Agency Management, Operational Excellence

Agency Revenue Forecasting 101: Back to Basics

by Ron Ause, August 22, 2016

If the thought of revenue forecasting gives you chills, maybe getting down to the fundamentals will help get rid of your anxiety. Revenue forecasting can be a very powerful and useful tool, provided that you use it properly. Here’s a few things to consider to make sure that your forecasts are as accurate as possible.

Available bandwidth

Are your project teams sitting idle, or are they stretched to the limit? When you know how much work you can potentially take on, you can adjust your expectations. It doesn’t make much sense to forecast revenue that would overtax your resources. Likewise, if you have available resources that go unused constantly, you should be looking to fill the void and take on more work.

Regardless, your bandwidth will define your maximal revenue for the period. This doesn’t mean the actual revenue, since resource scheduling can be a finicky thing, and you want some breathing room for short-term issues that require more attention. Unless you’re in the very small minority that can constantly schedule 80% of their resources, you’re going to have some variability. But if you can keep your used resource values around the same amount, by taking on a sufficient amount of projects to keep your teams working, then forecasting revenue can be fairly accurate.

Previous Revenue

Your past projects will help define future ones. Not just from a project planning standpoint, but also from the task of helping to forecast the next project’s earnings. Whether your project was a dud or a stud, it has a certain value to it when analyzing the revenue and resource utilization for the next project.

Now, we all want our projects to succeed with flying colors. So avoid the temptation to look at the highest performing project and dismiss all of the others as ones that are not indicative of your team’s ability. And on the other side of the coin, don’t solely rely on your low performing projects to define a revenue forecast either.

Take an educated glance at prior work and remove anything from the field that seems to be an outlier. Then use that average for your baseline with revenue forecasting. In this way, if your next project over- or under-performs, you can anticipate the following work to be on the other side of the line and things will even out. It would be nice if everyone went better than planned though! So be sure to continue to look back and adjust your baseline if need be.

Recent Changes

Did you just start work with a new client or multiple clients? How about adding more creative staff that might need some time to get used to the way your team works. These can both impact the bottom line of a project, increasing the hours spent while not always increasing the value of the project.

On the other hand, maybe you have a seasoned team of creatives that are working with a longstanding client. You can expect that things may exceed the historical average.

With either situation, be sure to take your revenue forecasting with a grain of salt. This doesn’t mean you need to scrap your current forecast and start from scratch. You can expect over time that the new client or inexperienced team will move closer to average. And even if your projects with a loyal client might be slightly under forecast, it’s better than having higher expectations that can’t be met.

Market Outlook

The  final basic consideration is the current state of the market. Unless you’re increasing your marketing efforts, a receding market is going to lower your overall revenue. You can market and ply customers with a multitude of tactics, but at the end of the day, they still have to want to spend their money on a project. Not just with your agency, but any creative agency. So if the customers just don’t have a desire for creative projects, your revenue decreases.

If customers are beating down your door with business, then clearly your revenue is going to increase (at least until the point of maxing out your resources). This can be a good thing, but you can make it an even better situation if you can prepare for it and add more resources ahead of time.

These four areas make up the basic building blocks for revenue forecasting. When you have a good idea of each of them for the coming quarter, your revenue forecast will not be off-base. Over time, you will notice smaller things that also have an impact on your revenue. Add them into your forecasting process and your accuracy will increase even further. 

About The Author

Ron began a career in the software industry at 13, while working with his father. He's become an expert in job cost and project management for creative teams.

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