Effective revenue planning allows you to set realistic goals and identify opportunities to increase revenue by offering new services or expanding your firm’s client base.
The Whetstone Group and AICPA & CIMA Private Companies Practice Section (PCPS) Revenue Modeling Toolkit assists with revenue planning based on three factors: net new business, one-time projects, and client losses.
The Revenue Modeling Worksheet and the Revenue Planning Foundational Concepts video— together as the PCPS Revenue Modeling Toolkit —guide you in developing strategic goals that are specific to your firm's business strategy and revenue goals through analysis for revenue planning and key performance indicators.
Internal and external analysis for revenue planning
Detailed data regarding your firm’s expenses and past revenue are two internal factors that inform decisions for your future revenue targets. Additionally, you’ll want to:
Identify your target market — Which clientele would your firm like to reach based on the capacity of resources and services you provide?
Understand current clients’ needs and preferences — For example, do your clients prefer in-person or online meetings?
Assess any changes in accounting standards or procedures that may affect service offerings.
"Revenue modeling should be reflective of the firm's [business] strategy," said Carrie Steffen, CPA, co-founder and president of the Whetstone Group and creator of the Revenue Modeling Toolkit. "We need to have a pretty clear vision of who do we want to serve, what do we want to do for [clients]."
External factors that will influence your revenue plan include:
Market demand, which reflects a client’s interest in your firm
Business and industry trends that show market direction
Business indicators that reflect how your firm is performing
Target audiences that determine clients
State and federal regulations that affect the accounting profession
Another crucial factor is capacity, which Steffen explains is the ability to offer a service or the amount of services your firm can provide to clients.
“Having the ability to deliver based on the capacity that we have available from our [team] and paying attention to how they’re doing — do they seem burned out or stressed out? — is super important,” Steffen said.
Key performance indicators to stay aligned with your revenue plan
Metrics, such as a decrease or reduction in your client base, profit margins and return on investment for marketing campaigns reveal how effective revenue planning strategies are for your firm.
Calculating the revenue growth rate involves measuring how much your firm's sales have grown during a particular time frame, showing you how your revenue planning efforts are helping your firm grow overall.
"The revenue [modeling] toolkit offers some metrics that firms can look at regularly to give them some data ... one of which is the pipeline report," Steffen said.
A comprehensive pipeline report should include an overview of your firm’s current revenue state, including the number of activities in progress, their stage of development, and the value of each one.
"Pipeline reporting is really one of the few leading indicators of success that firms have available. Everything else is kind of a lagging indicator, but our pipelines should help us look forward and say, 'OK, do we have the right amount of activity inside of our pipeline to help us meet our revenue goal?' "
Aligning revenue plans with your firm’s business strategy gives you a clear vision of how you want your firm to grow, helping you develop revenue strategies that support your firm’s overall objectives. Firm leaders should communicate clearly with their staff to ensure everyone understands the firm’s strategic goals.
"Firms sort of forget or miss their opportunity to really set clear strategies and make sure that everyone in the firm understands what they are. Revenue planning is most successful when there's intent behind it, and that's where the strategy comes in ... everything needs to be in alignment and supporting each other," Steffen said.
The Revenue Modeling Worksheet is invaluable for firms planning or reorganizing their revenue efforts with intention. With this tool, you can effectively articulate your revenue goals and identify potential areas for improvement, leading to informed decisions that maximize your firm’s revenue targets.
The Revenue Planning: Foundational Concepts video (15-minute run time) features Steffen as she delves into the revenue planning process and provides insights and walk-throughs on using the revenue modeling worksheet effectively.
"The toolkit not only helps firms understand where revenue comes from, but it also gives them some insight into what they need to do in order to generate it," Steffen said. You can also use these tools with the Five-Step Culling Process from the PCPS Right-Sizing Your Client Base Toolkit, which offers resources to streamline your client base and improve overall efficiency.
Learn more about how the PCPS Revenue Modeling Toolkit can optimize your revenue planning strategies by developing effective actions and making informed decisions to drive your firm forward.