Today’s blog post is an excerpt adapted from our upcoming eBook on financial forecasting.
Bookings are signed contracts and, in terms of growing your revenue, bookings are the most important question. Not only because they constitute the sales you’re making but also because they are the interface between what is in your control and what is outside. Once the client is booked, you have the power to hit the project's goals. You can staff the right engineering team. However, until the client signs the deal, the situation will be outside your control.
The bulk of this book is dedicated to forecasting bookings for this reason. Revenue and, consequently, cash can be worked out from signed contracts and your bookings forecast with a high degree of accuracy. The bookings forecast handles the biggest unknowns for your business. That is why when we try to forecast the future performance of the company, the biggest question in our minds should be bookings because they are the heart of the unknowns hitting your business.
Because it deals with uncertain information, bookings forecasting deals with probabilities. The key to forecasting bookings is coming to terms with the uncertainties. You will need to collect data and make your best educated guess. Before embarking on this journey, let's bear in mind the quote:
“It is difficult to make predictions, especially about the future.”
Forecasting bookings is as difficult as it is essential to your business. You will have to continue to iterate over the entire life of your business.
One mistake we see frequently is not including all the money in bookings. Bookings include all money, including renewals and existing customers. Each contract renewal needs to be in the CRM. This both ensures proper counting on the contract and that your account managers/customer success managers have the existing customers on top of mind to make sure they can close the renewals.
Since bookings are the point of unknowns, resolving bookings opens you up to plan for the future for many activities. Some of the strategic activities after creating your bookings forecasts and targets are:
By translating bookings into revenue based on project schedules and billing milestones, companies can forecast their financial performance, set realistic targets, and gauge their market traction and operational efficiency.
Armed with revenue projections from bookings, companies can plan their cash inflows. Coupled with a detailed understanding of operational costs and capital expenditures, tech services companies can construct a comprehensive cash flow forecast, ensuring they maintain sufficient liquidity to meet their obligations and seize growth opportunities.
At the highest level, bookings forecasts feed into the strategic planning process, informing decisions on market focus, service offerings, pricing strategies, and investments in marketing and sales initiatives.
Bookings forecasts directly influence workforce planning. Knowing the volume and timing of committed work allows companies to align their hiring and resource allocation with actual business needs, avoiding overstaffing during lean periods and resource shortages during peaks.
Bookings forecasts are used to determine the near-term and long-term needs of the company in terms of brand recognition, number of leads, and number of active customers. With an understanding of these you have direction to the sales and marketing tactics you can deploy.
At Vixul, we spend a large part of our time reviewing the forecasts created by the founders of our portfolio companies. It is amazing for us to see our founders mature as executives and be able to answer questions they couldn't in the past. Unfortunately, most founders struggle with these issues until we point them in the right direction. We believe the lack of guidance on forecasting is a primary issue for early-stage tech services founders.
That's why we're working on an eBook with detailed instructions on how to set up forecasts for sales pipelines. This will help you plan your year with better foresight. The book will be free for people on our mailing list when it is published, so please subscribe now to ensure you receive it.