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Draw inspiration from seven commonly used forecasting methods
Revenue values from the same month last year and add a growth factor to accounts for expected changes in performance.
Typically used for revenue projections and employed by companies who experience seasonality.
Forecasting using year-over-year growth is relevant for companies that experience seasonal fluctuations or predictable cyclical patterns. This method is often utilized by retail and e-commerce businesses.
Forecasting revenue based on year-over-year growth
Determine items as a % of revenue based on past performance and multiply by this percentage to get your forecast values
Costs that typically scale and correlate with revenue, including working capital items such as inventory or receivables.
Forecasting COGS as percentage of revenue
When companies scale, certain expenses and balance sheet items tend to scale proportionally with revenue.
Calculate the moving average based on the last x months. Optionally, add a growth factor to account for expected increases.
Moving averages are used across a wide range of financial items including revenue, expenses and balance sheet items.
Moving averages are suited for companies with steady operations and relatively low volatility in their data. The moving average method is based on the notion that the near-term future will likely mirror the recent past, where it can be helpful to smoothen out short-term fluctuations and focus on longer-term trends
Forecasting revenue as a 6 month moving average including buffer
Instead of formula based forecast values, simply hardcode scheduled expenses and other values directly into your model.
Hardcoded forecast values are especially relevant for fixed-cost items including rent, insurance or interests.
The fixed assumption method is particularly useful for fixed-cost items where the monthly expense is known.
Forecasting OPEX based on fixed assumptions
Enter your annualized assumptions and divide by 12 to get your monthly forecast projection.
Ideal for fixed cost items where the annual cost can be estimated with high certainty, but monthly distribution is unknown.
The annual inputs method is useful when you can estimate the annual cost with high certainty, but the monthly distribution is unknown. It can be a good fit for companies that have annual budgeting and planning cycles.
Forecast based on an annualized revenue assumption of 1.5 million
Based on the assumption that conditions remain stable. Simply reference last month's value to keep items constant.
Typically used for balance sheet items that have limited predictability, or no expected changes during the forecast period.
The prior month's balance method assumes a steady state from one month to the next and is a simple yet effective method for stable accounts on the balance sheet.
Forecasting balance sheet items as prior months value
Based on historical data determine an average cost per employee and multiply by projected total employees.
Relevant for cost items that scale with the number of employees, including insurance, equipment, office expenses, etc.
This method is relevant for companies with many employees and costs that scale with employees.
Forecasting recruitment costs based on a fixed cost per hire