Revenue forecasting is the process of estimating how much money the organization expects to bring in from sales plus revenue from “previous” contracts. Previous contracts are already signed, so that portion of revenue is more assured. However, revenue from new sales is often less predictable and can change based on market and sales execution.

A good revenue forecast considers both the pipeline and the likelihood of deals closing. It also accounts for timing, deal size, and the probability that the forecasted revenue will actually come in within the period being planned.

Some of the factors to be taken into account include sales rep history, product maturity, product–market fit, competition, previous customer buying patterns, sales rep selling patterns, discounting behavior by reps, and average selling price (ASP). In addition, factors such as sales cycle length, renewal timing, churn risk, contract terms, and seasonal buying behavior can also influence forecast accuracy.

Revenue forecasting is not only about predicting totals. It is also about understanding where the revenue will come from, which segments will contribute most, and which deals carry the highest risk of slipping or falling out.

When forecasts are too low or too high, it is a ding against the CEO for not knowing the business. The organization depends on the revenue forecast to plan expenditures and investments.

If actual revenue comes in too low compared to the forecast, the organization can go into crisis mode. It may need layoffs, may freeze growth, hiring, or future plans, and may even have to borrow to fund current plans and payroll. This also creates pressure on leadership, impacts morale, and forces the business to react quickly instead of executing planned strategy.

If actual revenue comes in too high compared to the forecast, the organization is in a better position but can still scramble to find places to “use” the money. Hiring and investment plans may accelerate, but execution can become rushed, creating inefficiencies and making it harder to allocate resources carefully.

In the back of the business leader’s mind, repeated mismatches erode confidence in the revenue forecast. That lack of confidence then affects decision-making, slows investment, and can hold the organization back even when the market opportunity exists.