January 3, 2025
Revenue Forecasting for Consultants
It's normal for professional services businesses to bounce between busy seasons and slow seasons. So how do you predict future revenue?
It's normal for professional services businesses to bounce between busy seasons and slow seasons. So how do you predict future revenue?
“We have a bunch of half-baked spreadsheets trying to predict our revenue for the next few quarters. Every time we lose a client or a project gets delayed, our predictions become outdated. The changes snowball, and our projections get even further from reality. Now the scenarios we built are so delusional they’re completely worthless.”
That’s what you might hear when you talk to leadership at a professional services business. In fact, it’s exactly what we heard from someone who doesn’t want to be quoted in this article. Our source might not be proud of that aspect of their business administration skills, but they’re far from alone in their revenue forecasting challenges.
Uncertainty around future cash flow is one of the biggest risks for boutique agencies, consultancies, and other professional services firms. At best, it prevents them from scaling at the right speed. At worst, it can cause a business to run out of cash.
Julia Yurchak, Senior Recruitment Consultant at Keller Executive Search, perfectly sums up the problem facing all kinds of agencies:
“In my practice, the biggest driver of revenue fluctuations is simply the project-based nature of consulting work. Even with a healthy client base, projects don't always align perfectly back-to-back. We might have three major projects running simultaneously (the feast!) followed by a quieter period of business development (the relative famine).”
Deepak Shukla, CEO at Pearl Lemon Accountants, adds that even revenue forecasting tools and practices fall short for project-based work:
“To project revenue, we rely on historical data, client trends, and market analysis. This allows us to forecast income, but even the best tools can fall short when unexpected factors arise, such as last-minute project delays or clients pulling back their budgets. These discrepancies in projections often occur because the business environment, especially in consulting, can be unpredictable and subject to external factors like economic shifts or industry trends.”
Most professional services leaders can see roughly one quarter into the future. After that, they say, all bets are off. “We can predict revenue for up to three months ahead, as this aligns with our typical project cycles and retainer agreements. Beyond that, the variability of incoming projects makes long-term forecasting more challenging,” says Federico Spiezia, CEO and Founder or Sparkr.
Julia Yurchak from Keller Executive Search adds more context to why projections are unlikely to be accurate outside of the immediate three-month window:
“When my projections are off, it's usually due to one of three factors: 1.) Project delays (clients aren't always ready when they think they'll be ready). 2.) Scope changes that shift payment timelines. 3.) Sales cycles taking longer than anticipated”
Businesses fail because they run out of money. Inability to predict future revenue increases that risk.
It isn’t always so dire, though. Yurchak notes that, more frequently, inaccurate revenue forecasting leads to difficulty managing bandwidth. “The consequences of missed projections can be significant, particularly for resource planning. If I'm too optimistic, I might decline other opportunities only to find myself with unexpected capacity. Too conservative, and I might not have the right resources available when needed,” she says.
Revenue forecasting and bandwidth management are intertwined for most agencies. If you don’t have enough people on your bench, you might miss the opportunity to take on a new project. If you have too many people on your bench, you’re forced to make a hard decision between carrying extra costs or making layoffs.
TimeFront collects all of your employees, clients, engagements, and invoices in one place. As soon as you land a new client (or a new engagement for an existing client), TimeFront automatically generates every invoice for the length of the engagement. It even accounts for hourly billing estimates, then updates the invoices with actual hours logged when the time comes.
As a result, you can look at financial forecasts where every dollar is tied to a past, present, or future invoice for a real engagement. That means there’s no more delusional scenario creation. Looking at your business development pipeline will always be important, but TimeFront allows you to get a no-speculation look at actual accounts receivable based on your current client load.
You can look at revenue by clients to see which accounts are hot and where you might be missing opportunities. Better yet, look at revenue by month to see a clear financial picture multiple quarters into the future. Start TimeFront for free to automatically generate all future invoices and see financial reporting grounded in real engagements.
Spend more time on what matters.
