Your sales team has worked hard to identify a robust pipeline of customer leads. These sales leads come in various sizes, stages, and probabilities that need to be translated into projections for your financial forecast. A revenue forecast will help you articulate the current opportunity and the valuation impact on your company when these leads turn into paying customers.
As your organization expands, investors want to see a robust pipeline of opportunities that will grow your customer base. So, how do you translate your pipeline into a revenue projection? Your virtual Chief Financial Officer (vCFO) can help you work through these five key considerations.
Connecting Your Sales Pipeline to Your Revenue Forecast
- Review your deal size and pricing.
- Consider the benefits of having your sales team follow an approved pricing structure or having a reviewer approve the deal size and structure as it is added to the pipeline.
- How about those closing probabilities? Depending on your stage of business, there are many ways to evaluate this.
- Are the probabilities a guesstimate or something more concrete?
- Probabilities should likely be linked to an assigned deal stage. When assigning probabilities consider your organization’s history when it comes to closing deals by product type, industry, customer size, and deal amount.
- You’ll need a rationale to justify the amount you expect to close and share with investors and your board.
- Having a rationale that governs your assignment of probabilities and being realistic about what you expect to close are almost equally important. In both cases you’ll need to explain to your board and investors how you assigned the probabilities and also be able to compare them to actual bookings.
- Consider deal timing and the typical sales cycle.
- When will these deals close?
- Are there industry or customer buying cycles to consider?
- The longer your sales cycle, the more important it is to determine how long it takes on average to move from lead generation, to quote, to closing.
- Keep in mind that bookings may not equal revenues.
- The amount you can invoice under a contract may not always line up with accrual accounting. This can happen for a variety of reasons, with timing of delivery being the simplest, but there can be others related to accrual accounting. It’s important to understand the nuances of your revenue recognition when compiling the forecast.
- Have you identified the differences so that your revenue reforecast reflects actual, distinguishable revenues?
- Think through delivery timing.
- The pipeline is packed with great opportunities, but do you have the capacity to fulfill the orders?
- Will you need to create a backlog for tracking and revenue purposes?
These key considerations will help you translate your pipeline into a revenue projection that you can present to your board and potential investors. Working through these factors will inspire confidence in your ability to forecast revenues.
Looking for a seasoned professional to help you on your revenue forecast process? Wolf & Company’s Outsourced Accounting Solutions (OAS) team offers vCFO services, in addition to several other services including bookkeeping, payroll, bill pay, taxes, and more. Visit our OAS page to learn more!