“Dear Stockholder: We missed our revenue forecast, but it is okay because we made more income. Please don’t be mad.” Is this really an acceptable position for companies to take? Why do companies miss their own revenue forecasts?
In a recent article in the Wall Street Journal, Pepsi Bottling Group Inc. announced an increase in profits, despite missing its forecast.
Over my career, I have created many revenue forecasts including when I worked at Western Digital and WebEx Communications. The last thing I would ever do is say that forecasts can’t be wrong.
But, are companies using the best tools and practices available to reduce the risk of a bad forecast? Most companies have not kept up with the changes in technology and still use Microsoft Excel to build complex volume, price and mix models based on complicated assumptions and variables to estimate a range of outcomes. Unfortunately, these models usually leave out the most important contributor to the amount of revenue to be generated — the “sales force” — and are usually out of date as soon as they are created.
Now, don’t get me wrong, it isn’t that businesspeople aren’t smart enough to realize that the sales team is extremely valuable due to their proximity to the ultimate customer. The problem is that the back end of the business doesn’t have a tool that gives them real-time visibility into customer demand.
That was until Right90 came up with an on-demand application that takes the input of each salesperson, by customer, by product, by geography and tracks the changes in volume, price and mix in real-time.
Imagine the potential savings: reduced inventory and obsolescence, improved on-time delivery and in-full delivery, reduced stock-outs and premium freight just to name a few.