RUN
WITH THE Big dogS™ newsletter
Volume 3, issue 42
Is everyone on the same page when
they talk about revenue?...John
Management idea
In one of our annual meetings the
team was tripping over terminology used to describe revenue. To
clarify things we formally defined the various forms of revenue.
Planned Revenue - the revenue in the operating plan, the one used to
commit expenses and generate enough cash flow to cover payroll.
The less realistic and conservative the revenue is in the operating
plan, the greater the risk that there will be a financial crisis that
year.
Quota Revenue - the stretch goal set for sales persons. It is
set to motivate reaching the potential of the marketplace. If the
sum of all the quota revenues doesn't exceed the planned revenue there
is a significant risk that the planned revenue won't be reached if some
of the sales persons fall short of their quota.
Forecast Revenue - the best estimate of the revenue we will see
over the next few months
unless something changes. Forecasts should serve as our radar.
If the forecast revenue is significantly different than our planned
revenue then we need to take corrective action. If lower - defer
expenses and initiate new sales generation programs. If greater -
accelerate the supporting infrastructure people and capital expenses.
Actual Revenue - the revenue booked at the end of each month.
A useful report is a revenue graph covering this fiscal year plus six
months. The graph plots the Planned Revenue for the
eighteen months, the Actual Revenue up to the current month, and
the Forecasted Revenue for the remaining months.
With this clarity the team agreed to be careful not to argue over someone's forecast
so strongly that they changed it to say what everyone wanted to hear rather than reality.
They tightened their use of the operating plan - making sure that the
monthly expense rates were consistent with the current forecast of
monthly revenues. They also accelerated their intervention when a
forecast was significantly different than the plan.
RUN
WITH THE BIG DOGS™
Every
week the strategic planning facilitators of Myrna
Associates interact with the executive teams of the best managed
mid-sized companies in America.
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