[Part 3 of 4] How to create a revenue PLAN for your agency

An agency owner shared: “Once I know what my revenue goal should be, I need help making sure we have a plan in place to reach that goal.”

Indeed!

This article is third in a 4-part series. In Part 1, we discussed why to set revenue goals. Last week in Part 2, we reviewed five ways to set revenue targets for next year. Here in Part 3, we’ll discuss how to turn your goals into a revenue plan. Next week in Part 4, we’ll review how to improve your chance of HITTING your revenue goals next year.

Let’s define what a revenue plan is, explore how to iteratively create the plan, and review tips to get better results. [Last updated: September 2023]

What’s a Revenue Plan?

A revenue plan converts your annual revenue goal into quarterly and monthly targets, including how many “units” you’ll need to sell to reach those targets.

For instance, a $10 million revenue goal requires selling an average of $2.5 million a quarter—and an average of $833,333 a month. If you want to help a maximum of 20 active clients, that means the clients need to average ~$42K/month apiece.

Turning Your Revenue Goals into a Revenue Plan

Creating a revenue plan is an iterative process—I recommend drafting an initial version, and then revising it several times to make it more accurate.

The goal of creating an annual revenue plan is to convert your annual revenue target into monthly and quarterly chunks to help you set “units sold” sales targets and identify operational challenges in meeting those goals.

Round 0: Create the Spreadsheet

You’ll need to create an internal spreadsheet that converts your annual revenue goal into quarterly and monthly slices.

If you’re already a current 1:1 client or an Agency Profitability Toolkit owner, you get early, free access to my time-saving Revenue Planning spreadsheet. It creates the monthly and quarterly averages for you, so you can customize things further.

Round 1: Quarterly and Monthly Averages

Take your annual revenue target and divide it by four (for quarterly averages). Then take the same annual target and divide it by 12 (for monthly averages).

This gives you a ballpark for what you need to hit each quarter and each month. But your targets won’t be the same each month—time to adjust for seasonality!

Coaching clients and Agency Profitability Toolkit owners have access to this template already, at no additional charge.

Round 2: Adjust for Seasonality & Annual Growth

Your monthly targets tend to grow throughout the year to support your overall annual growth goals, which means the December target is typically higher than the prior January target (after agency-specific adjustments for seasonality).

Take the averages and adjust them for seasonality, too—the months you know are slow vs. strong. When in doubt, Q4 should be higher than Q1, to reflect that you’re growing during the year.

TIP: You’ll probably edit and re-edit the spreadsheet a few times. Start with the quarters before you jump to specific months. My clients- and subscriber-only spreadsheet makes this easier.

Round 3: Consider Legacy vs. New Pricing

It’s time to create a new, more-complex spreadsheet, looking at the impact of legacy vs. new pricing.

Even if you raise prices for new clients tomorrow, you’ll still have legacy clients at legacy pricing. (The exact mix varies by agency, and it also depends on your pricing strategy.)

Round 4: Translate Monthly Targets to “Units Sold”

In your new spreadsheet, translate the revenue into monthly “units sold” (based on your assumptions about typical project and retainer size, target client count, and mix of old vs. new pricing).

For instance, $100K in monthly recurring revenue (MRR) might be twenty $5K/month retainers, five $20K/month retainers, or one $100K/month retainer.

You don’t need an exact translation—the goal is to get an order of magnitude. For instance, let’s say you want to have a maximum of 20 clients (in line with my ideal client count for agencies).

Here’s one “units sold” client mix that will hit $5 million in revenue from my client count article (where I recommend using T-shirt sizes to reflect your size “tiers”):

• 1 XXL retainer client [if $60K/month]
• 3 XL retainer clients [avg: $40K/month apiece]
• 6 L retainer clients [avg: $25K/month apiece]
• 4 M retainer clients [avg: 12K/month apiece]
• 1 S retainer client (that you love) [if $3K/month]
• 1 XL website client (at once) [if $150K apiece, and if you can handle 3 throughout the year]
• 2 L website clients (at once) [if $30K apiece, and if you can handle 8 a year]
• 1 slot for small one-off clients you decide to continue serving [$50K total over the year]

That mix totals $5.2 million. Is that realistic for you? Well…

Round 5: Reality Check

Now it’s time to compare the revenue target, client count, project sales load, and your team’s capacity.

