It’s that time of year again.Spreadsheets are open. Fingers are crossed. People are hard at work forecasting next year’s revenue.
Too often, I see a number plucked from the air. "Let’s try and hit $10 million this year!" Unfortunately, that $10 million can look very different depending on how you measure it.
Here are five questions that can bring clarity to your plan:
1. Booked vs. Realized? A $10 million contract signed in January is a very different beast from one signed in December. If you have a 3-month sales cycle and 30-day delivery and 60-day payment terms, any new prospects found after July 1st won’t hit this year’s income statement. Know when the dollars hit the bank, not just when the ink hits the paper.
2. Dollars or Deals? Revenue is an output. Deals are the inputs. You cannot forecast unless you know your average revenue per sale (or class of sale). If your average sale is $1,000 and you want $10 million, you're looking at 10,000 transactions. That's a very different go-to-market strategy than if you're chasing ten $1 million deals. If you examine your conversion ratios at each stage of the sales cycle and touch points required, you can forecast the size of the Revenue Operations machine you need to build to achieve the $10 million.
3. Sales vs. Production? Salespeople love to close. But if all your wins land in the last quarter, your production team is either idle all year or slammed at Year End. Match your revenue ambitions with delivery capacity. Sales you can’t deliver aren’t revenue.
4. TAM vs. SOM? Your Total Addressable Market might be massive. But your Serviceable Obtainable Market, the slice you can realistically win, might be tiny. If you're already at 50 percent of your SOM, you’re not going to significantly increase revenue without redefining the battlefield.
5. New Logos or Old Logos? Growth from existing clients (old logos) is predictable, lower cost, and generally lower risk. Protecting your revenue base is a solid objective. But new clients (new logos) drive long-term value and make you more attractive if an exit is in the cards. What’s your mix? And are you investing appropriately in each?
So, before you carve a number into stone, ask the questions that matter:
Revenue isn’t just a destination. It’s a complex journey. Make sure you plan yours properly.Need help planning your trip?
Let’s talk.
Andrew
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