Gut feelings make poor predictions; resource forecasting models make great ones.
Besides eating obscenely large trays of lasagna, creating resource forecasting models is one of the pleasures I get from life.
What’s a resource forecasting model?
In short, a resource forecasting model tells you how many resources you need to deliver your product, based on certain assumptions.
It asks managers to work out averages using those assumptions i.e. average revenue generated per client, average days to onboard a client.
Based on these numbers, as well as your company’s revenue targets, a resource forecasting model will calculate the amount of resources you need in each team, each month – which then feeds into your hiring and expansion plans.
Over time, you can review the assumptions in your model to assess whether you’re scaling or not.
How it can help you scale
Your staff fall into one of three categories:
- Engines – those who bring revenue or capabilities.
- Operators – those who deliver and maintain revenue.
- Supporters – everyone else needed to keep the company running well.
In theory, operators are the resources you need to scale if revenue grows. You should review your assumptions, assessing the cost of your operators as a percentage of your revenue. If you’re maintaining or decreasing this percentage, you’re scaling.
The model tells you pretty quickly if your business is doing well or if it’s in trouble.
Finally, the numbers are uncomplicated. They don’t lie, they don’t have emotions. They tell you what you need to know in a straightforward way.
Four steps to forecasting
1. Create a forecasting model
I’ve kindly designed a simple resource forecasting model template for you, so this bit’s already done.
2. Enter your assumptions
Simply update the values in the assumptions tab of the template – if what’s in there works for you. Make your assumptions easy to understand (using formulas, not values, so it’s clear how you reached them).
3. Input your revenue targets in the yellow cells
Once your revenue targets are in, the template will automatically calculate the resources required.
4. Review it every quarter
Schedule seasonal check-ins, as your assumptions and revenue may increase or decrease.
Bear in mind that this is not an exact science, and if your business is complicated you may need to add more assumptions or formulas into the model. I’m just here to get you started so don’t shout at me if the template doesn’t work for you.