As creative business leaders, set revenue targets before the current financial year ends. While this task can seem daunting for those new to it, the process becomes straightforward with the right approach.
4 Methods for Setting Revenue Targets
1. Growth on Last Year
The most common approach: add a percentage increase to the previous year’s revenue. For example, 20% growth on £500,000 revenue yields a £600,000 target.
Advantages: Quick, focused understanding of expectations; assumes continued growth.
Disadvantages: Higher revenue doesn’t necessarily translate to increased profit; may not capture new service opportunities.
2. Capacity Levels
Base targets on employee capacity and utilization rates, including potential staffing changes or rate increases.
Advantages: Models maximum achievable revenue; identifies training or hiring needs.
Disadvantages: Staff fluctuations create misalignment; over-hiring risks emerge if sales underperform.
3. Sum of All Sales Targets
Individual sales team targets combine to create company-wide goals. Three salespeople with £500,000 targets each equals £1.5 million company target.
Advantages: Leverages team performance; expectations become easier as relationships mature.
Disadvantages: Staff performance varies; new hires and departures disrupt consistency.
4. Rolling Forecasting
Continuously model revenue, expenses, and capacity using elements from the previous three methods.
Advantages: Enables business agility; identifies issues quickly across all variables.
Disadvantages: Time-intensive setup; forecasts remain speculative.
The Right Approach
The most effective strategy combines elements from all methods. This reduces surprises and enables focused goal achievement.
Work with an accountant for guidance on modeling costs and expected returns. You don’t have to figure this out alone.
Go deeper: Revenue targets feed directly into your agency’s valuation. Read the Agency Valuation Guide to understand how revenue quality and growth rate affect what buyers will pay.