Building a Proper Revenue Forecast
Learning to forecast revenues from Lululemon and Apple examples
Revenue forecasts are a crucial part of financial projections. This process is required for many purposes, whether it’s for investing, work, or company management. Many times, people just assume a growth rate based on historical numbers and apply this to the amount of the total revenue. The issue with this is that total revenues encompass a ton of different business segments, and these segments grow differently. Instead of averaging out the growth rate by combining these segments into one, we should estimate each segment’s growth on its own. Granularity is generally good for more accuracy, and easier for your coworkers to review. The more you understand a company by going through the ins-and-outs, the better your projections will be.
The way that you should think about a company is that the company is driven off product sales at the end of the day. Sales are calculated using the price multiplied by volume, and so models should also be built this way. Everything else should primarily be driven by your sales assumptions, so spend the most time perfecting these amounts.
By the end of this article, you’ll know how to create detailed revenue forecasts for these two different types of companies. Using this process and way of thinking…
