| Topic Name: |
Revenue Model |
| Message Name: |
Revenue Model. |
| Date Posted: |
07/01/2008 |
| In Reply To: |
I recently began a job at a Software Development company. I am a financial analyst and have been asked to build a revenue model that will be used for budgeting/forecasting and also to build a model for what-if scenarios. Can anyone direct me to a site or give me advice? I am using Microsoft Excel.... |
| Message: |
Hello, Lerie7.
Here is the basic budgeting / forecasting process:
1. Identify model inputs: Expenses (or costs) and revenues. Tangible and intangible assets should be considered.
2. Request updated data: Request the expenses data and the revenue data to the corresponding areas within the company.
3. Create the revenue model's template in Excel: For example, you can use the income statement format.
4. Identify possible company's strategies for forecasts: Usually, the strategies are obtained from the strategic planning area. If not, ask the Chief Financial Officer of the company. Break down the strategies into a list of expenses and revenues
5. Create one scenario for each strategy using the selected budgeting template: Each strategy will be represented by a set of expenses and revenues built upon the previously selected template. You can use one sheet of the Excel's book per each scenario / strategy.
6. Compare budget and forecasts (forecasting): At the end you will reach, for example, an operating profit value or operating margin value. Your actual budget (present strategy) will yield one value and the forecasts will yield other values, as well. Obviously, the biggest positive number is your best option (best scenario or strategy).
7. Update the revenue model annually (feedback and corrections): After a year of operations, you need to compare the business reality to your revenue model to see if the forecast scenarios (strategies considered) were accurate. Otherwise, you will need to update the model. You may need to build new scenarios, modify existing ones, or eliminate obsolete ones. The company staff creating new strategies should review market, industry, and technology conditions. This new strategies are your input to build the new scenarios in the revenue model.
Finally, the difficulty of using Excel and not a specialized-networked budgeting / forecasting software is that you will need to collect "manually", from all the company departments, the expenses and revenue information. Each department or area has its own expense and revenue information. Also, you will need to "manually" update model's scenario changes.
Hope this helps.
Best regards,
Luis R. Villegas H.
LVVL1000@hotmail.com
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