What I Learned About Getting Revenue Forecasting Right, According to the Experts

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Sam Lauron
Sam Lauron

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As someone who does not have an MBA or finance degree, I’ve never conducted revenue forecasting. And, frankly, it sounds intimidating as someone who is also not mathematically inclined.

woman uses revenue forecasting in her business

But, I know how critical a role revenue forecasting plays in a company’s financial planning as it helps to understand the business’s potential growth, identify market opportunities, and determine resource allocation.

To learn more about revenue forecasting — the benefits, challenges, and how exactly to conduct it — I turned to the experts. From financial planners to tech founders, these experts shared with me the ins and outs of revenue forecasting and how to do it successfully.

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Table of Contents

What is revenue forecasting?

Revenue forecasting helps predict future revenue based on historical data, market demand, and current trends. Simply put, revenue forecasting is the backbone of financial planning. It enables businesses to not only predict future sales revenue but also make informed decisions about resource allocation, investments, and strategic initiatives. With revenue forecasting in place, businesses have a clear direction of what to do and what areas to invest in next.

Benefits of Revenue Forecasting

As a primary function of financial planning, revenue forecasting helps companies set budgets, create P&L statements, and determine pricing. Some additional ways it benefits a company is by helping them anticipate cash flow shortages, prepare for seasonal fluctuations, and identify growth opportunities.

Revenue forecasting also contributes to other key business functions, including:

  • Sales. As a revenue-focused business function, sales is directly impacted by revenue forecasting. The results of forecasting can help the sales team set quotas, expand into new markets, or determine different target revenue goals.
  • Product. When product knows what projected revenue is, they can determine which features to prioritize.
  • Marketing. Revenue directly impacts marketing’s budget, determining the extent and resources that can be applied to marketing campaigns.
  • HR. Revenue forecasting can help you understand if and when you can hire more people.
  • Resource planning. Understanding future revenues can directly impact material sourcing, planning, and manufacturing.

Here are a few more examples of how revenue forecasting can be applied to your overall business planning and growth, according to a few experts I talked to.

Resource and Investment Planning

I asked Parker Gilbert, CEO and co-founder of Numeric, how his team benefits from revenue forecasting.

“At Numeric, revenue forecasting is how we make sure we're investing in the right areas,” he says. “It helps us decide whether to hire more engineers, expand into new markets, or even just how much coffee to order for the office (because, yes, even coffee consumption can be tied to revenue). Ultimately, it keeps us all aligned on our goals.”

Team Expansion

I also spoke to Jacob Barnes, founder of the productivity app FlowSavvy, about a specific use case for revenue forecasting and how it’s helped his company.

“In Q1 of this year, we predicted an 18% rise in monthly subscriptions based on January and February growth,” he says. “This allowed us to confidently expand our customer support team by 15% by March, assuring that we could successfully manage additional user concerns without jeopardizing our cash flow.”

Barnes adds, “By projecting revenue early, we ensure that our spending is consistent with realistic expectations rather than overly ambitious ones that could deplete resources.”

Service Expansion

For Tracie Crites, CMO of HEAVY Equipment Appraisal, revenue forecasting played a crucial role in helping the company expand its services, she told me.

“A few years ago, we started seeing an increase in demand for appraisals tied to insurance compliance and environmental regulations,” she recalls.

“Using revenue forecasting, we could project potential earnings in these niche areas and determine that there was enough consistent demand to justify expanding. This meant we could confidently invest in training our team to specialize in these areas, develop new marketing initiatives, and allocate resources toward developing these offerings without jeopardizing our core business,” Crites says.

Crites adds, “Revenue forecasting acted as a safety net, allowing us to move forward with clear data showing where growth was likely. It wasn’t just a guess — it was a calculated decision based on trends and data. This has kept us focused and adaptable, helping us expand in a way that stays true to client needs while giving us room to explore new revenue streams.”

If you want to learn more about sales forecasting and analysis, check out this free lesson from HubSpot. HubSpot Academy offers sales forecasting training that walks through the best practices for creating a reliable sales forecast.

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    Challenges of Revenue Forecasting

    Like anything, revenue forecasting can be challenging if you don’t have the right data or approach.

    According to the people I talked to, a few common mistakes in revenue forecasting include over-relying on historical trends, ignoring market shifts, and failing to account for external factors.

    Here are some of the challenges you may experience with revenue forecasting.

    Overestimating Revenue

    Kevin Shahnazari, founder and CEO of FinlyWealth, shares with me that overestimating revenue can come at a cost.

    “The biggest pitfall during revenue forecasting, at least so far in my career experience, is being too positive,” he says. “Early on, at the beginning of my tenure, I overestimated the amount of user growth by about 40%, resulting in hiring that was ahead of requirements. Since then, it has been a practice for me to always include a fudge factor and always have multiple scenarios.”

    Lack of Real-Time Data

    Another mistake or challenge that companies experience is not having or using real-time data, says Spencer Romenco, chief growth strategist at Growth Spurt. Seeing changes in real time allows you to adjust your revenue projections and strategy accordingly.

    “One of the biggest mistakes I see in revenue forecasting is not adapting the forecast to real-time changes in audience engagement and external market conditions,” he says. “Many companies rely solely on historical data without considering current audience behaviors, which can make projections unreliable.”

