2009 is here, and if you haven’t finished your annual revenue projections, I know you’ll be focusing on them this week. 

Revenue forecasting is tricky: It’s easy to record numbers in a spreadsheet, but challenging to determine, with confidence, the concrete details of how to achieve them. It’s even more challenging to know what to change if you get off track during the year. 

My experience has taught me that the best way to forecast revenue with a high degree of certainty is this: tie revenue forecasts to marketing activities and unit sales projections.  This helps eliminate guesswork and gives me comfort that my forecasts are achievable. 

I prefer the “bottom up” forecasting method–starting with units sold—to the “top down” method, which assumes a percentage rate of growth or market share captured. Check out the fundamentals of revenue forecasting (courtesy of Pragmatic Marketing) for a deeper discussion about the top-line forecast. 

Why do I prefer this approach? It 

• Forces me to have a deeper understanding of my markets;
• Produces measurable milestones;
• Allows me to correct the course sooner when things change;
• Gives me a stronger understanding of what’s working; and
• Makes it easier to calculate marketing ROI.

Most small to midsize companies operate with a revenue forecast and a loose marketing budget, but they’re rarely tied together and/or supported with a marketing plan. 

“I want to grow revenue 25% this year” 

How do you respond when your CEO asks for a plan to go from $ 24 MM to $30 MM in revenue by the end of 2009? Here’s how I’d approach it, with an explanation of how to tie your revenue forecast to your marketing plan and unit sales forecast. (Note that this is geared toward B2B companies.) 

Start with units sold 

Using the bottom up method, break down your 2008 units sold by product/service per month. Then, ramp up unit sales for the products which you’re projecting growth for in 2009 (and decrease others in decline). To determine which products to ramp up, think about where you’re going to spend your marketing budget. I use an Excel model that allows me to easily change unit projections that flow through to the total revenue number. Keep adjusting your unit sales numbers until they hit the $30 MM target. 

Focus on the high-level marketing plan 

After you have a model that shows the unit sales required to hit your target, focus on the marketing activities required to generate those new sales. Consider general campaign costs and your budget and match those to the number of new customers you need. Review your historical metrics and customer acquisition costs to see if you’re in the ballpark. Are they in sync and realistic? If they are, then move to the next step. If not, then move back to step one and keep adjusting your unit sales projections. Repeat until you have a plausible projection. 

Create detailed marketing campaign goals 

Once you’ve synched your marketing budget to the new activity required to support the growth, sharpen your pencil and define the details. What marketing campaign goals should you set? Don’t worry about the campaign creative part. Just focus on the metrics per medium. Example mediums could be direct mail, email, search engine marketing (organic or PPC), partnerships, telemarketing, publicity, trade shows or traditional media like print and radio.

Then, project the number of impressions from each campaign, your lead conversion rate, your sales cycle and the number of customers that come out of the sales funnel. Use your historical metrics for each different medium, or if you’re using the medium for the first time, use standard projections. If you’re using multiple mediums in a single campaign, combine the costs and project the unit sales that they’ll produce. 

Then, determine the costs you’ll incur to acquire your target number of leads for each medium. Do you have enough budget to generate the number of leads you’ll need? 

Analyze & refine 

If you don’t have enough budget, then try moving it to the mediums with the lowest acquisition cost per customer. If that doesn’t work, then you’re stuck: Either you need to lower your revenue target, or increase your marketing budget. And if you find that your marketing budget might be cut, make sure not to cut the wrong part of the marketing budget.

After you settle on the right mix, make sure to record the key metrics you need to hit to achieve your revenue target. Measure your actual metrics as the year progresses, and make any “in flight” adjustments (shifting budget to better performing campaigns). 

Share your plan with confidence, execute daily and measure carefully. 

The results 

By this time next year, you’ll be able to show exactly how you achieved the 25% top-line revenue growth goal: by medium, campaign, number of impressions, number of leads, and units sold. And if you don’t hit the goal, you’ll be able to show exactly where the projections didn’t meet reality, and adjust for the future. 

This level of detail should impress any SMB business leader.

Tags: strategy marketing revenue planning

This entry was posted on Monday, January 5th, 2009 at 7:26 pm and is filed under Marketing Strategies and Tactics, Thoughts. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.