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“Well, to be honest, it is very difficult to forecast revenues,” Cynthia explained. “You have to understand, we are connected to the residential housing industry and things are much different this year than they were last year.”
“But you have to make decisions based on your market. You have to make decisions about overhead, pursuit of market share, gearing your operations to meet a diminished demand. How will you make those decisions?” I asked.
“I don’t know. Things are just so different. I don’t think it’s possible to forecast this year’s revenues,” she continued to protest.
“Cynthia. If you cannot forecast revenues, then you don’t know your market. If you don’t know your market, you might as well sell the company right now.”
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How does your company forecast revenues? How do you engage in Business Intelligence about your market? Post a comment. The best post will receive a copy of Real World Intelligence by Herbert Meyer (former Special Assistant to the Director of Central Intelligence). “Ninety-five percent of what the CIA finds out about, is public information.”
A company not forecasting revenues is like a salesperson driving to the end of their driveway in the morning and then making the decision to go either left or right.
Your forecast should have a backup one for better than expected and one for worse.
As we have been through the ups and downs of the housing market, we have been able to establish a trend in the market, i.e. when housing is down, commercial is up and vice versa. We then take our projected growth percentage and apply an equation utilizing that percentage (among many other things) to where the market stands in the curve right now. We are able to forecast revenue fairly accurately as we continue to diversify our service lines so that we are not as affected by the market trends as our competition.
1) If you don’t have market data related to market share in your specific market, my recommendation is to get together with your sales and marketing people and estimate your share of market as well as your main competitors, by analyzing relative sales to your own.
2) Once you have it, estimate current year decline (15, 20, 25%).
3) Brain storm ups and downs and market changes between high share players and low share ones. Which will be more affected. Those that lose share, in favor to who?.
At the end of the day, you may have a preety good idea for your revenues this year and how you should perform against your main contenders.
Knowing your market share is nice, but in an uncertain environment where sales are declining with no indication of a drastic change in the trend, knowing your market share has little value in forecasting revenue.
One of good way of obtaining Market Intelligence is from getting out there and really spending time with your clients and finding out what is in their pipeline and what their strategic and project planning includes.
Sales are down in the residential housing industry, but those dollars have to be going somewhere. Your business has to find out where they are going and be adaptable, to follow those dollars into related markets. Think outside the box.
Are those people who would otherwise be buying houses, renting instead? You might open up a new line of business offering something to them.
Or are people just buying cheaper houses? Smaller houses? Is more of the money going into the lower end of the market? Can you concentrate your efforts on those areas?
There are many places where some of this information is available, like searching news websites for headlines like: “Home sales fall again in January”. Ultimately though, the best way to answer those questions is to ask your customers.