A hysterical client calls me.

Because a show they did this year worth 20% of their revenue isn’t coming back, they believe next year will be a disappointment. You’d think the sky was falling.

“It’s alright,” I say. “One show is nothing to be afraid of.”

There was a time when the client didn’t have that job. Plenty of jobs won’t come back, but unexpected jobs will come up in their place, and the client will be fine.

But the client was scared and disappointed because he didn’t know how to incorporate this unfortunate turn of events into his business plan.

Be Agnostic About Data

Separate yourself from the emotional response of fear. You won’t solve the problem — if there actually is one — in the heat of the moment.

Consider the proverb, “When one door closes, another one opens.” There may be an upside to losing a big job that you haven’t considered.

Your real concern should be the underlying issue that makes unexpected changes so problematic. If a business isn’t inherently scalable, negative changes in revenue can be traumatic.

One of my scalable clients (who saw record revenue and profits in 2022) knew 2023 wouldn’t be as good of a year. Some major projects wouldn’t be repeated because they were one-and-done deals.

The client had no preconceived notion that his business would magically make the same revenue in 2023, but when we built the 2023 budget and reduced the revenue to the projection, everything looked fine. They wouldn’t make as much money as they did in 2022, but they’d still make a substantial amount.

I then asked, “How low could revenue go before you start to lose money?” We returned to the budget forecast template and kept lowering revenue until the profit disappeared. The client would break even at 50% of the previous year’s revenue.

Having such a scalable business means the client doesn’t fear the data. He knows how to take data, good or bad, and process it to demonstrate how it impacts the budget.

Being scalable empowers you to be agnostic about data and allows you to use that data to navigate change. It also allows you to approach forecasting from a more balanced perspective.

How to Get Better at Forecasting

A lot of owners struggle with forecasting because they can’t pinpoint enough work to help them sleep at night. They rely on hard data rather than trends and intuition.

Only when you treat data objectively can you get better at forecasting and make adjustments to manage true growth (or decline). Here’s how to do it, in three easy steps:

Step 1: Undervalue Windfall Jobs

Look at your revenue stream from the past two years and identify the windfall jobs — the ones you did nothing (intentionally) to win and that won’t necessarily happen again. They’re bonus jobs you pick up out of luck.

They’re easy to spot in your sales pipeline: Windfall jobs turn normal months into record-breakers.

Don’t get overly optimistic about these jobs in your forecast. In fact, your operating budget shouldn’t change. If a windfall job takes you from a $4M company to a $5M company, don’t run out and hire a bunch of new people because of it.

Step 2: Rely on Intentional Revenue

Intentional revenue can be divided into three categories: 1) Recurring Revenue, 2) Seasonal Demand, and 3) Targeted New Business.

Recurring Revenue comes from annual jobs or projects you can pencil into your pipeline far in advance.

Seasonal Demand comes from jobs that pop up later in the pipeline but always seem to appear. If you know that in your region a particular month is busy and you’re there to support that business, that’s intentional revenue. You may not know what the holiday party season will look like until October, but you know there will be holiday parties.

Targeted New Business comes from sales and marketing that target specific jobs or clients. If you have a reasonable expectation you’ll land these jobs, include them in the forecast.

Step 3: Apply Your Intuition

Keep an eye on trends in the industry or marketplace, such as lead time, appetite for innovation, price sensitivity, and the number of inquiries you get, which give you a sense of how busy (or not busy) you’ll be.

All these factors affect your potential revenue. A lot of positive intuition might be worth another 5% of your budget, and a lot of negative intuition might mean a 5% decline in your budget.

Conclusion

Let the data guide you. Don’t build a forecast, and therefore a fiscal budget, based on anything other than unemotional data.

That’s the bottom line.