Let's run it back with forecasting

Part 1 of 3

Let's get tactical with forecasting. I'm going to send out an anonymous Typeform survey. If you would be so kind to fill it out I'll share the results out.

I figured it's time to go deep on sales forecasting. On-and-off over the next few weeks I'll deep dive into 17 critical forecasting questions. The first three everyone will get to read and #4-6 will be for paid members. I'll tackle the remainder in future articles.

Here are the 17 questions:

But first a word from our sponsors

Process matters. Knowing which deals are real and which ones aren’t matters. Seeing in real time where reps are placing their bets matters. Getting to root causes fast matters. 2024 is the year RevOps and Sales Ops get control by aligning everyone to forecast and pipeline management best practices.Take a Tour of Boostup.

What’s the best attainment factor for your sales org? Too many companies stick with the same % across all segments without understanding the details, risks and costs. Use Revcast’s free template to see how to calculate planned quota attainment, over-assignment, and number of sales reps. Get it here.

Growblocks is building the 1st RevOps platform, giving you full funnel analytics, continuous monitoring and revenue planning tools - so you can become strategic. Check it out here.

Forecasting Considerations

1. How often do you forecast? Daily? Weekly? Monthly?

2. Do you use a weighted forecast?

3. If you do, what do you weight on? (Stage, forecast category, other)

4. Do you snapshot your call each week?

5. Do you use a roll-up forecast? (Each rep makes a call and you take the sum)

6. Do you allow managers to apply judgment atop the roll-up forecast?

7. Is the judgment typically a haircut or a bump?

8. Do you send a pre-communication to improve deal hygiene heading into the forecast?

9. If so, how many business days do you grant?

10. Do you have a team standard for hygiene quality?

11. If so, tell me more.

12. Do you "lock" or "snapshot" the forecast or allow a living, breathing data input for forecast?

13. Do you a Big Deals Forecast?

14. Are the big deals removed from the normal forecast?

15. Do you provide insights to your stakeholders before going into the forecast call?

16. Do you provide questions-to-consider for your stakeholders before going into the forecast call?

17. If your sales leader is out, do you run the forecast in their absence?

1. Forecasting Frequency

How often should you forecast?

Cop out answer alert!

It depends.

Businesses are better served when it is able to examine its circumstances from different time horizons: short term, medium, and long term. Companies who sell into the enterprise or mid market where sales cycles are longer than 30 days may better be served with a weekly cadence as their short term forecast. For companies with a sales cycle under 30 as a daily forecast may be palatable. This forecast is your internal management forecast.

What is an internal management forecast?

The first version of this is the forecast to and from the sales team. The sales team may want to know where it stands in relation to its monthly or quarterly target. The second version is the sales team's forecast to senior leadership. The company’s leadership can further assess what additional questions, feedback, or resources it can employ to alter the forecast trajectory.

Medium term forecast focus on the full year. At the beginning of the fiscal year the company unveils its target. The target should have three levels, at minimum, in the following descending order:

• Street quota: the sum of all deployed quota

• Internal target: we call this Plan

• Board / shareholder target: the number by which the board or external stakeholders seem acceptable

This target is forecasted no more frequently than quarterly. In some instances, a company may communicate that it is on a trajectory of over or under performing target by a considerable margin. Under these circumstances the company may decide to do a Re-Plan.

What's the deal with a Re-Plan?

A few years ago I worked at a startup where the internal target was 275% of the previous year's attainment. When I joined the company I started to set up our operating cadences. The first rhythms I orchestrated were the Pipeline Management cadence and the Forecast Cadence. Once I crunched the math the numbers revealed themselves:

• $3.6K ACV

• Land-and-expand motion with the expansion with a $25K ACV

• Win rates: 27%

• Sales cycle: 36 days

We opted for a weekly rhythm. As I exited my first 30 days I had finally finished my Revenue Operating Model. This is a mechanical model in a spreadsheet which mimics how the business should work in principle. What I found was that we were far off track to reach out lofty target. Here's why.

• Lead volumes were insufficient by an order of magnitude

• Lower ACVs meant we needed to close a TON of deals. As a percentage of our account base we would have had to reach a TAM percentage commensurate with a company with strong brand equity AND execution. We had brand, but execution was something we were working on.

• Expansion pipeline was anemic

So I pulled the fire 🚨 alarm.

