Forecast the mechanism, not a smooth line
A forecast translates assumptions about operations into financial consequences. Begin with drivers such as customers, units, price, capacity, staffing and collection terms. A constant revenue growth percentage can be a useful scenario input, but it is not an explanation of why growth will occur.
Build sales from activity
A service company has 40 technicians, each with 1,600 available hours per year. At 75% billable utilization and $100 realized revenue per billable hour, annual revenue is 40 × 1,600 × 75% × 100 = $4.8m. A forecast to $6m needs a plausible change in staff, utilization, hours or price. Utilization cannot rise above physical limits indefinitely.
Costs have drivers too. Direct labor can depend on staffing rather than billed hours; materials may vary with volume; rent may be fixed until capacity expands. Label assumptions that are estimates, contractual terms or observed historical relationships.
Build a base case and coherent alternatives. A downside may combine weaker volumes, poorer mix, delayed collections and limited ability to cut fixed costs. Changing one number in isolation is a sensitivity; changing related assumptions into a consistent narrative is a scenario.
Separate management guidance from your forecast and from a planning target. A target expresses a desired outcome. A forecast expresses what follows from a stated set of beliefs. Treating the target as an unbiased estimate can hide the resources and risks needed to reach it.