What does predictable growth mean?
Predictable growth is understanding how revenue will grow in advance – the ability to know how revenue will grow in advance of actually closing that revenue, with negligible variance.
It’s not just about forecasting – forecasting is just a snapshot. You need to do a lot of things right in terms of process to see repeatable and predictable growth.
It’s not just for new bookings – in recurring revenue businesses, you need to think about the full lifecycle of the customer, including churn, renewals, and account expansion.
Why is it important to invest in predictability?
The ability to predict revenue sets the pulse for the entire company – because the revenue prediction allows you to build the operating plan, and the operating plan dictates how much you can invest in growth and innovation. How well you deliver on the revenue you’re predicting affects the entire company.
Who’s responsible for revenue forecasting (and who’s involved)?
Early-stage the head of sales and the head of finance forecast together – early on you’re likely hitting targets more out of sheer willpower vs. repeatable process. You might also be using some creativity to ensure that you’re hitting targets.
Sales ops becomes the owner, once you have the function – sales ops are coming into companies earlier now to help with this and they’re the instrumentor of the forecasting process.
Whoever owns churn should be involved – depending upon the selling motion, you need to think about post-bookings revenue to factor in net dollar retention and the ability to grow your customer base. When you think about predictable growth and not predictable bookings, you have to think about churn and renewal rates. This is important because high NRR leads to a higher valuation.
Involve the relevant teams if you have usage-based revenue – in a consumption world, predicting revenue requires understanding product usage, so tech, product, and marketing leaders can get involved.
When you first think about better managing your pipeline, what should your goals be?
Focused capacity – are you focusing your sales and marketing efforts and dollars on the right areas? This is about how you focus your resources and your team on the right segments of the business and the market, where you’ll see the highest ROI.
Repeatability – are you building the repeatable motion that you’ll need to scale? This is key for predictability, and it will also help you accelerate ramp of new reps.
Trustworthy data – be sure to set up a process where you can trust the data because when there’s a lack of trust, so much of the go-to-market team’s time is spent just “reporting the news” as leadership tries to understand what’s actually happening.
How should you instrument the revenue process?
Look at the entire revenue process – how do we instrument the business in a way that we can give the visibility that we need. The execution piece feeds the predictability.
Instrumentation feeds time-series insights – with AI and machine learning, you’re starting to have a time series lens within that instrumentation. That allows you to understand how the business is acting right now vs. how the business acted at a previous point in time.
What stages or events in the sales cycle are most important to track?
- Forecasting categories – how are you moving the prospect through your selling process.
- Pipeline stages – how is the prospect moving it through their buying process?
Align pipeline stages with how the customer buys to avoid slipped deals – how do they get budget? Who are their personas that need to be involved to buy this? At what point are they going to make a VOC (vendor of choice) decision? When you build those stages around how you sell that’s when you slip deals. Your seller could be moving deals through your process “Oh, we did a demo. And we did discovery,” but that could have zero correlation with how the prospect actually buys.
Add pipeline criteria to forecasting categories – you could say, “how come this deal is committed when they haven’t even allocated budget yet” or “you haven’t met with the CFO who we know needs to be in the process to buy this?” That’s when you can use stage and forecast categories to strengthen each other.
How should you think about calculating and reporting your forecast?
Forecast categories depend upon the motion – i.e. they can be different for new bookings vs. renewals.
- Pipeline – “everything else” that’s in your sales process, but hasn’t yet reached a higher level of certainty
- Upside – for deals you’re not ready to say are in commit yet, but they’re tracking well/ better than others.
- Most likely/close to the pin – (optional) some companies add another step in between upside and commit, to give a more accurate idea of where a prospect is.
- Commit – “it better happen, signing up in blood.” Sometimes commit can end up being too conservative for that reason.
Apply judgment through sales management layers for better overall forecast accuracy – give managers the ability to use judgment with what the person below them said (in terms of the number of deals that will close, as well as the dollar amount). This makes commit not as conservative and your forecast ends up being more than just what you’re committing.
Think about revenue types – TCV (total contract value) vs. ACV (annual contract value) vs. ARR (annual recurring revenue) vs. IARR (incremental ARR), so that you can report it up for budgeting and to the board. You don’t only need to know how much recurring revenue was booked, you need to know how when you’ll get the cash, and what percentage of that revenue is new vs. upsold.
What other factors should you consider, and how should you take them into account?
The historical lens is important – overlay period-over-period performance as a way to always have a point of comparison. The period could be quarter-over-quarter, month-over-month, or year-over-year.
Linearity is important – when you have a hockey stick effect where all your deals get closed in the last few weeks of the quarter, or a snowplow effect, where all the deals get pushed and close in the first two weeks of the next quarter, and that’s not extremely healthy because it can be difficult to drive predictable growth, and in turn, make operating decisions earlier based off what you believe is going to happen. Set linearity targets and actually be able to deliver on those.
How far ahead should you try to forecast?
