How to Factor Your Sales Backlog into Your Revenue Forecast
As a result, it’s not only critical to measure sales backlog but determine its source. If processes rather than purchases are responsible for the increasing value, this indicates a need to improve capacity planning and ensure fulfillment targets are met. When you’re forming that vision, when you start getting those requirements together, it’s important to group them in terms of how much is going to cost to deliver an item. So relative to one another, is it expensive, or is it less expensive? And then, of course, the perceived value that you think your customers are going to get out of that particular requirement or feature. In layman’s terms, the amount of revenue that is yet to arrive from the subscription of your product contract that is yet to be completed is termed as revenue backlog.
Use points to estimate the product backlog
They can now see the relative size of features they’re asking for non-gaap earnings definition — and that might prompt them to change their priorities. Items that got assigned a high number might be pushed back to the side while the team focuses on less demanding tasks. If priorities change, it’s enough to move items down or up in the order of the backlog. Companies typically organize a sales backlog by customer order details and the target date for order fulfillment.
You can use its insights to guide decision-making regarding whether to stay the course on a reasons companies have subsidiaries particular strategy or to pivot and move towards something else. Once you do this, calculate the cumulative value and percentage. After executing the analysis act on your findings, reprioritize the backlog, and implement a strategy for your product.
Planning Poker
It’s important to remember the Pareto rule as well when you’re delivering and developing your product backlog. Most of your users are actually going to get 80% of the value of your product from 20% of those features. So again, that’s why a prioritized list of requirements or user stories is really important when you’re forming that product backlog.
- So relative to one another, is it expensive, or is it less expensive?
- We calculated the downtime and available resources and found it would take more than a year before some of the work would be completed at the monthly shutdown.
- For example, provide the data with a date and timestamp and note that the values were estimated using a planning poker from zero to one hundred and are copied from the product backlog.
By having an in-depth understanding of your revenue backlog, you are sending the right messages about your financial management of the business. Portraying revenue backlog in the most precise manner helps make strong valuations of your B2B SaaS business over time. Several B2B SaaS companies take revenue backlog calculations quite lightly. The difference between your revenue target and your revenue backlog showcases the revenue that needs to be crossed in the new sale. Since backlog in revenue is locked-in, it is a good indicator of your business performance. If you’re considering to use this technique, note that at some point you’ll have to convert these sizes into numbers if you plan to plot burndown charts.
Strategic Planning Models and Tools for the Customer-Focused Business
On the other hand, if your backlog abruptly shrinks, it could be an indication of reduced demand or highlight issues with your overall process. While it’s ideal to fill customer orders as quickly as possible, a healthy backlog shows that your product or service is in-demand, It also suggests that your company is seeing steady growth. Many times, product managers forget or run out of time to implement feedback loops into the Pareto process. Revisit and recalculate your Pareto charts with updated data on a routine basis. As alluded to above, the whole process depends heavily on the quality of your data.
It is the unrecognized revenue that is generated from the subscription business. Especially for SaaS businesses, revenue backlog can come primarily from recurring revenue. But, there are times when it can even include revenue from other sources like investment or one-time investment sales. Ask the Product Owner to have a look at the backlog and its priorities.
Some operations may choose to measure their sales backlog based on company performance. Using daily measurements, companies can assess the health of orders within a sales backlog by comparing them to the previous week’s data. This technique is foundational towards understanding the performance of a company by measuring backlog performance efficiency relative to sales performance.
When learning how to factor in your sales backlog when conducting revenue forecasting, it’s best to first determine a measurement type. Many companies use sales values to measure their backlog ratios. As an example, if an eCommerce business had a backlog of $50,000 worth of orders, that amount can be viewed as a positive figure that ensures $50,000 in future revenue. If capacity remains the same while the ratio continues to increase, it’s a signal that backlogged orders are increasing. If the ratio decreases over the coming weeks, it’s a sign that order numbers are decreasing and it’s becoming easier to keep up with demand.
Prabhath Nanisetty, Global Head of Industry, Retail Data & Technology at Snowflake, shares his career trajectory from CPG to tech leadership. When it comes to managing a product, you need to find the right balance between innovation and optimization. A Pareto chart allows for fast and quick updates, as well as avoid overdraft fees due to insufficient funds the comparison of historical data.