• Is “units sold” higher than your team can sell or fulfill? You need to lower your sales target, and/or find ways to boost average per-unit price (for projects and retainers, via new and current clients).
• Don’t feel you can charge that much? You may need to lower your revenue goal.
• Do things seem doable? Great—you’re likely in good shape to proceed as-is.

If the numbers seem like a stretch, you may need to lower your revenue goal or recognize that Plan B (flat year-over-year growth) is more likely than Plan A (hitting your growth target).

Are things way off? Be careful about your upcoming hiring decisions. It’s not fun to realize you can’t hire the people you wanted—but it’s better to realize it before you hire them, rather than lay them off a few months after they start.

Now, let’s look at how you might use the revenue plan next year.

Looking Ahead: Using the Revenue Plan

I share more about how to hit your revenue targets in Part 4. In the meantime, consider three points:

• The plan can help you relax as the year goes on. Let’s say it’s early July. If your Q1 and Q2 were slightly above-target, your pipeline looks strong for Q3, and your team’s continuing marketing to drive future leads for Q4 and beyond, you can confidently enjoy a worry-free summer vacation.
• The plan also helps you know when not to relax. For instance, if you’re 30% below target for three months in a row, you’re probably not going to hit your annual revenue target. From that, you can decide whether to change the target, change what you’re doing to reach the target, or a combination of both.
• The plan exposes potential strategy gaps. For instance, if your typical new client currently has a $7,000/month budget and your revenue target for next October is $400,000, you’d need an average of 58 active clients—and likely more than that, since older clients will be at legacy pricing—which is significantly more than the ideal client count. But now you can decide what to do.

Finally, let’s look at some tips to help you get better results!

10 Tips as Your Create Your Plan

Want to avoid common mistakes? Here are four tips to consider as you create your revenue plan.

1. Don’t assume your engagements will align perfectly; you won’t be at 100% utilization. You’ll want to pad the “units sold” figure to give you higher confidence that you’ll secure the revenue beyond those units.
2. Think about seasonality. For many agencies, January, August, and December are slow—but look at your own historic trends.
3. Allow non-billable (or less-billable) time for internal R&D, and use “<AgencyName> Labs” as a way to explore new services.
4. If you’re committing to a flat-growth year to give you a breather, avoid seeking a “maintenance” year more than one year at a time; it’s hard to rebuild momentum (unless your goal is to intentionally shrink). And be sure to make the most of the flat year—now’s your chance.

Keep these 6 tips in mind as you translate the revenue plan to a budget (including the expenses).

1. Remember to create three budget scenarios. As I shared in Part 2, those are: Plan A (hitting your growth target), Plan B (flat year-over-year growth), and Plan C (losing 1-2 big clients).
2. Make sure you’re paying yourself enough. Your accountant can advise about the best way to structure your compensation, but keep in mind that doing a draw artificially inflates your profit margins.
3. Load your resulting budget to your accounting software, so you can track progress against your budget.
4. Start upgrading your processes before you need the upgrades. Invest the time now, before it turns into an emergency.
5. Are you planning to run your agency as a lifestyle business? Be sure you’re paying yourself an above-market salary, since you need to be saving for retirement.
6. Are you seeking an exit? Focus on building recurring revenue, 20-30% net profit margins, and making yourself “needed but not necessary” so a future acquirer can hire to replace you.

Celebrate Creating Your Revenue Plan

Whew—I know that’s a lot of work!

Take some time to celebrate completing the revenue plan… and then convert it into your budget by (to start) adding your projected monthly expenses.

Remember, it’s going to make next year less stressful… and more profitable. Read on for Part 4, where we look at how to maximize your chances of hitting your new revenue targets.

Question: When will you create your revenue plan for next year?