If your revenue recognition forecasts are little more than an educated guess (or even a stab in the dark), then this article is for you. I'll explain precisely how to use product schedules to forecast revenue recognition accurately. Whatsmore, I'll show you how to...
If your revenue recognition forecasts are little more than an educated guess (or even a stab in the dark), then this article is for you.
I’ll explain precisely how to use product schedules to forecast revenue recognition accurately.
Whatsmore, I’ll show you how to automate this process in Salesforce.
The best bit?
You’ll get reliable forecasts that will stand up to scrutiny without a pile of extra work by finance or salespeople.
Let’s dive in.
Who Needs A Revenue Recognition Forecast?
Any business where opportunity revenue accrues over periods needs to forecast revenue over time.
In other words, either you don’t invoice the customer in one go for the entire opportunity amount when winning the deal. Or you do invoice the total amount but must claim the revenue over many months or even years.
Income accrues over time, for example, with:
- Manufacturing companies using framework agreements.
- SaaS businesses that have monthly recurring subscriptions.
- Professional services where the project takes many months.
Sometimes an opportunity has more than one type of revenue that spreads over time. Often, the revenue streams have different start and end dates.
I’ll explain precisely how to handle all these cases.
The Revenue Recognition Problem
Here’s what often happens.
The sales team updates their opportunities in Salesforce. The result is a bottom-up forecast of booked revenue for each month or quarter, based on deals expected to close successfully.
The VP of Finance takes this data and exports it into a spreadsheet.
Or, because he doesn’t trust the sales teams’ forecasts, he maintains his own sales projection data. Either way, the finance team manipulate the spreadsheet to create a top-down revenue recognition projection.
Unfortunately, often neither forecast turns out to be very reliable.
However, you can address both problems.
First, you can improve pipeline management and gain complete visibility of the sales pipeline to avoid poor quality sales forecasts. Here’s where to start with this:
This blog post gives excellent advice on using Salesforce dashboards to deliver complete sales pipeline and sales performance visibility. It even includes a free dashboard that you can download from the AppExchange and install into your Salesforce environment.
Second, you can use product revenue schedules to achieve an accurate revenue recognition forecast.
Here are two examples.
- Based in Bolingbrook, Illinois, Amsive provides data-centric marketing to many US leading financial institutions, medical care providers, retailers, and real estate companies. Projects often last many months. The company also has framework agreements in place with many clients that span multiple years. Consequently, Amsive uses product schedules to forecast revenue recognition accurately.
- Headquartered in Toronto, Canada, you know LG as one of the world’s leading consumer electronics equipment manufacturers. Forecasting future revenue recognition and product volumes is critical to this company. That’s why the business uses product schedules in Salesforce to deliver the clarity that a wide range of stakeholders demand.
Product Schedules Explained
A Product Schedule forecasts how the revenue from a product linked to an opportunity will spread over time.
Remember, each schedule links to a product on the opportunity rather than directly to the opportunity itself.
Let’s take an example.
The total sales value of this opportunity is $55,000. The Opportunity Stage is Proposal/Price Quote, so we’re looking at a pipeline deal. The Close Date shows that we expect the sales deal to complete in mid-May.
The Amount field value of $55,000 is the total value of three Products on the opportunity.
We can see that we are selling a combination of capital items (the generators), professional services (the engineer) and a software license.
Your products will be different, of course. Nevertheless, the essential point is that we need to recognize the product revenue over time.
However, the revenue recognition for each product does not necessarily start as soon as we win the opportunity.
In our example, the services work by the engineer begins in May and lasts for two months.
That means we are recognizing the revenue in May in June.
In contrast, let’s assume that we can start revenue recognition for the generators in June. And that we must spread the revenue over six months.
Likewise, we can schedule the software license. Let’s assume it also starts in June, but this time we must spread the income over twelve months.
Of course, how you invoice may be different from the product schedules. That’s because the schedules describe the revenue recognition profile rather than the physical invoice dates.
Here’s how the schedules look in a report:
The report breaks down the revenue by Product Family and month.
You can see the information from a different perspective in this chart.
How to create product schedules that track revenue recognition in Salesforce.
Two Product Schedules Options In Salesforce
There are two options for tracking revenue recognition in Salesforce.
First, use the Salesforce standard product schedule function. Second, use the GSP Product Revenue Schedule app.
This blog post explains more about both options:
We built the app because the standard schedule feature is challenging and cumbersome for salespeople to use.
I made this short video to demonstrate the essential differences in the two ways to create product schedules in Salesforce. If you prefer, skip the video and jump to the screenshots.
Here are some of the main differences between the two options.
Creating Product Schedules
Standard schedules. The salesperson adds the opportunity products. Then revisits each product in turn to create the schedules.
GSP app. The salesperson creates the schedules at the same time as adding the products to the opportunity.
Close Date Changes
Standard schedules. The salesperson visits each product to adjust the schedule when the close date on the opportunity changes.
GSP app. Schedules adjust automatically when the close date changes.
Fine-tune Product Schedules
Standard schedules. No method to adjust schedules for each opportunity.
GSP app. Flexibility to fine-tune product schedules based on each opportunity. S-curve and other revenue profiles are also available.
Track Actuals Versus Product Schedules
Standard schedules. No method to compare the forecast revenue with actual income after winning the opportunity.
GSP app. In-built tracking of actual versus forecast revenue.
High-impact Reports and Dashboards
Standard schedules. Reports are pretty challenging to set up and use.
GSP app. Pre-built dashboard and flexible reports for complete visibility of product schedules on won and pipeline opportunities.
The other essential difference between the standard schedules feature and the GSP app is that we can customize the app to meet different revenue recognition business needs.
For example, we have many customers that schedule product quantity rather than revenue. They also have custom fields on the product schedule to further improve reporting and visibility.
Here are three things you can do next.
- Take a free trial of the GSP app. There’s a free 14-day trial available for the app. You can do this in either your sandbox or production Salesforce environment. Log in to the AppExchange with your usual Salesforce credentials, hit the Get It Now button and follow the instructions (no credit card needed).
- Get in touch for a personal demo. Get in touch to walk through the app together. We can discuss your revenue recognition and product schedule needs and agree upon the best approach. Use the Contact Us page and enter your details.
- Read more about revenue schedules. We have several other in-depth articles about scheduling revenue over time. For example, try How To Schedule Revenue Over Time In Salesforce.
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