Revenue planning is a critical ingredient in ensuring the future of your company/startup. It doesn't matter if you've been in business for six months or a few years. A sound revenue management plan will guarantee you continue flourishing for years ahead.
What is revenue planning?
Revenue planning is essentially planning how to allocate your expected revenue. So if your expected revenue is $1,000,000 for the year, revenue planning is deciding how to spend that money.
Perhaps you will spend it on your marketing efforts, so you can acquire more customers and hopefully further improve your future revenue, Or maybe you might spend it on paying back loans.
A good revenue scenario planning projection sets the tone for the whole budgeting cycle. It is responsible for aligning the entire company on revenue growth plan objectives, laying the groundwork for each department's budget, and setting the scene for strategic decision-making and annual sales projections for the business.
Tell me the importance of revenue planning
Using revenue planning, businesses forecast the amount and dates of incoming cash flow from different revenue streams.Businesses need to forecast how much revenue they will have and how that expected revenue fits into their business goals.
Revenue forecasting will help founders gain an in-depth understanding of their business. It lets them know whether they will have enough revenue to pay their employees and whether they can pay themselves. And also whether or not they will be profitable at the end of the year. Not just next month or two months from now, but six months from now, will you have enough incoming cash flow to pay expenses and survive?
Furthermore, by tracking your revenue projections and expenses, you can see if you will hit your expected revenue targets and then use that data to alter your strategy to hit your revenue goals.
Tell me the best way to increase revenue
Get to know the customer and increase your marketing and sales efforts. SMEs can use many techniques to grow their earnings and improve their bottom line, no matter the budget.
Maintaining a balance between short and long-term objectives is the key to more substantial Revenue and Success. I think the company would need to grow revenue for its survival. Revenue increases indicate the company's financial health.
Businesses can reduce costs and generate additional revenues through basic operational marketing methods. There are also a few other possibilities to consider:
How does revenue planning benefit my company?
The revenue planning process enables business owners to predict when and how much money will enter their bank accounts. A business owner can gain a big-picture view of future profitability or losses by predicting annual sales projections for three to twelve months, depending on various business conditions.
To create financial estimates and operations budgets, competent agencies would begin by forecasting income. As your organization develops and scales, it is essential to enter projected income and expenditure into a tracking spreadsheet or accounting system. This prediction lets you see when revenue costs are projected to be deposited into your bank account.
How do you carry out the revenue planning process?
You cannot have accurate revenue planning without forecasting your cash flow. Knowing your projected cash flow (for revenues and expenses) for the next 12 months is an essential starting point.
When you forecast revenue for the next 12 months, you can get critical insights into your business expenses. (I.e., you can continually afford to pay for those expenses.)
Say you want to hire a new employee. With revenue forecasting, you will be able to see how much they will cost your business and will your incoming revenue be able to justify your new hire. Not only hire employees, but you will also have to see how different scenarios will affect your revenue forecast.
In a nutshell, the revenue planning process is essentially revenue forecasting, planning when revenue will come in and whether or not you will have sufficient cash to continue operating. The more you can project and plan revenue, the more comfortable you will be with taking on risks to increase sales and revenue for your business.
Here are vital things to keep in mind:
Analyze your historical data
Revenue planning is incomplete without first analyzing historical data. The analysis is necessary to predict a company's revenue forecasts.
Determine if you could meet your company's growth goals for the previous period. If not, try your best to determine the cause. Remember, you cannot improve what you do not measure.
Determine your company's present position
Now that you know what worked or did not work. It would be best if you analyzed your current financial position.
Before setting revenue goals, you should know where your organization currently stands. Take a look at your financial statements.
- Are your current clients happy with the product and service offering?
- Are your competitors succeeding? What are they doing differently?
- Are your sales efforts in line with your goals? Are your marketing and sales teams aligned?
- Are there any expenses that are way above then what they should be?