evenue planning is a key component in creating longevity for your business. It doesn’t matter whether you’re a few months or a few years into your entrepreneurial journey. Having a key revenue strategy will ensure that you’ll experience growth for years to come.
What is Revenue Planning?
Revenue planning is a process where you project business revenue and decide how you’ll allocate it. As in, will you use revenue to go towards expenses or towards investments, such as hiring more staff or purchasing more products to sell? Understanding your project revenue will help you determine how much your business will earn from revenue streams and which types of investments are worth spending money on. In essence, having a sound revenue plan will help you to grow your business sustainably.
Why Is Revenue Planning Important?
The ability to predict when and how much revenue will flow into your business account is important because it gives you an overview of your business’s profitability. In other words, you’ll be able to see whether you could experience growth or potential loss based on various factors that could happen in your projected timeframe. By revenue forecasting and tracking expenditure regularly, you can keep track to see whether your financial projections and operating budget are accurate. If not, you’ll be able to make necessary adjustments based on current data. Think of it as a proactive approach when it comes to earning a profit and finding systems to help keep you in the black.
How to Conduct Revenue Planning
In order to conduct effective revenue planning, you’ll need clear insights into your cash flow. With Novo, your business has a huge advantage in this respect due to all the possible integrations available to connect. You can see all of your cash flow details in one place without having to switch between apps. Once you have all your data consolidated, here are the key steps you should take when conducting revenue planning.
Focus on a clear timeframe
To start the revenue planning process, focus on this past year’s (or another past time frame’s) revenue goal and see whether you met it. We recommend using a fiscal year because it helps with organization, but if your small business is new, you can also focus on the last six months or the last quarter. Look at what your revenue goals were and ask yourself whether you met the goal, exceeded the goal, or fell short, and note by how much.
Look at your tactics
Whether you did or didn’t meet your goal, you’ll then want to look at the tactics that enhanced your marketing and sales efforts to help you meet your goals. Ask yourself the following questions:
- How many qualified leads are you receiving, and are they converting to sales?
- Is your pricing competitive in terms of value, and does it help you remain profitable?
- For existing customers, how are you successful in terms of leveraging cross-selling or upselling to drive repeat business?
All of these are key metrics you can look at to predict how much revenue you can expect to make and begin scenario planning. Here’s an example: you may have noticed that your business was great at getting first-time customers in the door through targeted Facebook ads and led to an uptick in sales. Based on this data, you decide to go all-out on another Facebook ad campaign. Before doing so, you’ll want to look at other metrics, such as the percentage of people who clicked on the ad that converted to sales. From this, you noticed that conversion rates were higher than the industry average. However, the increased sales may have been due to the holiday season, when your product tends to sell more anyway. In this case, you can remove some money from your budget to test out Facebook ads at different times of the year (and with different ad copy), while focusing more of your funds during the holiday season.
Once you have your growth goals, come up with a budget and see where you stand. Assuming your revenue stays the same, how much is left over after business expenses, including salaries? This is what you work with.
Based on your current budget for growth and how much you earned from various marketing efforts, you can then use that to predict how much more your business will make. For instance, you ended up spending $3,000 on the Facebook ads that led to $10,000 in sales. That means if you spent $6,000, you could potentially double your revenue. Granted, there is a decent percentage that all the scenarios you predict won’t work out as you projected. There are plenty of events that are out of your control, as we saw with the global pandemic in early 2020. However, seeing how various predictions can pan out allows you to see what could happen, and helps you with business decision-making to create long-term success. It also allows you to reflect on whether the way you’re predicting revenue is accurate, so you can adjust if you need to. As you continue to fine-tune your revenue planning, you’ll be able to more accurately come up with sales forecasts which are vital to cash flow management.
The future of your business relies on sound revenue planning. By regularly forecasting and reviewing revenue, you can ensure that you’re on top of what you need to do to grow and scale your business for years to come.