    Romenco shares his solution with me: “At Growth Spurt, we constantly update our forecasts by closely monitoring shifts in our video engagement metrics,” he says. “This lets us predict revenue impacts if, for instance, engagement starts climbing or falling.”

    Ignoring Cross-Collaboration

    Gilbert pointed out another challenge that I hadn’t considered: not collaborating across teams. If revenue forecasting doesn’t include all of the right people — people who can contribute key data to the projections — then your forecast won’t be what’s best or most accurate for the overall business goals.

    “Revenue forecasting shouldn't be siloed within the finance team,” he says. “We involve stakeholders from across the company to get a holistic view.”

    Revenue Forecasting Models

    revenue forecasting models

    Before you can dive into revenue forecasting, you have to choose a model that you want to follow. There are several revenue forecasting models, each with different scenarios for when it makes sense to use them.

    1. Time Series

    A time series revenue forecasting model uses historical data to identify patterns, trends, and seasonality. These models analyze data over a period of time, such as monthly, quarterly, or yearly. This model works best for companies that have recurring revenue that can be measured within one of these timeframes.

    I learned that some common methods of conducting time series forecasting include:

    • ARIMA (Auto-Regressive Integrated Moving Average)
    • Exponential smoothing
    • Decomposition

    Best for: Businesses with cyclical revenue, such as subscription services.

    2. Linear Regression

    Using linear regression to forecast sales is another common method. Linear regression revenue forecasting involves analyzing two related variables on an X and Y axis. The goal is to see how well they align.

    For example, you could use linear regression analysis to compare sales and profit. Both of these contribute to revenue, so they should align. If sales are increasing but profit is staying the same, this could indicate that you need to increase your prices.

    Best for: Determining your pricing strategy.

    3. Top-Down

    The top-down revenue forecasting model uses macro-level analysis to estimate the company’s total revenue. This type of forecasting takes a look at the total addressable market (TAM), market size, and competitor performance to predict potential market share and revenue.

    Best for: Early-stage businesses entering competitive industries with access to market data.

    4. Bottom-Up

    As you can imagine, bottom-up revenue forecasting takes the opposite approach of the top-down model. Bottom-up forecasting starts at the granular level, taking a look at a company’s detailed data around individual products, services, or customers.

    For example, a retail company could look at its sales volume from the previous year and multiply that number by its anticipated price point for the upcoming year to come up with its projected revenue.

    Best for: Businesses launching new products or services or with detailed sales data.

    How to Do Revenue Forecasting

    how to do revenue forecasting

    With all of the information I’ve shared about revenue forecasting so far, now is a good time to break down exactly how to do revenue forecasting. Whether you’re a startup founder, sales leader, or on your company’s finance team, here are some easy steps to follow when conducting revenue forecasting.

    And if you want to dive deeper into forecasting analytics, check out this free lesson on HubSpot Academy.

    Determine which model to use.

    I suggest starting by reviewing the revenue forecasting models above. Knowing which model makes the most sense for your business helps you kick off the process the right way. Using the wrong model is a quick way to create confusion or inaccurate projections.

    Assess historical data and past revenue performance.

    The next step is to review your historical data. This helps you set the baseline revenue that you can work from. If you need help calculating things like average deal size, win-loss rate, churn rate, etc. check out our free sales metric calculator.

    Many of the experts I spoke to, however, emphasized not relying too much on historical data without also considering external factors or real-time adjustments.

    “The most prevalent mistake I find is merely relying on historical data,” says Shahnazari. “On FinlyWealth, we combine historical trends with forward-looking indicators such as market sentiment and consumer credit trends, which has helped maintain over 90% accuracy in our forecasting.”

    Analyze market conditions.

    In my experience, some markets can fluctuate significantly. That’s why it’s important to analyze market conditions on an ongoing basis and use that information to inform and adjust your revenue projection.

    Analyzing markets helps you not only stay competitive but also identify opportunities to expand or add new products or services.

    Adjust in real time.

    The key to getting revenue forecasting right? Stay flexible. Seasons change, markets change, customer behaviors may fluctuate, and trends can appear at a moment’s notice. It’s important to revisit your forecasted projections throughout the year to stay proactive.

    “Revenue forecasting is an ongoing process for us,” says Gilbert. “It‘s not something we do once a year and then forget about. We’re constantly revisiting and refining our forecasts as new information becomes available. It's an iterative process that helps us stay agile.”

    What I Learned About Getting Revenue Forecasting Right

    One of my biggest takeaways about revenue forecasting? There isn’t just one variable to rely on. Over-relying on anything, whether that’s historical data, market share, or projected sales can result in missed opportunities, lack of preparation, or interrupted cash flow.

    The best way to approach revenue forecasting is by taking a look at multiple factors. Use internal data and external analysis when collecting data. Bring in people from other teams to get a holistic perspective on the overall business. Try not to be too ambitious without having data to back up your projections. And lastly, build a buffer in your revenue projections to account for changes you didn’t anticipate.

    When all of these factors are taken into account, revenue forecasting is a powerful and critical part of financial planning.

    Free Financial Planning Templates

    Manage your business and personal finances with these five financial planning templates.

    • Balance Sheet Template
    • Profit & Loss Statement Template
    • Financial Projection Template
    • And More!

      Download Free

      All fields are required.

      You're all set!

      Click this link to access this resource at any time.

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