Sales forecast accuracy: the EFV Ratio
Online version: https://funneleconomics.ai/resources/glossary/efv-ratio
EFV Ratio divides actual Closed Won revenue by rEFV at the start of the period. It says how well the forecast was calibrated, nothing about target attainment. It therefore measures sales forecast accuracy in hindsight and is read as a series across several periods, with no ideal value.
How is EFV Ratio calculated?
EFV Ratio = Closed Won / rEFV at the start of the period
- Closed Won – the revenue actually won by the end of the period
- rEFV at the start of the period – the risk-adjusted revenue expectation, calculated at the beginning of the period
The denominator of EFV Ratio is a computed value: the rEFV of the pipeline at the start of the period.
EFV Ratio is calculated by the optional add-on Funnel Economics Strategist. Its denominator is rEFV at the start of the period, not the simplified rEFV shown in the dashboards.
EFV Ratio looks back at a finished period. The numerator is only known at the end of the period: only then is it clear how much revenue was actually won.
How do you recognise a forecast that was above the result?
An EFV Ratio of 1.0 means the predicted value was won in full. With an EFV Ratio below 1.0, less was won than the computed value. With an EFV Ratio above 1.0, more was won. EFV Ratio does not say why.
EFV Ratio has no ideal value and no “higher is better”. It is read as a series across several periods, not as a single value.
It follows arithmetically: if EFV Ratio sits below 1.0 in several finished periods, rEFV at the start of the period has repeatedly expected more than was won.
A single value describes one period. It is not yet a finding about the forecast. The article on Forecast Integrity, forecast vs actual in sales describes the check of rEFV against two yardsticks. The first is the plan for the same window, the second the result of the windows that have run. Both stand as a series across several periods.
How EFV Ratio differs from attainment against plan and from EFV Density
EFV Ratio is also called forecast accuracy ratio. It says how well the forecast was calibrated, nothing about attainment; it can stand beside a missed plan. Actuals against the plan have their own entry: quota attainment, revenue won against the plan. The plan is a target the organisation sets; rEFV is computed from the pipeline.
| EFV Ratio | Attainment against the plan of the same level (quota attainment) | EFV Density | |
|---|---|---|---|
| Compares | Closed Won with rEFV at the start of the period | Closed Won with the plan of the same level | rEFV at the end of the period with pipeline volume at the end of the period |
| Time reference | look back at a finished period | planning period | open pipeline |
| Statement | calibration of the forecast, nothing about attainment | attainment of a set target | quality of the open pipeline |
Related terms
- rEFV
- cEFV
- EFV Density
- Closed Won
FAQ
What is a good value for sales forecast accuracy?
EFV Ratio has no ideal value and no “higher is better”. An EFV Ratio of 1.0 means the rEFV forecast at the start of the period was won in full. Below 1.0, less was won than the computed rEFV; above 1.0, more was won. It is read as a series across several periods.
What is the formula for EFV Ratio?
EFV Ratio is the revenue won by the end of the period (Closed Won) divided by rEFV at the start of the period. rEFV is the risk-adjusted revenue expectation for the open pipeline, calculated at the beginning of the period.
Does EFV Ratio also measure the forecast for the current quarter?
No. The numerator of EFV Ratio is only known at the end of the period: EFV Ratio compares the revenue won by the end of the period with rEFV at the start of the period. The quality of the open pipeline is described by EFV Density.