Are you simply betting that your future will be bright? Or are you using your data to plan for tomorrow? As my data-loving, gal-pal, Stacey Ho, CPSM, puts it: “Forecasting is a little bit of science, and a little bit of crystal ball.” In this blog, I’ll share what forecasting can tell you, and how to get started today using anything from Excel to a major ERP finance software system. Your firm, no matter what size, can take small steps to plan for a bright future.
What is forecasting?
Forecasting is a way to use your pipeline to demonstrate potential future sales. It helps your firm make smarter decisions or know when to course correct. Forecasting can tell you if you need to identify more work, improve your hit hate, recognize “must-win” opportunities, or even when to hire more staff.
Get Started with Forecasting
To get started with forecasting, you will need to set yourself up for success. This is done through aligning the right people, process, data, and technology:
People | You will first want to have a good understanding of who is responsible for data collection, maintenance, input, etc. and who will be gathering and reporting on the data. Consider who has both the knowledge and the time to put the forecast together. Lastly, make sure you have buy-in from your firm leadership.
Process | Once you have the people identified, it is time to start working on the process. This includes setting sales goals for your firm, so you have them to compare the forecast to and which can be developed using a top-down or bottom-up approach. You will also want to determine the frequency in which you report the forecast and how often you will update it. The frequency can be weekly, monthly or quarterly. I recommend beginning with quarterly and eventually increasing to monthly for firms just starting to forecast, Additionally, you will need to decide how far out into the future your forecast goes. The two most common forecasts are the current calendar or fiscal year and a rolling 12-month report.
Data | To build your forecast you need data. This includes dates, dollars, and status. I will go into more detail regarding the minimum data you need to build a forecast in just a bit.
Technology | Once you have identified people, process, and data, you will have a pretty good idea of what type of technology is needed. CRM systems, like Deltek Vision and Vantagepoint, are developed specifically to make reporting forecasts seamless and automated. Once the information is entered into the system, you can build reports or dashboards easily, segment the data by office or market, and schedule the reports to be delivered automatically.
What are the Minimum Pieces of Information for Effective Forecasting?
Since a forecast is predicting your sales into the future, there are some minimum pieces of information you need to record to develop a forecast report. Those pieces of information are:
- Opportunity or Potential Project Name – The report is a cumulation of all your future potential projects. So, ideally every opportunity or potential project would be entered into your CRM system.
- Anticipated Fee – In order to forecast expected sales, you will need at least an estimate of anticipated fee for each opportunity.
- Date – This can be a date for when you expect the contract, when the proposal is due, or when you expect to begin work on the project. Again, because the forecast is based on a date range, you need to input some date to base the report on. I would recommend capturing a contract or expected start date. No matter what type of date field you choose, be sure to enter and update that data field consistently among all your opportunities.
There are some other data fields that will make your forecast reports even better:
- Probability – Chances are you are not going to win every opportunity you pursue, so I like to apply a probability to each opportunity. This probability is the likelihood your firm will win the opportunity.
- Weighted Fee – Weighted fee is what you get when you multiply the estimated fee by the probability. When you calculate this, and use the weighted fee in your forecast, it is more conservative than just using the estimated fee. Sometimes, this gives you a better idea of what your sales will be.
- Office or Market Segments – I like to develop my forecast reports around the same segments as the other financial reports my firm does. So, if your firm reports P&L around offices, divisions, or studios, then you can set up your forecast reports the same.
Maintaining the Forecast
Now that you have set up your initial forecast report, make sure you maintain it on whatever frequency you decided above. Maintenance encompasses:
- Data Auditing – This includes routine data updates such as updating the contract or estimated start dates, updating estimated fees, and probabilities.
- Actualizing – Data actualizing happens when you turn the opportunity into a sale. This involves marking opportunities as wins or losses, updating the estimated fee to the actual final negotiated contract amount, and changing wins to 100% probability if you are using a weighted fee.
How to Use Your Forecasts
While forecasting can tell your firm if it will meet its goals, there are some other uses of sales forecasting. In my experience, forecasts have been used to:
- Identify your top 10 or “must-win” projects that will allow you to meet or beat your goals
- Know where your future work is coming from, specifically what clients or markets
- Understand how increasing your probability (chances of winning) can affect your entire forecast
- Develop estimated plans of efforts for all your potential projects and combine those with your contracted backlog effort. You can assign resources (named or generic) and see how utilized your teams are.
Get a Clear Picture of the Future
Stop guessing what the future will look like for your firm by developing a sales forecast. With some minimum information that is tracked in a CRM like Deltek Vision or Vantagepoint, you can easily build a forecast report that will give your firm a clear picture of the future. Ready to get started?