Revenue Forecast

A revenue forecast is a useful tool for decision-making and is often integrated with other financial forecasts to calculate the business’s profitability, cash flow needs, and overall financial health. This revenue forecast template provides three different methods, in order of increasing complexity: historical percentage method, unit-price method, and multiple unit-price method.

The historical percentage method relies on one assumption: revenue growth rate. This makes it a very simplistic method; however, it oversimplifies the underlying variables at play, which often results in poor projections. Unless a deeper analysis is taken to arrive at the revenue growth rate, it should probably be avoided, but I have included it because it can be a good way to check certain scenarios. The unit-price method relies on two assumptions: unit growth rate and price per unit growth rate. A unit simply refers to a good or service that can be sold to customers. While this method is slightly more complicated, it divides revenue into its two underlying variables, which generally makes it a more accurate forecasting method. An obvious downfall of the unit-price method is that it assumes your business only sells one product. The multiple unit-price method is the best alternative for businesses with several products. It works exactly the same as the unit-price method but simply includes several products instead of one. If your business sells many, many products, you may consider aggregating similar products with similar prices. If this still results in too many types of products, consider using the 80/20 rule. Use the multiple unit-price method to forecast the 20% of units that result in 80% of revenues, then apply a reasonable revenue growth rate to the other 20% of revenue not represented by those units.

When forecasting unit growth rate, you should consider both how many units are demanded from customers as well as your current production capability to meet those demanded units. If you believe your business does not have sufficient production capabilities to meet customer demand, it may be a sign you need to increase production capability through reinvestment of company funds. Nonetheless, you should never forecast a unit growth rate that either exceeds customer demand or exceeds the business’s production limits. The forecasted price/unit growth rate should consider the overall company strategy and should be reasonable given the number of units sold. You must remember that, assuming the quality and type of product you are selling stays the same, the number of products you sell and the price you charge for those products act like a seesaw. As you increase the price for your product, the quantity of units demanded by your customers will generally decrease. The opposite is also true. So, while increasing prices may sound like an attractive way to build revenue, it generally decreases the amount of units you can sell at that price. Businesses generally drive profits by selling more units, not by increasing prices, so unless you are actively and significantly increasing the quality of your products (or the demand for your products/services dramatically increases), your price per unit growth assumption should be fairly stable.

Although I do hope the template is fairly straightforward, I have included some instructions to clarify how numbers should be inputted. I hope the template proves helpful!

General Instructions:

Historical % Method:

Historical Period: this is a period of three years which preceed the current year. For example, if the current year is 2025, the historical period will be 2022-2024. You will note that you only need to input a year into C8 and the rest of the period will be automatically calculated. C8 should be three years ago.

Historical Revenue: these are the revenue numbers that correspond with each year. If your business did not earn revenue during a specific year (such as the business had not been started or was not operating yet), input $0 for revenue. You can choose to exclude this year from the revenue growth graph at the end if you would prefer not to see it.

Forecast Period: these are automatically populated based on the historical years that were inputted.

Forecast Growth Rate: this is the expected growth rate for each period. This should be based on your expectation of the demand for your product, the pricing strategy of the business, and the ability of the business to meet demand.

Unit-Price & Multiple Unit-Price Method:

Historical Units Sold: this is the historical amount of units sold during the corresponding year.

Historical Price/Unit this is the historical price/unit corresponding to the year. If this price changed during the year, take a weighted average of the prices during the year and use the weighted average price.

Forecast Unit Growth Rate: this is the forecasted growth rate of units sold (not produced) for each future year.

Forecast Price/Unit Growth Rate: this is the forecasted growth rate of price per unit of units sold for each future year.