Forecasting revenue sometimes feels impossible, especially if you're just getting started and don't even have past sales figures as a referring point.
But here's the truth: you don't need a finance degree or a crystal ball to make it work. It's not about perfection. It's about using the right tools and methods to build a realistic roadmap for your startup.
Whether you're just starting out or scaling up your startup, this guide will show you how to forecast revenue with confidence and set yourself up for success.
What is revenue forecasting?
Revenue forecasting is a strategy businesses use to predict future earnings, helping them plan and make informed decisions.
It's based on multiple factors, including historical data, product or service offerings, pricing strategy, leads quality and market trends.
Every small business owner or startup founder should understand how to build a reliable forecasting model to guide their business effectively.
While there are various methods for financial forecasting for startups, the key is to combine quantitative data with industry knowledge to create accurate predictions.
Types of revenue forecasts
Here are some of the most widely used revenue forecasting methods:
Pipeline revenue forecasting method: The pipeline is one of the revenue forecast models that estimate future revenues based on the current sales pipeline, predicting how much will turn into real revenue. Estimating deal sizes and success chances early can be challenging, and that's why this may not be the best method for long-term forecasting.
Resource-driven forecasting model: Resource-driven forecasting, or bottom-up forecasting, helps teams plan their work and allocate resources. It tracks both upcoming and ongoing projects, translating them into revenue forecasts based on available resources and time. This gives teams a clear view of their workload and helps balance resources across projects.
Revenue forecasting through historical data: This method works well for businesses with recurring revenue streams. It predicts future revenue based on past performance and then adjusts by considering current factors like losing or gaining clients, new services or market changes. You can use it alongside other methods, but it needs regular updates for accuracy.
Financial forecasting based on your backlog: Backlog-based forecasting focuses on contracted but unearned revenue, distributing growth over time using your team's typical run rate. It estimates how long it will take to earn the backlog revenue. This approach is useful for high-level growth estimates, especially if the organization has a strong track record.
Different financial management solutions come with various revenue forecasting models, so choose the one that aligns with your business strategy and financial model.
If you’re a startup or a small business owner, Fuelfinance could be the right tool for you. It specializes in financial forecasting for startups and small business financial management. The tool comes with the support of financial experts who act as your part-time CFO and can help you create a financial forecasting model from scratch.
Managing cash flow: A cash flow forecast ensures adequate cash reserves for operational needs and unexpected expenses. It also allows you to maintain liquidity and avoid cash shortfalls.
Financial planning and budgeting: By predicting future income, you can create more accurate budgets and plan for expenses. This lets you allocate resources effectively across departments, avoid unexpected financial surprises and maintain long-term stability. That's why you should choose a business budgeting software with a built-in revenue forecasting feature.
Informed decision-making: Knowing how much revenue you realistically expect helps you make more strategic decisions. For example, you can determine whether it's the right time to hire new employees, invest in new technology, expand operations or whether you should postpone those decisions.
Managing risks: Revenue forecasting allows you to identify early warning signs of potential issues, such as slowing sales or shifts in demand. By spotting these trends early, you can take proactive measures to address problems and avoid significant financial setbacks.
Identifying growth opportunities: Accurate forecasts help you plan for future growth, whether by launching new products or expanding into new markets, ensuring that revenue growth is steady and based on facts.
Building investor trust: By doing regular and accurate revenue forecasts you demonstrate to investors and stakeholders that your company is well-managed and on a clear financial trajectory. This transparency builds trust and confidence, making it easier to secure funding, attract investors or form new partnerships.
Overall, revenue forecasting helps businesses improve their financial strategies, prepare for future revenue growth and remain stable regardless of shifting market conditions.
How to forecast revenue
You don't have to be a financial expert to forecast your company's revenue, although it gets easier with experience and having historical performance data.
Here's a simple five-step formula you can follow:
Decide on the timeframe: First, you should decide how far into the future you want to predict your revenue. It could be for the next week, month, quarter or year. You can also make separate forecasts for different timeframes.
