What is Forward Revenue?
Forward revenue is revenue that a company can expect to earn in the future. It’s typically forecasted in advance for set periods, such as quarters or an upcoming fiscal year. Knowing what your team’s expected forward revenue target is will allow you to set and achieve realistic sales goals.
How to Calculate Forward Revenue
Let’s say you closed a deal a week before the end of your company’s second quarter. Gaining a new customer is great, but you won’t see any revenue from that sale until the start of the third quarter. So, the revenue from the sale made at the end of Q2 won’t show up until the beginning of Q3. In this scenario, that amount of profit would be referred to as forward revenue.
Knowing how much profit you generate per sale is important, but you also need to know exactly when you can expect that revenue to be paid out to the company. To do this, you need to know how to calculate forward revenue.
Typically, forward revenue is calculated by dividing total annual sales by 12 (to get a monthly average), and then multiplying that number by four (to account for each quarter within a fiscal year).
For example: $100,000 (total annual sales) divided by 12 = $8,333 x 4 (fiscal quarters) = $33,333 (forward revenue).
The above example forecasts that roughly $33,333 in revenue should be earned in each quarter throughout the upcoming fiscal year.
When forecasting total revenue for a fiscal year, other factors may also be taken into consideration and calculated alongside a company’s expected forward revenue.
Why is Forward Revenue Important?
There are many benefits to calculating a company’s forward revenue.
- Help forecast future revenue earnings. As previously mentioned, calculating forward revenue helps forecast overall growth and gross revenue for a company.
- Assist in setting clear goals and objectives. Knowing your team’s earning potential will help managers set concrete goals and stay on track to achieve sales objectives. Without this information, sales reps have limited guidance on what exactly they should focus on.
- Boost overall transparency. Sharing information related to forward revenue will help boost transparency within a company. When staff know how much a business is expected to earn, what their revenue potential is, and whether or not they’re on track to hit those goals, they feel more plugged into company performance. This helps with morale, accountability, and general feelings of ownerships and responsibility for their individual work and overall team performance.
- Influence stock prices. If a company is publicly traded, investors often pay attention to their forward revenue. These numbers help predict future earnings which will influence stock prices and trade value.
Tips for Better Communication
If you’re tasked with calculating forward revenue you’ll likely have to work with your company’s finance team, as well as other stakeholders. There’s a lot of moving parts and important data and information that needs to be shared, so it’s important to keep everything succinct and organized.
- Use video. You can introduce yourself to other teams, share your screen on calls to highlight important information, and record virtual meetings to reference in the future.
- Keep records. Make sure you record meetings and historical data to refer back to. If your company uses any sales automation tools, some of this is likely already done for you.
- Ask questions. If you’re unsure of something, ask. There’s no shame in asking for clarification on where data is pulled from, or how a calculation is made.