Right90 Blog

I recently blogged on the need for both a bookings forecast and a revenue forecast. Now that we understand the difference and need for both types of sales forecasts, let’s talk about how to create them. While every organization is different in how they utilize bookings and revenue terms, here are a few steps you can follow to ensure you don’t miss anything critical.

• Determine the translation between a bookings forecast and a revenue forecast. Work with your finance team to determine if there are specific contract rules, or basic rules you can apply to a booking number to arrive at a revenue number. Remember that your revenue forecast will not be a GAAP revenue forecast, but it will be a revenue forecast that enables finance to understand the impact of changes to a bookings forecast to a revenue forecast.
• Determine the best way to perform that translation. In most contracts the price and delivery schedule is set; you can use these business rules to create the translation between the bookings number and revenue number. For example, if a sales rep forecasts a contract to close in January, 2010 for 90 units at a price of $10/unit for delivery over three months starting in February, then you have all the rules you need. The bookings and revenue forecast would look like the tables below. In some cases, the translations between bookings and revenue can be done automatically like in the simple example above. In other cases, the revenue forecast will need to be completed manually by someone close to the contract (like the sales rep).

• Confirm the format of revenue forecast for downstream audience. In the example above, confirm that the operations team wants the revenue forecast so they know which month they need to deliver how many units. Also confirm that finance can understand both units and price so they can arrive at a revenue forecast.
• Integrate your CRM system based on the bookings forecast. If you are already using a CRM system, then you should understand that CRM systems inherently work on a bookings forecast. In the opportunity, there is a “close date.” This date represents the day that you close the contract (Jan 2010 for the example above,) but it does not represent the time or schedule on which you deliver the parts of service. Make sure your reps are properly using the CRM system
• Work with the marketing team to forecast for planned programs. Your marketing team will be planning promotions or campaigns. Make sure those plans correspond correctly with timing of your bookings and revenue forecast, so there are no surprises on what bookings or revenue were generated as a result of specific marketing programs.
• Follow the 4-step best practice process for sales forecasting
  1. Capture the forecast
     1. Capture the bookings forecast from reps and automatically translate it to a revenue forecast, OR capture the bookings and revenue forecast from sales reps.  In many industries sales reps create the revenue forecast (like in the semiconductor industry).
  2. Vet both bookings and revenue forecasts.
     1. Scrub and judge the forecast data.
  3. Analyze both bookings and revenue forecasts.
     1. Understand the impact of changes in the bookings forecast to the revenue forecast
  4. Drive your business based on the bookings and revenue forecasts.
     1. Push sales to close new business based on the bookings forecast.
     2. Plan production based on the revenue (ship) forecast.
     3. Run financial plans based on the revenue forecast.
• Extra credit: If you wish to be really advanced, you can also create a Cash Forecast from your bookings forecast and revenue forecast. Of course, this forecast is invaluable to your planning as well.

I hope this provides you some insight into how and why you can create a bookings and revenue sales forecast for your organization. In the final part of this three-part series, I will provide some real life examples of how our customers are running their businesses on both a bookings and a revenue sales forecast.

Tags: bookings forecast, CRM, forecast, forecasting, learn, revenue forecasting, revenue performance management, Right90, sales forecasting, sales management

This entry was posted on Monday, December 14th, 2009 at 9:08 am and is filed under Sales Forecasting. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.