Gather your past revenue data or fall back on industry baselines: To predict future revenue, start by looking at how much money your business has made in the past. If your startup is relatively new and you don’t have this information, you can use industry averages as a guide, based on your startup financial model. If you use CRM tools like HubSpot, Pipedrive or Salesforce to manage sales and customer information, you can pull data from there. Fuelfinance integrates with these tools to gather this information, making the process faster and more accurate, so you don't have to upload historical figures manually (you’ll read more on Fuelfinance’s capabilities below).
Consider your predicted sales/subscriptions: Your future sales predictions should include factors like new customers, renewals or upsells, but also some key SaaS metrics like your retention rate and churn rate. If you have subscription-based services, consider how many customers you expect to keep or lose over time. These predictions help you estimate how much money you’ll make.
Choose the right forecasting software: If you want to make the forecasting process easier and more accurate, you’ll need the right financial modeling software. Fuelfinance stands out as the best financial forecasting software that automates the whole process and prepares you for all possible scenarios and outcomes. As we mentioned, you can connect it to your CRM systems and combine that information with other financial data to get a more complete forecast.
Review and repeat: Finally, you should regularly check your forecasts and update them if necessary. The market conditions change frequently, and so should your predictions.
Revenue forecasts best practices
Here are some tips based on our vast experience with helping clients create accurate and reliable revenue forecasts:
Base your assumptions on hard data –Always use reliable data, such as past sales or customer behavior patterns, to make your forecasts as precise as possible.
Regularly repeat and update forecasts –Continuously revise your forecasts to reflect any shifts in the market or your business, ensuring they remain up-to-date and relevant.
Compare plans to actuals – Assess how closely your predictions match actual outcomes to identify discrepancies and learn from them. Even if you've got everything wrong the first time, don't worry, it means you're one step closer to accurate revenue forecasting.
Don’t expect perfect numbers (also make worst-case predictions to prepare for the worst) – Forecasts could show you things you may not want to or be ready to see, but those are often the most useful insights. It’s important to visualize the most pessimistic scenario so that you can prepare for it. That’s what gets you through the tough times and gives you a plan of action to move forward instead of just running out of cash when you encounter an unexpected roadblock.
Don’t exclude any data –Include all relevant information in your forecasts; the more comprehensive your data, the more accurate your predictions will be. Detailed forecasts will be more relevant and provide an outline for an actionable plan for the future. Omitting some information could be tempting as it gives you a more optimistic scenario, but that doesn’t mean it’s the best or the most probable one. Forecasts shouldn’t act as wishful thinking but instead prepare for the future (which, let’s face it – is always uncertain).
Use quantitative and qualitative data –Blend numerical data (like sales figures) with qualitative insights (such as customer opinions) to get a fuller, more accurate picture.
Don’t avoid making forecasts if you don’t have any data – You can create your first forecasts even without your own historical data points. As an early-stage startup, you can use industry benchmarks, market research and competitor insights to make educated predictions for your business. Forecasts could be even more important for new startups than for established companies. They help you extend your startup runway and reduce cash burn. They can also help you with strategic decisions, such as determining whether you’re in a position to hire new people or invest in equipment.
How else can Fuelfinance help you?
If you're not quite an expert in small business financial management, you're in the right place. Fuelfinance not only helps with revenue forecasting and projecting but also provides a complete solution for managing your finances.
Fuelfinance is a financial planning software tool designed to help small businesses and startups take control of their finances and become (and stay) profitable.
We provide a user-friendly and cloud-based platform that provides a clear overview of your financial health, tracks important metrics and offers precise financial forecasting – essential for making informed decisions and driving business growth.
Here are some other useful features:
Financial planning and analysis: As one of the best scenario planning software options, Fuelfinance provides you with all potential future scenarios, including baseline and target ones. It allows you to explore different outcomes based on various factors. This helps you understand both the best-case and worst-case financial situations so you’re fully prepared for any challenges.
