Your Revenue Forecasts Can Misfire. You need an Early Warning System.

Revenue is your company's most important performance parameter. Why? Revenue captures how much your customers have agreed to pay you. It is a measure of your market acceptability! Companies work out their monthly, quarterly, or yearly revenue forecasts to determine where their business is headed. Publicly listed companies need to provide top-line guidance to their investors and markets as per regulations.

Within their organizations, companies depend on revenue forecasts to steer their businesses and allocate investments and workforce. They can plan actions if their projections are lower than their business plans.

So far, so good, but what happens if you keep missing revenue forecasts?

It is too late to act after you miss your forecast. You missed this month's or quarter's bus! You should have used your resources wisely. Your costs kept piling up. Your profits took a hit. If you routinely miss forecasts, it is terrible for the morale of your people. You don't wish for such a pattern to become the norm.

You need an early warning system.?

You must know that you are likely to miss your forecast. It would help if you had the ability to analyze the causes and decide your action plan to prevent revenue slippage.

IT services companies are vulnerable to missed billing because their revenue comes from project billing and dependence on many resources. They deliver projects with fixed-price or T&M contracts. Their delivery models can be hybrid and multi-location based.?

From where do the billing losses arise?

Let's understand how revenue forecasts are made. Your revenues originate from two primary sources: the sales pipeline, representing opportunities yet to convert into orders, and existing projects with confirmed purchase orders. It would help if you got both the above revenue streams right.?

Customers' Purchasing Policies

Your company's top managers must know expected invoicing for month, quarter, and year on a rolling basis. Forecasting involves analyzing purchase orders (POs). For example, if a PO states three resources at a rate of $3000 each starting February 1st, the expected monthly revenue would be $9000.

Things can get complicated in the real world. Some customers provide a 12-month commitment, but initially, due to their company policies, they place their purchase order only for three-month periods. In such cases, revenues beyond the current PO's tenure of three months must also be considered, and required resources must be allocated in time. You can miss the billing for POs, which will eventually come.

The type of projects can complicate forecasting.?

Time and Materials (T&M) projects have straightforward calculations, while fixed-price projects require revenue recognition based on project progress and milestones. For example, if a $100,000 project spans six months, the revenue forecast must align with the percentage of project completion each month. Your forecasting must account for changes in the project's timeline. You must be able to dynamically change the forecast, allocate resources, and decide actions to make up billing loss due to expected project slippages.

Another layer of complexity arises from lower resource allocation. A PO might allow billing for three resources from the start. Still, if your manager can provide only one resource for the first month, two for the second month, and three only in the third month, the billing will be lower than anticipated due to a shortage of resources. You need early warning about such bottlenecks.

Your deal pipeline

If you don't consider expected orders, you are risking the pipeline's revenue. You may need more resources when an order arrives.?

On one hand, you incur billing losses, and you have benched resources on the other!

You need an early revenue forecast warning system before the billing losses become real.

It would help if you had an early warning system to flag potential billing losses.?

The PSA makes it easy to dynamically calculate forecasts, spot gaps, and fathom causes of potential shortfall. The PSA assists in linking purchase orders to projects, forecasting revenue based on confirmed and likely orders, and tracking resource allocation to highlight potential billing losses. PSA also integrates data on high-confidence prospects with your forecasting system.

PSA provides a comprehensive and dynamic revenue outlook. Top company managers can easily spot the paradox of unutilized resources on the bench and billing losses. They can dig into the reasons for revenue losses and act before it is too late.

PSA software identifies potential billing losses and offers solutions by repurposing available resources, ensuring that resource availability and project needs are perfectly aligned.

To know more or for a demo, contact us at [email protected]