Revenue forecasting estimates the revenue a business expects to earn over a future period using defined commercial and operational assumptions. It can combine contracted revenue, pipeline, expected usage, renewals and churn.
Which inputs are commonly used?
- Existing contracts and recurring revenue
- Open quotes and sales opportunities
- Win probability and expected close date
- Delivery or activation timing
- Usage, expansion, churn and renewals
- Currency and pricing assumptions
How can a weighted forecast be calculated?
Assume $200,000 of contracted revenue, a $100,000 opportunity at 70% probability and a $60,000 opportunity at 40%. The illustrative weighted forecast is $200,000 + $70,000 + $24,000 = $294,000 before timing or churn adjustments.
Illustrative weighted revenue forecast
| Forecast component | Gross amount | Forecast amount |
|---|---|---|
| Contracted revenue | $200,000 | $200,000 |
| Opportunity A | $100,000 at 70% | $70,000 |
| Opportunity B | $60,000 at 40% | $24,000 |
| Illustrative forecast | — | $294,000 |
This example does not account for revenue-recognition timing, cancellations, delivery constraints or currency changes.
Revenue forecast vs. sales forecast
A sales forecast predicts bookings or sales activity. A revenue forecast estimates recognized or earned revenue in a period. Contract timing can make the figures differ.
How should forecast quality be assessed?
Compare forecasts with actual results by source, horizon and owner. Record assumptions and avoid changing methodology simply to make past forecasts look accurate.