First, know your sales cycle length by product – it’s surprising how many companies can’t articulate how long it takes to sell their product. This is important because it lets you predict accurate close dates. If the entire GTM org doesn’t understand these metrics, you will see slipped deals, inaccurate forecasts, and likely set the wrong pipeline targets.
You need to have a good current quarter forecast (beyond that is hard) – even some of the most predictable companies have a difficult time forecasting consistently accurate predictions more than one quarter out.
If you have a longer sales cycle, look at the current quarter, plus 1-2 quarters out – assuming you have longer sales cycles where it’s not uncommon for the sales cycle to last more than one quarter.
What processes or touchpoints should you establish with your team?
On a daily basis, keep the data clean – leverage automation so reps have to do fewer things manually. If you have trust and accountability in the data, you can waste less time reporting the news” on frontline forecast calls, 1:1s, etc., and focus more time on strategic coaching.
Weekly 1:1s – front-line managers are the difference-makers in the revenue org. Mastering the structure of those one-on-ones is important, especially when it comes to setting the right cadence (typically weekly). When you start to have more than six reps to one manager, it gets difficult to have effective weekly one-on-ones.
Pipeline reviews – these are not just forecast calls. They should be focused on the strategy that you’re looking to deploy, not just about “how much pipeline do we have.”
- “Big deal” reviews– these would happen regularly, to ensure that you’re putting the whole weight of the company behind these key deals.
- Cross-functional pipeline reviews – where you bring marketing into the fold, and Demand Gen and you might start looking out further and saying, “what does the next quarter look like?’
Forecasting Calls (2-4x per month) – depends upon the sales cycle length, revenue type, and point in time in the quarter. Cadence-wise, forecast calls for long sales cycles (6-12+ mo) might only be needed 2x monthly, especially early in the quarter, while higher velocity motions will require weekly. Renewals may also be on a different cadence than new business. Companies that are focused on out-quarter pipelines may rotate weekly, with a focus on forecasting the current quarter in even weeks and out quarter pipeline build in odd weeks.
You need shared ownership and a shared language – along with shared numbers. It’s really important that everyone is focusing on the same numbers, metrics, and definitions of each for clarity in conversation
How can a sales leader help their team get better at making accurate projections?
Get pipeline rigor and accountability right – the forecast is just a reflection of how much of a command you have on how your team sells and what stages your deals are in.
Have a historical lens – even though this is less on the incentive side. You need to understand, how does my business look right now, compared to the same time last quarter, the same time last month, the same time last year, etc. It’s valuable because you can say, “based on how my business has performed in the past, how do I think it’s going to perform now”.
If you build in incentives, incentivize accuracy – e.g. if you said you were going to hit $2 million this quarter and you hit $2.5M, that’s great, but what does that mean? That’s $500K in revenue that could have been put to work doing things like accelerating the headcount plan or product investment, instead, that opportunity was left on the sidelines.
How can a sales leader pressure test their team’s projections?
Understand and track the risk factors – make sure that buyer journey stages (such as budget approval) support the forecast category. Also, check that activity or usage data (such as are they engaging with us? If so, are we engaged at the right levels? What was the last meeting we had with them? Are they responding to our emails? Are we sending files back and forth?) support the forecast.
How should you communicate about your forecast and pipeline with execs outside sales (e.g. CEO, finance, board)?
Make sure you roll up the number the way the business needs – the forecast is not a sales thing, it’s a company-wide thing. Make sure that you’ve built the forecast in a way that gets these other teams what they need to make decisions about tomorrow, today.
Have a point of view on what stakeholders need to see – e.g. finance. Make sure you’re showing them what they need to see to understand what decisions to make next.
Overshare with the board – they’re there to help you make decisions today about what’s going to happen tomorrow. The more you keep from them, and the more you shelter them from reality, the less that you’re letting smart minds work for you.
What are the most important pieces to get right?
Think about focused capacity – the best way to hit your revenue goals is to spend your effort where it will have the most impact. Take a more nuanced lens into the segments that matter most.
Look at the entire revenue process – it’s irresponsible to focus the majority of your attention solely on bookings. In a recurring revenue business, investors want to see renewal and net retention rates growing as well.
Make sure your data is trustworthy – good data means your team spends less time “reporting the news” and more time selling. Along with accountability and rigor, this underpins predictability.
What are the common pitfalls?
Lack of clear stage and category definitions – this is probably most prevalent. Because process rigor and data reliability underpin forecast accuracy, this is a foundational flaw.
Borrowing things blindly from a previous company – the buyer journey could be completely different at this company. A good question, when you’re hiring people to build go-to-market, is “what do you think is going to be different about the selling process here compared to what you’ve done in previous roles?”
Lack of trustworthy data – if you’re spending money on all these systems, and you can’t even trust what’s in there, then what’s the point?
Static reporting – these days, businesses move so fast, so be sure to have a way for your teams to look at the data in real-time as much as possible.