Revenue Forecast

Revenue is usually the starting point of any financial forecast, because many costs, staffing needs and cash flows depend on it. If the revenue forecast is wrong, most other forecasts will be too.

Revenue forecasts are often built by breaking revenue into its drivers. For a shop, that might be the number of customers multiplied by the average amount each spends. For a subscription business, it might be the number of subscribers multiplied by the monthly price, adjusted for new sign-ups and cancellations.

For example, a software company with 2,000 subscribers paying 50 a month, expecting to add 100 net new subscribers each month, can forecast revenue month by month based on the growing subscriber count.

Forecasts can be built from the top down, starting with the total market and estimating the company's share, or from the bottom up, starting with individual products, customers or sales teams. Comparing both approaches is a useful reality check. Seasonal patterns, planned price changes, new products and economic conditions should all be considered.