Financial statements: With Fuelfinance, you can generate all the essential small business financial statements with only a few clicks – including Profit and Loss statement, Cash Flow statement and Balance Sheet – even with our free plan. If you want to learn more about forecasting, read our guide on how to forecast balance sheet.
All-in-one dashboard: Our intuitive dashboard allows you to monitor all your key SaaS metrics in one place and seamlessly import data from QuickBooks. If you're uncertain about which metrics to focus on, we will recommend the most relevant KPIs based on your startup's financial model.
Advanced automation: Fuelfinance automates everyday financial tasks, eliminating the need to manually collect data and update spreadsheets. Our automated dashboard ensures your data is always up-to-date, giving you access to the latest information whenever you need it. This allows you to make well-informed decisions about upcoming events, investments and other plans.
Expert financial support: All paid plans include unlimited support from our team of finance experts, who serve as your outsourced CFO at no additional cost. They can assist you in analyzing your performance and financial statements and help you identify potential cash flow issues before they become a problem.
Integrations: Fuelfinance integrates with popular financial tools like Stripe, Gusto, Wise and more, making it easy to transfer data and streamline your financial management. Fuelfinance also works with QuickBooks to generate detailed financial reports based on the data pulled from the software.
Book a free demo if you want to see all these features in action.
Lastly, if you're a pre-seed startup owner just getting started and wondering what investors expect from early-stage startup finances, check out our free Bootstrap tool.
This tool helps you manage your finances and generate impressive reports for potential investors – all at no cost, making it the best financial analysis software for the beginning of your journey.
With the Bootstrap program, you can:
Create essential small business financial statements, including profit and loss statements, cash flow reports and balance sheets
Use a dashboard to track key SaaS metrics
Access our knowledge base and instructional videos to learn how to manage your finances effectively
Develop financial plans and reports to present to investors
We understand that finance can feel like a major hassle – confusing, dull and just plain frustrating. Our goal is to change that by making it simple, engaging and empowering. That’s why we've spent years creating straightforward, no-nonsense financial resources for founders.
We launched a comprehensive Financial Content Library, or “Content HQ”, packed with everything from cheat sheets and calculators to podcasts and e-books. It helps you understand the world of finance in an exciting and accessible way.
Ready for financial peace of mind?
Starting a business and dealing with the revenue forecasting process can be overwhelming, especially if you're not a finance expert – and we get that. That’s why we developed Fuelfinance, a solution designed specifically for small businesses and startups.
Our easy-to-use platform simplifies financial management, helping you confidently handle your finances, even if you're new to the field. You can use it for forecasting, planning and analyzing to make your business more profitable. All of this comes with unlimited support from our finance experts.
Book a demo call today to see how we can make forecasting revenue easier for your startup!
FAQs
How to calculate revenue forecast?
To predict future revenue growth (or decline), start by estimating your sales volume and multiplying it by the price per product. Some factors to consider are past sales trends, industry benchmarks, current market conditions and your product or service seasonality.
What is the best method to forecast revenue?
The best revenue forecasting method depends on your business and data availability. Historical data forecasting works well for established businesses, while pipeline forecasting is suitable for sales teams. Bottom-up forecasting is the ideal method for startups. Market research and industry benchmarks can help early-stage businesses with limited data.
What is an example of a revenue forecast?
An accurate revenue forecast example for a startup might involve predicting monthly sales for a new subscription service. For example, if the startup anticipates gaining 200 new customers each month, with each customer paying $10, the projected monthly revenue would be $2,000 (200 customers x $10).
How do you forecast revenue in Excel?
To make revenue projections in Excel, you can use three simple methods: Moving Averages, Exponential Smoothing and Linear Regression. Moving Averages help identify short-term trends by smoothing out data. Exponential Smoothing adjusts for seasonal changes by giving more importance to recent data. Linear Regression looks at the relationship between factors to predict future revenue. All three methods use past data to estimate future growth.
