Planning & reporting
Driver-based forecasting
Driver-based forecasting builds a forecast from the few operational numbers that cause the results, such as leads, conversion rate or price, instead of typing in each line.
Each forecast line is calculated from its drivers (for example, leads × conversion rate × average order value), so changing one driver updates every line that depends on it.
Worked example
| Leads per month | 2,000 |
| Conversion rate | 5% |
| Average first order | $1,200 |
2,000 × 5% = 100 new customers × $1,200 = $120,000. At a 6% conversion rate it is 120 customers and $144,000.
Why it matters
A forecast built on drivers can be questioned and tested: if revenue looks too high, you can see which assumption is doing the work. It also makes scenarios quick, because you change a driver rather than rewriting dozens of lines.
Common mistakes
Where it misleads
Choosing drivers that are not really linked to the result, so the forecast looks rigorous but predicts nothing.
Using too many drivers, which makes the model fragile and hard for anyone else to follow.
Never checking the drivers against actuals, so a conversion rate set a year ago quietly stops being true.
Related terms
Keep reading
- Rolling forecastA rolling forecast is a forecast that always looks the same number of months ahead, extended by one period each time a period closes.
- Variance analysisVariance analysis explains the gap between actual results and what was expected, by measuring it and breaking it into the causes behind it.
- Budget vs actualBudget vs actual compares what happened in a period with what was planned, line by line, to show where the business is ahead of or behind its plan.
Stop calculating it by hand.
Dear CFO keeps your statements, forecasts and metrics current from the systems you already run.