Imagine two businesses.

Both are preparing their plans for next year.

Both have agreed exactly the same revenue target: £1 million.

Business A enters January with £700k of that revenue already contracted or reasonably secure.

Business B enters January with £100k.

Same target.

Same £1m.

However, they are facing two radically different years.

Business A needs to create another £300k.

Business B needs to create another £900k.

One has already completed 70% of the journey before the year even begins.

The other has barely left the starting line.

Let me ask you a question. When analysing revenue, do you spend too much time focusing on the number you’re trying to reach and not enough on the revenue you actually have to create to get there?

Your revenue target tells you where you want to finish.

Your revenue starting point tells you how hard you’re going to have to work to get there.

What’s your Revenue Gap?

The calculation itself is fairly simple.

Take the revenue you’re targeting next year.

Deduct the revenue you already have secured.

What’s left is your Revenue Gap.

So:

£1m target less £700k secured = £300k Revenue Gap

Compare that with:

£1m target less £100k secured = £900k Revenue Gap

The first business needs to create 30% of its target within the year.

The second needs to create 90%.

That doesn’t automatically make the first business better.

And it certainly doesn’t mean the second business can’t hit its target.

However, the two businesses require completely different things to happen over the next twelve months.

And that’s where the number becomes interesting.

The operational reality of that £1m forecast doesn’t really sit inside the £1m.

It sits inside the gap.

How secure is secure?

Of course, there’s an obvious problem with this calculation.

Revenue is rarely as simple as: Have it / Don’t have it.

It’s much more nuanced than that.

Some revenue is genuinely contracted.

Some projects aren’t contracted, but you’d be extremely surprised if it didn’t happen.

Some remain in an identifiable pipeline.

And some are yet to be identified.

So I think there’s a more useful way of looking at next year’s revenue.

Secured

Revenue already contractually committed.

Retainers.

Subscriptions.

Managed services.

Long-term agreements.

Work that, with no apparent commercial risk of termination or cancellation, can reasonably be counted in.

Repeatable

Not necessarily guaranteed, but supported by strong historical evidence.

A client that commissions a particular project every year.

Regular repeat work.

Long-standing relationships that consistently generate revenue.

It’s not contracted, but there’s evidence for believing it will happen.

Identified

Specific opportunities that you know exist but still need to be converted.

• Proposals
• Live opportunities
• Qualified pipeline

There is something tangible behind the number.

And then there’s the final category.

Uncreated

The revenue required to hit the target for which there is currently no identifiable opportunity.

This is the number I find the most interesting.

It’s surprisingly easy to build a forecast that says:

Existing clients: £600k.

New business: £400k.

Total: £1m.

Mathematically beautifully balanced.

However, where exactly is that £400k coming from?

We’ll sell it

Let’s imagine we look underneath that £400k.

Perhaps £150k relates to specific opportunities already in the pipeline.

Another £50k might reasonably be expected from referrals or repeat work based on previous years.

That still leaves £200k.

No client.

No opportunity.

No proposal.

No identifiable source.

Just: New business = £200k.

In reality, this revenue exists only as a cell in a spreadsheet right now. 

That doesn’t necessarily mean the £1m target is unrealistic.

However, many things now need to happen before the end of the year to earn that £200k.

• Someone needs to generate the opportunity
• Someone needs to qualify it
• Someone needs to sell it
• Someone needs to price and contract it
• Someone needs to close it
• And then somebody needs the capacity to deliver it

All before the end of the year.

That’s why I think there’s an important distinction between a target and a forecast.

“We’ll sell it” is perfectly acceptable as an ambition. A business needs the underlying belief to begin with.

However, it’s much less convincing as a forecasting assumption.

A useful forecast shouldn’t simply reassure you that the numbers eventually add up.

It should show you what needs to become true for them to add up.

Not all recurring revenue is good revenue

At this point, it’s very easy to reach the obvious conclusion.

More recurring revenue = better business.

I don’t think it’s that simple.

Imagine Business A has £700k already contracted.

Sounds fantastic.

However, imagine now that the £700k is badly priced?

What if delivering it consumes almost all of the team’s available capacity?

What if the margins are poor?

What if the contracts are difficult to exit?

What if servicing those clients requires constant founder involvement?

Compare that with a business delivering a small number of highly profitable projects, with strong demand, excellent margins and a reliable route to market.

The project revenue is less durable, but economically much better.

So I think we need to consider two different things.

Revenue durability

How likely is the revenue to continue without needing to be won again?

And:

Revenue quality

What does that revenue actually contribute after considering the cost, capacity and complexity required to deliver it?

Recurring revenue with poor economics isn’t necessarily an asset.

Sometimes it’s simply a problem you’ve contracted to repeat every month.

Who has to close the gap?

There’s another question I think is perhaps the most important of all.

