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How to Forecast Revenue During Uncertain Times

How to Forecast Revenue During Uncertain Times
Photo by Angela Compagnone

Forecasting revenue can be difficult at the best of times.

Will a customer renew, buy more (expand) or churn (stop using the product) are outcomes Account or Customer Success Managers (AM/CSM) try to predict on a regular basis to forecast what revenue will look like for an upcoming period of time.

Being aware of the customer’s current and future business plans, account health and product usage patterns are some of the reference points used to make the call on whether a customer will continue to use the product, use it more or stop using it all together.

But with just about everything being as uncertain as they are, how does one possibly go about forecasting a number now?

Forecasting in Uncertain Times

I have spoken to dozens of executives over the last few weeks and here are some of the things they are doing to better understand their customer’s circumstances and attempt to accurately forecast the quarter.

Categorizing Accounts by Risk

One exercise to relatively quickly categorize accounts is by risk of churn depending on the industry vertical the account is in.

If customer accounts conduct business in industries hardest hit by the pandemic - for example retail, transportation and travel - the AM or CSM automatically moves the account to high-risk for churn or partial churn (reduced licenses or spend).

Accounts that carry on business in industries that are set to benefit from the coronavirus outbreak – pharma, mobile and streaming, teleconference and fitness apps – are flagged as low-risk (but are still kept an eye on given the unprecedented times).

The remainder of the accounts in between those are flagged as medium risk. These businesses may or may not be impacted by the pandemic and therefore the retention rate is unknown. More discovery is required to assess the account’s status.

Further Discovery

Some companies have prepared two sets of discovery questions – for healthy and at-risk customers – for their AMs and CSMs in order to better qualify the account status.

By conducting empathetic conversations with customers, listening to the account’s current priorities and understanding how best the products and/or services can be leveraged to support the customer in addressing those, AMs and CSMs are better equipped to forecasting their customer retention rate.

Nimble and Frequent Forecasting

Things are changing so quickly so the need to forecast more often to maintain a more accurate picture of the customer retention rate is key.

Organizations are refactoring their forecasts on a weekly or monthly basis based on what they are learning for their customers.

If customers are asking for reductions or cancellations of licenses, AMs and CSMs are asking “why” to identify whether alternative solutions exist to keeping the customer.

Plans are being adapted regularly with various scenarios considered in order to have a nimble forecast.

Bottom Line: Creativity and Adaptability are Key

With so much uncertainty around no one knows what next week will bring for themselves personally, let alone what the status of a customer account looks like next month or quarter.

Forecasts need to be nimble and updated regularly with current information to accurately paint the picture of what is happening in the customer account base.

Using industry verticals to make initial hypothesis regarding customer churn risk and then validating those assumptions through empathetic conversations with customers to better understand their situation and come up with creative solutions to meet their needs will provide the adaptability required to retain customers through these difficult times.

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