Flashback to April 1996 – ‘A Marketing Model’ for Revenue Forecasting

Is your company connecting all available market information with revenue projections? The CEO, investors, and employees of a high-tech firm have a vital interest in this question.

To get a venture capital perspective we talked with Rick Charlebois, President of Capital Alliance Ventures Inc. In his view, there are typical strategic concerns: ‘For an emerging market, management must help investors get a grip on size of the market segment. Small companies or new products may have no past history of market acceptance.’ At the client level, some key assumptions carry a lot of risk: ‘How long is the sales cycle? What will be the average purchase value?’

Get Connected to Market Dynamics

Model the market dynamics of your segment. Use this checklist to build the model; tailor it to show changes over the next 4 quarters:

1. Client profiles – Realistic revenue forecasts depend on your profile of client purchasing behavior. Include technical and project dependencies as well as the who, when, and how of the procurement process. Build separate profiles for early adopters and the mainstream buyers who follow. Real prospects will help you validate the model.

2. The ‘Whole solution’ – Your product may need companion products, specific vendor support or integration to produce a finished application. Only whole solutions deliver the payback. Big buyers want to see it working at other blue-chip clients.

3. Marketing partners – Are you considering system integrators, VARs, distributors? Do their contributions fit the needs of the target market? What client base and companion products do they offer? What is their strategic direction? Any recent ownership change or other corporate event?

4. Real benefits (‘value proposition’) – Ask clients why they are buying. Early buyers often aim for ‘Big time’ strategic advantage. Later buyers are more conservative, typically looking for incremental benefits from a stable solution. They want financial payback, not just nifty products.

5. Building references – Early client projects are aimed primarily at creating good references. Keep custom features separate from the ‘standard product.’ Also, finish the installation. Later buyers don’t want to know that you have orders; they want to know that the solution works!

6. Credibility – Conservative buyers will look at who your partners are, and your investors. They need signs of a market leader, even in a new product category.

7. Marketing budgets – Timing of marketing expenditures is vital – usually no mass media is required for early adopters. Get validation that the market is there, then spend well to attract mainstream buyers.

8. Pricing model – Going into new markets, make sure partners are well paid to motivate selling. Pricing is not designed to give you good margins – that comes later.

9. Competition – Study the client options. As Rick says, ‘Who else is in that market? Who else is likely to come in? How is market share evolving? If one player already has 50%, it probably is too late.’ If it is too late for one point of attack, consider other paths, picking competition you can beat.

10. The ‘Buy Cycle’ timing – Identify delays for each of the 6 steps – from ‘awareness’ through to ‘buy.’ Consider delays or acceleration which partners may introduce.

Each part of the model gives insight into market size and timing. Rate your strength in each element. Then re-do your sales forecast. Have fun! Suggested reading is Crossing the Chasm, by Geoffrey Moore. If you have a financial stake in a technology business, get to your local bookstore!

This article by Peter Fillmore, was originally published in MARKETECH in April 1996.