We needed to develop a triage strategy immediately. My recommendations fell into three camps:

• Camp #1: spend money

• Camp #2: get efficient

• Camp #3: hybrid

The real camp we should have been in was a fourth option: re-run the math and do a Re-Plan.

Now no one wants to do a Re-Plan. It's an admission of either not seeing the macroeconomic Mack truck about to smash into you OR you came up with an unrealistic target and sold everyone on it.

But as the new guy it's not popular to poo poo on someone's plan. They probably spent months (or didn't?) putting it together.

Long story short, as June rolled around it was clear the company was at 30% pacing to target. 50% through the year and only 30% of the way there. It was time to admit guilt and put the business targets on better footing.

Side note: if a company sets a stupidly high target and sales reps do not feel confident they will make money there… THEY WILL LEAVE.

Longer view forecast

A longer view forecast is typically tied to a multi-year vision of a company. Startups use this to communicate milestones they will reach to express optimism around growth, cash runway, and operational efficiency. Knowing ahead of time all of these figures allows the company's leadership to work with the board on when the next fundraising event may be.

Cash out.

What's your cash out date? Literally, when will your company run out of cash? Working backwards from that date and padding in 6-9 months signals that's when the founder roadshow begins. It's time to start drumming up interest in finding sources of funding for the next round.

2. Do you use a weighted forecast?

The weighted pipeline is simple. It takes a dimension of a deal and ascribes a certain percentage to it. Here's an example:

• Discovery stage: 10%

• Demo stage: 20%

• Value alignment: 35%

• Proposal: 60%

• Negotiation: 90%

• Closed Won: 100%

It then takes that percentage and multiplies it by the stage weights. BUT! What if the company doesn't have proper:

• Exit stage criteria

• Sales stage process

In the absence of these reps will fill out what they think believe is the correct stage. Rep A will do the best they can and so will Rep B. But A and B may not have the same dispositions.

My opinion: you will have lower utility on a weighted forecast if you don't have both exit criteria and a proper sales process. As they say in computer science: garbage in, garbage out.

Recently, I heard of a sales rep that sent out a proposal to a client. Great! The stage weighted forecast would suggest that we have a 60% chance of winning that deal. However, when I asked the rep who was involved it turned out he had only one person he was in contact with. Worse, they hadn't been in touch for 20 days. When I asked the rep why he sent a proposal he told me it was his way of trying to bring the prospect back to the table.

Uh wait… I'm forecasting 60% on this deal? How about ZERO chance!

3. If you do, what do you weight on? (Stage, forecast category, other)

Aside from stage, another dimension that's used to add weights to is the Forecast Category field. Sales Managers may employ a system that looks like this:

• Commit

• Best Case

• Pipeline

• Omit

Now what are the chances that you use a system like this but do not have formal definitions for each. If you don't have then try something like this:

Commit: Commit deals are opportunities where your rep is highly confident it will close within the period. If your target is quarterly then your commit timeframe should be for the current quarter. Now this should move beyond intuition but dovetail with an opportunity action plan that's grounded in reality.

Best Case: Best Case deals are also called longshot deals with a possibility of closing within the quarter, but not yet committed. So, while there is some realistic possibility of closing the deal, it’s not yet a sure thing. In some cases, upside sales are also deals that are projected to close in the next quarter, but your rep has a realistic path to pull them in and close early.

Pipeline: an early stage deal that has no realistic chance of closing within the quarter or next. This is a longer timeframe deal.

Omit: call me old fashioned. But this forecast category is bullshit. Don't use it. Move the deal to Stage 0 or mark it Closed Lost. This is a funnel stuffer if you ask me.

I'll go through 4-6 for paid members. But first…

---

RevOp Impact Offerings

There are 4 ways I can help you:

1/ RevOps Course: Unleashing ROI (RevOps Impact). A ten-week RevOps course. Lessons from my career scaling from $10M to $100M+. Join 100+ alumni.

2/ Sales Ops Masterclass. A six-week virtual, live instruction SalesOps course designed to take your sales operations skills to the next level.

3/ You’re a GTM Startup. Sponsor this newsletter and reach 2,100+ tenacious revenue leaders. Reply to this email if you’re interested in receiving a media kit.

4/ 1-on-1 RevOps Coaching with me. Let me help you push through the ceiling