring & capacity plans), industry trends, customer preferences, and economic conditions.
Whilst Revenue Projecting takes into account historical data, it filters out the opinion and uncertainty, choosing to only look at events that have reached an outcome. Unlike Sales Forecasting, it doesn't take into account current pipeline, instead choosing to model a representation of what should close based on historical data and inputs.
Revenue projecting is used to make more accurate predictions about future revenue and to plan for longer-term growth. Whilst you wouldn't utilise this approach for a short-term view of revenue, it provides a more stable and accurate understanding of revenue trends for critical areas like planning.
So what's the difference?
The main difference between sales forecasting and revenue projecting is what it's used for, the kind of data it uses and the validity of the output.
Sales forecasting is more focused on short-term predictions whilst Revenue Projecting looks at long-term trends and Closed Won/Lost sales performance.
Sales forecasting relies heavily on current sales team input whilst Revenue Projecting utilises fixed, naturally clean data.
Sales forecasting is less complex than Revenue Projecting as it does not involve as many variables.
Sales forecasting is less complex to calculate accurately than Revenue Projecting as it does not involve as many variables.
Revenue Projecting provides a more stable & accurate method for building sales hiring & capacity plans, whereas Sales Forecasing is better for sales pipeline.
It is important for businesses to start looking at revenue projecting in order to plan more accurately and sustainably. Revenue projecting allows businesses to anticipate future trends and plan accordingly, and when done in the right way can help spot gaps in plans or get ahead of future issues.
What should we be doing?
As accurate planning and sustainable Sales Hiring become critical to business success, the more complex and nuanced approach of Revenue Projection needs to become a critical priority for businesses, and one that becomes as important as Sales Forecasting.
Whilst an accurate forecast is important for upward and outward reporting, it doesn't allow for the same level of rapid & fluid decision making that is now required for healthy businesses, whether it be through sustaining current levels, achieving growth or moving to a more profitable revenue engine.
Like getting your blood pressure checked, forecasting can be a great indicator of poor business health - Revenue Projecting is more like a CT scan, taking a deeper look at the business.
Businesses now need to move towards prioritising getting Revenue Projecting live as an accurate & continuous view on business health and direction, heavily leaning into it for planning & decision making.
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Here at Clevenue we are building the first dedicated Revenue Projection Platform, aimed at helping businesses to better understand the right way to grow and scale, enabling a continuous approach to Sales Capacity Planning.
F.A.Q's
Q: What is the difference between revenue forecasting and revenue projection?
A: Revenue forecasting is the process of estimating future revenue based on past performance and current trends, while revenue projection is the process of estimating future revenue based on planned initiatives and strategic goals.
Q: Why is revenue forecasting important for a business?
A: Revenue forecasting is important for a business because it allows the company to make informed decisions about budgeting, staffing, and growth. It also helps identify potential risks and opportunities.
Q: How is revenue forecasting typically done?
A: Revenue forecasting is typically done using a combination of financial analysis and statistical modelling. This can include analyzing past financial data, market trends, and industry benchmarks.
Q: What are some common methods for revenue projection?
A: Common methods for revenue projection include bottom-up forecasting, top-down forecasting, and scenario analysis.
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