How predictable is my revenue?
Revenue is predictable to the extent it has stayed steady; what was agreed in advance is its most certain part. Split that part, such as contracts, from the rest, whose range shows how far a month can swing. In the example, $8,000 is agreed and the rest ranged from $6,000 to $18,000, so the weakest month brought $14,000.
Principle and explanation
Revenue is predictable to the extent it has varied little over past months. Agreements are one source of that: revenue agreed before the month starts, such as contracts or standing orders. Steady repeat customers are another, with nothing agreed. An agreed part can still shrink when customers cancel or downgrade; that loss is revenue churn, worth tracking beside it.
Worked example
Illustrative scenario. These are fictional inputs, not customer results.
A cleaning firm has maintenance agreements worth $8,000 a month. Its total monthly revenue over six months was:
| Month | Total | Agreed | Rest |
|---|---|---|---|
| 1 | $20,000 | $8,000 | $12,000 |
| 2 | $14,000 | $8,000 | $6,000 |
| 3 | $26,000 | $8,000 | $18,000 |
| 4 | $18,000 | $8,000 | $10,000 |
| 5 | $22,000 | $8,000 | $14,000 |
| 6 | $20,000 | $8,000 | $12,000 |
Months have ranged from $14,000 to $26,000 around a $20,000 average.
What this does not show
- Six past months do not forecast the next one; a wider range can still come.
- An agreement counts only while it lasts and is paid; it is not cash in the bank.
- It sets no target share of agreed revenue.
First step
Split the last six months' revenue into contracts or standing orders and other sales, noting each one's lowest and highest month. To see whether your weakest month covers your fixed costs, work out your break-even point.
Sources
- Stripe: Revenue churn (opens in a new tab)Revenue churn is the revenue lost over a set period from customers canceling service or downgrading their plan.