Thoughts on projections and forecasts
Projections are semi-informed guesses at best based on incomplete knowledge and uncontrollable external forces. Their sole purpose is to provide the market with context of how we expect to perform, but more than that it is to put ourselves in the best possible position to exceed market expectations and thus drive up stock price and shareholder value. It is literally a bet hedging exercise.
Moreover, actual performance vs. projections is useless for two reasons:
if our projections' guess was too low and we outpace them, we pat ourselves on the back and never ask if we should have drove more revenue, GP, etc.
if our projections' guess was too high and we under-pace against them, we frantically change tactics hoping to squeeze water out of a rock.
The problem is that projections are treated as reality and the ultimate source of truth, even though it is neither of these. And on the chance that our guess happens to be right, it does not mean that we accurately predicted the future. It means that we tailored our outputs to meet our guess and never stopped to ask "is this outcome the best we could have done given the daily facts on the ground?" On top of this, projections are short-sighted and based on short term quarterly results rather than long term business goals. We may project 12 months into the future, but never look at anything other than the current month's and quarter's performance.
Furthermore, projections are not strategy. Yet, we treat them as the strategic guiding principle. Projections and budgets do not replace strategy. Nor should we constrict our strategy, planning, and execution around these financial guesses. For one thing, these projections are never changed on a daily basis when new information is supplied. Projections become outdated very quickly because they are snapshots in time, created with incomplete knowledge and before we make our first move.
Projections should be indicative, not absolute. Ultimately, the goal for making projections isn't to create self-fulfilling feedback loops. They should be directional, informative, and agile. These targets are one of the many levers we can use to:
determine how we are executing against our strategic intent
test the limits and assessing possible trade-offs between various objectives
make strategic thinking more precise, set milestones, and help us navigate
Instead of making resolute revenue or GP or CM projections, we should guess what we think the revenue will be but then drive as much revenue as a 10% CPR lets us.
if we are under 10% CPR on any given day or rolling X day average, then we aren't hitting our true revenue targets: we're underperforming, resulting in less than expected revenue
if we are over 10% CPR on any given day or rolling X day average, then we aren't hitting our true revenue targets: we're underperforming, resulting in less than expected GP
If either scenario occurs, we challenge our tactical assumptions and iterate on our marketing deployments. We don't pat ourselves on the back if we outpaced a daily guess.