Nov 29, 2014
Financial Forecas,ng
Forecas(ng Revenue
hockey s,ck forecasts
MaRS Best Prac,ces December 8, 2010
Charles Plant
Slide 3
hockey s,ck forecast
Slide 4
and this is important because?
Financial Forecas,ng
Forecas(ng Revenue
the reality of results
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typical forecasts
• 35 start-‐up soJware companies • average first year growth budgeted 401% • average second year growth budgeted 246%
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canadian results
• 100 top soJware companies in Canada • smallest company had sales of $2 million
• actual growth rate average was 24% • biggest grew 23% • smallest grew 40%
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what’s up with that?
• canadian companies took 10.2 years to reach $10 million in annual revenues.
• in the U.S. 6 years to reach $10 million
• 10 years to get to $50 million
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the best companies ever
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conclusions
• a rocket ship is a company that reaches $50 million in annual sales in 6 years or less
• most successful technology companies aren’t rocket ships.
• only 28% of the na,on’s most successful public soJware empires were rocket ships.
• a hot shot reaches $50m in 7 to 12 years. • a slow burner takes 13 years or more.
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don’t try to outdo google
Financial Forecas,ng
Forecas(ng Revenue
top down forecasts
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before you start you must know
• target market
• business model • go to market strategy
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so how big is the market?
• gartner says the market is $50 billion • we’re going to get 1%.
• wrong
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poten,al users?
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rate of adop,on?
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total market size
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market share?
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Revenue forecasts
Financial Forecas,ng
Forecas(ng Revenue
boVom up forecasts
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the revenue plug
• let’s see, $100k the first month…. • wrong
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sales funnel
• lead • discussion • proposal • evalua,on • trial • order • install
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how will you get leads?
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how long does each stage take?
Stage Time
Lead Start
Discussion 1 Month
Proposal 1 Month
Evalua,on 2 Months
Trial 2 Months
Order 1 Month
Delivery 2 Months
Total Time 9 Months
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what is the conversion rate at each stage?
Stage Stage Conversion Conversion Rate
Lead 100% 100%
Discussion 50% 50%
Proposal 40% 20%
Evalua,on 50% 10%
Trial 50% 5%
Order 80% 4%
Delivery 75% 3%
Total Conversion 3%
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you’ve got sales
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rules of thumb
• marke,ng costs • salespeople required
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implica,ons
• Compare your top down approach with your boVom up approach
• Watch out for overhea,ng the market
• Good companies start selling long before the product is ready
Financial Forecas,ng
Forecas(ng Revenue
what’s next?
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checking your assump,ons
• check your assump,ons and revise them whenever you get new informa,on
• check forecasts monthly.
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investors?
• knowing your forecast shows you know your business model as well as your go to market strategy
• be prepared to discuss in detail • however no maVer what you do, prospec,ve investors will not believe your forecasts.
• but you will because you will have done a good job preparing them
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the art of forecas,ng
• it’s all about marke,ng
Financial Forecas,ng
Forecas(ng Revenue
ques,ons?