Empower Your Operations with B2b Sales Forecasting for Operations

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there's lots of ways to model Financial revenue and today I'm going to show you three easy ways to do it one super easy one kind of medium and one hardest but still pretty easy to be honest once you get across the concept so let's start with the easiest one what I've done here is I've laid out the historical financials for a mock company so you can see here just the revenue one million 1.15 million 1.375 million in 2020 2021 and 2022 respectively and what I've done is just calculated the growth rate so 2021 divided by 2020 minus one the same thing in 2022 just dividing it over 2021 you can see the formula there and the simplest way that actually probably most businesses uh forecast their future revenue is just apply a future growth rate so here I've hard-coded um some growth rates here for 2023 2024 and 2025 and then just multiplied the previous year's Revenue by that growth rate so you can see that 2020 22 Revenue times one plus the growth rate and the same thing for 2024 and the same thing for 2025. this is very simplistic the good thing is there's only really one assumption you're making what percentage you're going to grow for the next three years which makes it relatively easy in terms of just the number of inputs that you have and the things that can go wrong the next method is a little bit more difficult but again um not that difficult once you once you understand the concept of it so what we've done here is the same Revenue numbers for the historicals I've also put here the number of units sold so this could be a product company where you're selling widgets and the number of units you've sold for that or it could even be applied to a Service Company where you're charged by the hour or this could be instead of units or product sold or whatever it might be so here again I've hard-coded the number of units for those historical periods so in 2020 we sold 500 units in 2021 we sold 550 and in 2022 we sold 600 and from that I've basically implied what was the average price per unit so dividing the total revenue by the number of units sold gives you the average price per unit and if I've done that every year here so now you have two components to forecast you're going to do grow the number of units sold so historically we've grown at 10 and 9 this company in particular feels really good about growing it by more in 2023 and then that trailing off so 15 in 2023 10 in 2024 and 8 in 2025 and you can see the result there same math the previous year times one plus the growth rate every year doing that you can see how that works out and then the other thing is well what's going to happen to the price well we've forecasted the number of units units times price equals Revenue so here again we've hard-coded the growth rates that we assume the price has been going up it went up more in 2022 maybe because of inflation you think you've got a couple of good years of growth in the pricing as well and the same math work so you just take the previous year's price times one plus the growth rate and then you multiply those two things out against each other so number of units times average price per unit equals the revenue for the year and then you can see how that works every year now let's turn our attention to the hardest method and again it's still pretty easy um especially when you break it down into the different components but this is basically essentially the same as the medium one that we just ran through but instead of just doing it as on a blended basis across all of the products that you have in the company like we did on the last example this is breaking down each individual product and so we're doing the same math that we did last time but you can see here we have product one where we do that math of the number of units sold times the average price equals the product one Revenue and we do product two the same math again and we add those up to get to total revenue now if you had 150 200 different products and some of the products you only sell couple of units of it really doesn't make sense to break it down by every single individual product but there might be groupings of products that um you can break it down into instead and I recommend like kind of you know any more than five to ten different groupings or products would be pretty hard to model and then way too many assumptions so if you can kind of keep it to five to ten different groupings that's probably the best way to model and I'm not going to run through the math again because this is exactly the same as what we just did the only difference and I think I just want to highlight this here is what this actually tells you um so we've got the same math here where it adds up to the same amount of Revenue and then we project our the number of units based on a growth rate and the price for product one and the number of units and the price for product two but the trends highlighted by breaking it down by these individual components really shows a business owner much more information about their business but also helps them plan much more much better so what you can see here is we've got two products one that is growing in units so 19 growth in 2021 37 growth in 2022 with pretty steady pricing not really changing that much and then we've got a second product that is in definitely in Decline you can see the number of units has declined from 100 to 50. um at the same time probably because these things are kind of becoming obsolete and there's not really many places to get them product two is increasing in price and this just shows you a lot more Trends in terms of you know on the last page where we did a blended average you really couldn't see that this trend of one product that's really growing at a good pace and one product that's in Decline and this might help you make different decisions you might actually focus more on product one and really accelerate the decline of product two or product two could be much more profitable because of the pricing you can figure out a way to kind of extend the life of that but I just think this shows up so much more information than you have than just looking at it on a blended basis or just a growth rate like we did in the first example and lastly let's go do a comparison so this is the same math you know each of those things easy medium hardest and what do each of those produce so the historicals are obviously this obviously the same and the projections is what changes and you can really see interestingly enough they don't change that much from year to year they're pretty consistent you know if you model things out by the product you get a higher number in 2023 than you do for the other two examples but then it kind of closes the Gap and then it becomes the medium one over time so but what I would say is while it is harder to do and there are more assumptions going into it this method the hardest method is probably the most accurate way to do it and it's going to take a lot more time to model it out but it's definitely worth it anyway I hope that was helpful I'm going to be bringing out more models on more videos on how to model uh Financial models in the coming weeks and subscribe to the channel if you like the content and definitely comment below if there's anything that you would like me to go through or any videos you'd like me to add