What is Revenue Forecasting?
Revenue forecasting projects future revenue based on current trends, pipeline, and assumptions. Accurate forecasts enable better planning for hiring, spending, and fundraising.
Good forecasts combine bottom-up inputs (pipeline deals, renewal rates) with top-down validation (historical growth rates, market benchmarks).
Why Revenue Forecasting Matters
Accurate forecasts prevent cash crunches and enable confident decision-making. If you know revenue will grow 20%, you can plan hiring accordingly. If forecasts show a shortfall, you can adjust spending before it becomes critical.
Investors expect founders to forecast accurately. Missing forecasts damages credibility. Beating forecasts by huge margins suggests sandbagging.
Building Revenue Forecasts
Start with existing recurring revenue. Add expected new sales from pipeline (adjusted by win rate and timing). Subtract expected churn. Add expansion revenue from upsells. Create multiple scenarios (base, upside, downside) to plan for uncertainty.
Revenue Forecast = Current Revenue + New Revenue - Churned Revenue + Expansion Revenue
Build bottom-up from pipeline and top-down from growth rates
Your SaaS company builds a bottom-up revenue forecast:
- Current MRR: $100,000
- Expected new MRR: $15,000
- Expected churn: ($5,000)
- Expected expansion: $8,000
Next Month Forecast = $100K + $15K - $5K + $8K = $118,000
Repeat for each month, adjusting assumptions based on pipeline and trends.