Revenue is the fundamental driver of a company’s performance. There are a number of ways to forecast revenues based on the nature of the company’s operations and its business model. Some of the methods are:

Method 1: Revenue is forecasted based on the historical revenue growth rates (change from the previous period). This is straight forward method and doesn’t provide any insights into the dynamics of growth. This method is used when there is very less or no information available. However, this is approach is used to forecast segments that are not important form company’s point of view.

Method 2: Under this approach revenue is calculated as a product of total market (value) and the company’s market share. The size of the market is estimated using market research studies. The company’s market share is forecasted based on the market dynamics and its competitive position. This method is appropriate when the nature and size of the market is defined and where the major player account for a significant portion of the overall market.

The method can be used in sectors like beverages, automobiles, telecom, media etc.

Method 3: Revenue is calculated as a product of number of units sold and the unit price. Both volume and unit prices are variable in this model and depend on the company’s prospects and the competitive scenario. This method is appropriate for businesses with a simple product mix and where the business is directly affected by changes in volumes and prices.

The method can be used in sectors like manpower consulting, outsourcing, cement, utilities, stock broking.

Method 4: Revenue is calculated as a product of installed capacity, utilized capacity and average price. While capacity installed is fixed in short run, if capacity nears 100% utilization, price inflation will shoot up. Further utilization is forecasted based on the production/utilization schedules. This method is appropriate in manufacturing business where capacity, utilization and price can be quantified.

The method can be used in sectors like manufacturing, hotels, tourism and transportation etc.