Forecasting Without Crystal Balls: Your Mood Is Not a Metric
We treat forecasting like a creative writing exercise. But the best predictor of the future is the recent past. We show how to use the 'LTM Run Rate' to anchor your plans.
The Hockey Stick Hallucination
Open your “2025 Growth Plan.” Scroll to the right, past the actuals, into the future months.
Do you see the shape? The historical line is flat, maybe bouncing up and down a little. And then, suddenly, in “Next Month,” the line takes off like a rocket. It goes up and to the right at a perfect 45-degree angle.
I call this the “Optimism Gap.” It is the distance between what you have done and what you hope to do.
The Lie: We tell ourselves, “Well, we hired a new sales rep,” or “The market is picking up.” We use qualitative feelings to justify quantitative spikes. We project our desire onto the gridlines.
The Truth: Inertia is the strongest force in business. A body in motion tends to stay in motion. If you grew 2% last month, the most likely outcome for next month is that you will grow 2% again. Not 10%. Not 20%.
The Anchor of Reality
We need to stop guessing. We need to extend the line.
Come, look at this cell: C5. It contains the LTM Average (Last Twelve Months).
=AVERAGE(B2:B13)
This number is boring. It is unexciting. It does not promise a yacht. But it is honest.
We are going to build a “Baseline Forecast.” In this version of the sheet, we are not allowed to type in growth rates. We are only allowed to drag the formula across.
[TO EDITOR: Illustration. A line chart showing “Actuals” in solid black. Then, two dotted lines diverging into the future. The top red dotted line goes straight up (labeled “The Founder’s Mood”). The bottom green dotted line continues the gentle trend (labeled “The Data’s Opinion”).]
Staffing for the Floor, Not the Ceiling
Why do we do this? Are we being pessimists?
No. We are being survivalists.
If you hire staff based on the “Rocket Ship” forecast, and the rocket does not launch, you have to fire people. That is painful. That destroys culture. If you hire staff based on the “LTM Baseline,” and you end up growing faster, you just have to work a little harder for a few weeks until you hire more help. That is a good problem.
The LTM is not a limit on your ambition. It is a safety net for your solvency. Let the trend speak first. Then, if you beat the trend, you can celebrate with real money, not imaginary spreadsheet dollars.
FAQs
But we are planning to launch a new feature!
Great. But until that feature sells, it is a hypothesis. Do not bank the cash from a hypothesis.
What is LTM?
Last Twelve Months. It is the rolling sum or average of your recent history. It smooths out the seasonality.
Is this too conservative?
It is conservative, yes. But it is better to be surprised by extra cash than surprised by an empty bank account.