Let’s go back to the business with the £1m target.

Perhaps £400k is sufficiently secure or repeatable.

That leaves £600k that still needs to be created or converted.

Who is responsible for closing that gap?

Imagine 80% of significant new business still depends on the founder.

That £600k Revenue Gap isn’t just a sales target anymore.

It’s effectively a job description.

The founder needs to network.

Generate opportunities.

Attend the meetings.

Write or shape the proposals.

Build the relationships.

Negotiate.

Close.

Perhaps they wanted to spend more time working strategically next year.

Perhaps they wanted to reduce their working week.

Perhaps they wanted to step away from sales.

Perhaps they wanted to travel more.

The revenue model may already have made some of those decisions for them.

Because, if £600k has to be created, and the founder remains the primary person capable of creating it: The founder has to sell. And the selling will take priority over almost everything else.

That’s one of the reasons I think revenue durability matters far beyond forecasting.

It affects the choices available to the person who owns the business.

If your revenue has to be recreated by you every year, your revenue model is making decisions about your life before you do.

That doesn’t mean projects are bad

I think this distinction matters.

I’m not arguing that every business should chase 100% recurring revenue.

Some businesses simply don’t work that way.

Some founders genuinely enjoy selling.

Some of the most profitable work can be project-based.

And a business with a strong reputation, a predictable flow of opportunities and excellent conversion rates can successfully recreate a significant proportion of its revenue every year.

There’s nothing inherently wrong with that model.

The question is whether you understand the bargain you’re making.

How much revenue are you choosing to recreate?

How reliably can you do it?

How much does it cost to acquire?

What capacity will it consume?

And who does the business depend upon to make it happen?

That’s very different from simply saying: Recurring is good. Projects are bad.

Different revenue can do different jobs

This is something I’ve been thinking about within Nuvem9 too.

My longer-term objective isn’t to eliminate premium CFO consultancy.

Quite the opposite.

It’s the work I particularly enjoy and where I think I can add significant value.

However, if I’m serious about working fewer hours, travelling more and making Nuvem9 less dependent upon me personally, I don’t necessarily want every pound of future revenue to require me to both originate and deliver it.

So I’m increasingly thinking about revenue streams according to the job they perform inside the business model.

Premium founder-led advisory can provide high-value, high-margin work where my involvement genuinely matters.

Recurring team-delivered services can provide greater visibility and predictability.

Repeatable and self-serve products can allow the intellectual property we’re building to create value without every sale requiring another hour of my time.

None of those revenue streams is inherently superior to the others.

They’re designed to do different things.

And perhaps the real objective isn’t simply to maximise recurring revenue.

It’s to deliberately build the revenue mix that supports the business, and life, you’re actually trying to create.

How much of next year already exists?

So here’s a practical exercise.

Take your revenue target for the next twelve months.

Then divide it into four buckets.

Secured

What’s already committed?

Repeatable

What isn’t guaranteed, but you have strong evidence that it will return?

Identified

What specific opportunities exist but still need converting?

Uncreated

What’s left?

Then start asking questions about that final number.

How large is the gap?

What percentage of your total target does it represent?

Where are those opportunities supposed to come from?

What level of pipeline will you need to generate it?

What conversion rate are you assuming?

How long does your typical sales cycle take?

Who is responsible for closing it?

And what happens if those sales arrive three months later than you expect?

Suddenly the revenue target starts telling you something useful.

It stops being simply a number at the top of a spreadsheet.

It starts describing the work that needs to happen underneath it.

How far back are you going?

Last week I wrote about the 90-minute walk AnneMarie and I regularly do.

The cliffs.

The beaches.

The climbs.

And the rather unpleasant imaginary scenario where, exhausted at the finish, someone immediately tells us to turn around and start again.

I suggested that a good question to ask about your business was:

What do we own today that we didn’t own twelve months ago?

Perhaps revenue durability is one way of measuring the answer.

When January arrives, most businesses have to start walking again.

The interesting question is: How far back towards the starting line will you actually have to go?

If your £1m business begins January with £700k already reasonably visible, you’re starting from somewhere very different to the £1m business beginning with £100k.

Neither is guaranteed to have a better year, but they are certainly facing different ones.

The number behind the number

There’s nothing wrong with setting a £1m revenue target.

Or £2m.

Or £10m.

We need targets.

However, increasingly, that’s not the number I’d want to look at first.

I’d want to know:

• How much already exists?

• How much still needs winning?

• And who has to win it?

Those three answers tell me an enormous amount about the business heading into the year.

It’s risk.

Its sales requirement.

Its capacity requirement.

Its dependence on the founder.

And ultimately, some of the choices available to that founder.

Because the less of your future you have to recreate from scratch, the more room you have to decide what to do with it.

Next week: What do you actually want your job to become?