Over the years we have seen lot of agency revenue forecasting workflows. With more and more agency management systems providing functionality in this area, it can be easy to over-architect a solution.
Taking the systems aside, there are a few golden rules we’d like to share, to help you build an agency forecasting process, that can be used to build accountability around revenue goals.
We were recently engaged to help an agency put together a revenue forecasting process for their Client Service team. The brief was straightforward: keep it simple, focused, accurate and (above all) make it stick!
It was a systems agnostic project, so it gave us the opportunity to go back to basics and build the forecasting process without a system in mind.
Here are the rules to follow, when assessing revenue forecasting for your agency.
1. Be clear about how you want to recognise revenue: are you basing this on when it is earned or billed?
There are pros and cons of both of course – with hardcore believers in both methods. Though more of the holding companies are demanding the former. Here are the options laid out simply:
Is based on a % complete or % of revenue delivered method. Systematically there are a lot of ways to get to this percentage:
• burn over budget
• an AM/PM qualitatively estimating the %
• looking at burn value over the estimated burn at completion.
This final method looks at the value of time burnt over the total forecast spend on the job, multiplied by the approved budget. EAC (estimate at completion) is arguably the most accurate, yet arguably the most complicated for a busy and mathematically average person to calculate or forecast on a weekly basis. It also requires decent agency finance systems to manage effectively.
Based upon revenue billing dates only.
Now that you have the answer to this question, you can communicate how you would like people to forecast their revenue.
2. How do you want to format the revenue forecast?
Do you want to break your forecast down by how certain the revenue is?
The most common practice we see is a three-tiered approach, with agencies wanting to know what is guaranteed, what is probable and what is possible. In the ‘guaranteed’ bucket would sit all of your retainers and jobs in progress that are on track and have signed contracts. Probable revenue would come from jobs where there are just some final negotiations on the timeline, jobs with a verbal approval from current clients and jobs in progress but still requiring the relevant contracts. Possible revenue would be from jobs that are briefed in but still require some sell in, scoping or negotiation before being committed as Probable.
Will you wish to track how the revenue came about?
For example, a traditional tracking method is to look at whether revenue was generated by hunting or farming activities.
What else do you need to know about the basics?
Job Number? Job Name? Campaign? Client? Account Manager or New Business bod?
Finally, if something slips, moves forward, or falls off completely, do you need any extra commentary?
Maybe and maybe not… You may feel that a regular meeting and discussion can capture this. Alternatively, you may wish to record this information digitally to ensure you are holding people to account for forecast movement. Recording critical information on lost revenue also makes it easier to track trends where revenue slips or losses are happening. Remember, the upside of more data needs to balance the downside of someone having to enter that data.
So, now you know what the revenue forecast looks like and the data it holds.
3. Find a process to manage your forecast
A simple task, done regularly, is hands down the best way to make this stick. The best processes we see look something like this:
• Update your forecast weekly at a set time each week
• Then have a weekly meeting with the senior account team to review and discuss the forecast document in a group session. The session should be quick since the data has already been entered, but the format of having the meeting to discuss the forecast keeps the process focused, collaborative and an exercise that drives accountability and understanding.
For more information on agency revenue forecasting, contact us