Top 7 Benefits of Revenue Forecasting for Commercial Real Estate
If there’s one lesson we’ve learned over the past year, it’s that you can’t predict everything. And, when it comes to commercial real estate, grappling with uncertainty is especially challenging. But while you may not have a crystal ball to show you precisely what the future holds, having a data-informed estimation can help you develop plans to maximize your success and pivot quickly when something unexpected occurs.
That’s why, regardless of the size of your organization, revenue forecasting is critical to your success.
These projections equip you with actionable insight to allocate your budget wisely, set realistic goals, make appropriate hiring and restructuring decisions, and much more. Instead of flying blindly, revenue forecasting provides your firm with a clear direction. Without it, you might as well be rolling dice.
Still not convinced? Today, we’re sharing a few of the reasons you should adopt revenue forecasting for your commercial real estate brokerage. But first, let’s start with the basics:
What is revenue forecasting, exactly?
Just in case you need a quick refresher, revenue forecasting is a way to estimate your revenue over a specific period, such as a quarter, half-year, or year. Think of a revenue forecast as an educated guess or prognosis of how much money your company will make in a fixed amount of time, based on analytics, calculations, and historical data.
Many businesses use revenue forecasting before preparing their annual budgets, but the benefits extend far beyond a budget exercise.
When you shine a light on your organization’s recent past, while also considering market projections and internal metrics, the future becomes less nebulous and much easier to envision. Revenue forecasting allows you to begin making more informed decisions, plan more realistically, and feel confident about taking your business to new heights.
7 Key benefits of revenue forecasting
I know what you’re thinking: “Why do I need to do technical revenue forecasting when I can just look at last quarter’s numbers?”
If you’re not accustomed to forecasting revenue, it can be hard to see the value. To help you better understand, here are seven of the top benefits:
By taking a deep dive into the numbers, you’ll better understand what expenses to anticipate and what trends may impact your cash flow. Revenue projections give you a reference point for comparison when it comes time to gauge your progress and make those quarterly budget tweaks. Most importantly, revenue forecasting keeps your spending goals on track and ensures you’re making the right investments at the right time.
2. Cash flow and credit management
Making sure you have a handle on cash flow is business success 101. Having an efficient way to monitor the flow of cash into and out of your firm ensures you make your payments on time and collect all of the payments due to you. Revenue forecasting is also vital when it comes to acquiring credit and brokering the best terms.
3. Resource allocation
Because you have a clear understanding of cash flow and credit management based on the numbers used to forecast revenue, you can better allocate resources. For example, you’ll know when to increase staffing, outsource work to a third party, or invest in new technologies. When you have a clear view of what the future (likely) holds, you’ll feel more comfortable pulling the trigger on various projects or deferring them later in the year.
4. Deal analysis
On a fundamental level, revenue forecasting gives you a clear view of which sectors, transaction types, teams, or efforts make the most money for your firm. Portfolio analysis allows you to examine the properties and services you should promote or discontinue based on anticipated profit margins and deals. In turn, you can focus on the services and sectors most likely to generate more revenue (based on actual data).
5. Hiring decisions
Recruiting and hiring new employees represents a significant line item — which is why senior decision-makers often take their time when choosing whether to approve headcount requests. But a revenue forecast will make those decisions much easier. You’ll see precisely where you need to add more people and how boosting staffing in different departments will impact your bottom line for a more accurate cost-benefit analysis.
6. Strategic planning
In many ways, effective strategic planning relies on revenue forecasting. It provides you the insight necessary to set priorities, support operations, ensure your business is aligned on crucial organizational goals, and measure success by setting the most relevant key performance indicators (KPIs) and objectives and key results (OKRs). Without a good forecast, much of this will be based solely on less relevant intel.
7. Client insight
Finally, revenue forecasting gives you tremendous insight into your clients. By reviewing deal data and client behavior, you’ll better understand your clients’ habits, which allows you to better anticipate their needs, exceed their expectations, and drive more deals. Client insight also helps you earn a better return for your marketing budget.
There’s no doubt that revenue forecasting takes time and effort (that is, unless you have the right CRM technology to simplify the process). But the value you’ll glean far outweighs the energy you’ll invest. If you haven’t begun forecasting your revenue for next quarter, now is the time to start.