Planning season is nearing its end game. December is a month where Christmas and New Years act as a forcing function for all departments to submit their bottoms up, receive feedback from the top down, and swap headcount/spend across different groups.
At some companies, a spend-headcount ratio is used. For others, it's a two step process with first a bottoms up request and second a budget cut from on high. Do the best you can with the envelope you receive.
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In my Unleashing RevOps Impact (ROI) course I preach the importance of the Planning cadence. The earlier you start the better equipped you are to guide the business in terms of planning. These are the phases of a typical planning motion (in sequential order):
Product Roadmap confirmation
Segmentation (what axes will the business operate along next year)
Revenue Operating Model alignment (top down and bottoms reconciliation)
Headcount modeling
Marketing program sizing
Organization design (roles and responsibilities)
Territory design and account assignments
Quota assignments
Compensation design
Territory and account planning
Larger companies start EARLY. At AWS planning activities started as early as April. Master Data Management (MDM) strategic planning and segmentation exercises began as early as April. At Google, I remember starting our bottoms up planning as early as August. If you're hosting the Company Kickoff in January or February (most likely Feb) the last thing you want to do is have your organization in a confused daze.
What are our targets this year?
What is my target this year?
What accounts do I own?
Are the rules changing this year?
What's my quota this year?
Not having a plan, nor firm answers to these questions to the troops is a poor start to the year.
Data Modeling Wizardry
Planning? That's a finance thing! RevOps isn't involved some will say. There's a problem with this setup. If RevOps nor the CRO is in the room when targets are announced, then how can you have trust this is a plan that can be reasonably executed?
In the world of finance there are three undisputed models for any business. Namely, the Income Statement, the Balance Sheet, and the Cash Flow Statement. You cannot run a company without these. Each of these are not mutually exclusive. They feed into each other.
At business school I remember thinking that I wanted to try my hand at investment banking. So I studied my butt off. Net income from the bottom of the income statement links to the balance sheet and cash flow statement. On the balance sheet, it feeds into retained earnings and on the cash flow statement, it is the starting point for the cash from operations section. Fancy that, these statements flow from one to the next.
Then is it possible we could mimic the GTM motion using models as well? For example, a waterfall model could help us develop scenarios on how the business might perform under certain conditions? Say for example you had a few tabs labeled:
Feet on the street
Butts in seats
Headcount model
The Feet on the Street model tells us how many Full Time Equivalents (FTEs) we have in different roles to execute various sales activities: calls, meetings set, meetings held, deals created, deals won.
Side note on FTEs: do you know, on average, what month since a sales reps’ hire date they close their first deal? Generate 3x pipeline? Reach 50% of quota? Everyone defines “ramped”differently. I prefer to create a “scorecard” approach. Reaching all three of the above is a sign that the new hire is on track. Waiting an 18 to 24 months to find out if an employee is going to work out is far too late in my opinion.
The Butts in Seat (BIS) model tells us how many actual people we have, at any point within the year, on the team. The opposite of a BIS is a To Be Hired (TBH). This is an unfilled role. The obvious issue here is if a company is unable to fill the roles it runs the risk that the employee’s ramp time will eat into expected contribution.
Side note on BIS: if you follow HR news you may have seen several articles caiming the age of BIS tracking is over because the workforce has moved to a larger share of remote working. I supposed I’ve misinterpreted the BIS connotation to mean actual headcount as opposed to who is actively in seat. Let’s be real, because I work remotely it’s afforded me some seriously awesome personal flexibility. I’m able to pick up my child at 3 PM with no issues. Get back to my desk at a reasonable hour and push out my working schedule later. Let’s assume BIS means filled headcount alright!?
The Headcount mode is not just about sales reps. In fact there are many ratios finance teams and HR organizations use to size up the organization. For example, take a look at the chart below. Around 40% of headcount is in Sales and Marketing. Product headcount represented 30%..
For Revenue Operators involved in planning you may be aware of the following ratios:
Sales reps to managers: 6 (narrow span of control) to 8 (wide span of control)
SDRs to AEs: 3-to-1 to 1-to-1
Sales Operations to sales reps: 20-to-1 (full coverage) to 40-to-1 (lean and mean… aka burnout city)
When the business model is built out fully it should lead to a GTM leader have a feeling of awe and intimidation. When the model is reviewed it may have so many layers to it that giving edit access to the model to a leader could lead to serious consequences. For example, a revenue operating model should feature:
Core assumptions (i.e. ramp time, win rate, average sales price)
Segmentation
Variable ranges (i.e. low scenario, high scenario)
Separated tabs for sub-models (i.e. marketing top of funnel, headcount/ramp, quota model, etc.)
The Tug-o-War
Ever hear the term triple-triple-double-double-double? This was the ‘growth at all costs” mantra. A mantra for a mantra; imagine that! The 3-3-2-2-2 philosophy focused on a company getting to $100M within five years. But in 2023, when was the last time a company IPO’d at $100M? The bar has raised significantly to go public. $100M isn’t enough let’s be real.
Founders and VCs looking to engineer a high economic outcome for themselves embodied this philosophy over the last decade. Much of this mental model still lingers in the VC backed community.
“We need to double growth next year”, you’ll hear from a founder.
The pressure to ensure the topline number is as high as possible is usually backed by both the CFO and the CEO. They’re the ones who need to speak to their investors and the board on how they’re tracking on their own 3-3-2-2-2 journey.
Opposite them is the Chief Revenue Officer (CRO) and the sales team. They also want to make sure the enterprise value of a company is as high as it could be. Everyone in the business wins in that scenario. But they also want to earn their On-Target Earning (OTE). Too high a quota and many reps can feel like it’s extremely difficult to earn commission.
Side note: On Target Earning = Fixed Salary + On Target Variable. Or as they say in compensation planning circles: OTE = FS + OTV.
This is the tug of war. You have the CEO and CFO on one side and you have the CRO on the other. I’ve often seen the desire for a higher pan number win out over the conservative faction. It’s often the reason why you see CROs come into the business mid-year and wash out of the company 18 months later. The first number they come into the business with they didn’t have any hand in putting together. And it’s often too aggressive for them to achieve.
So where’s the bottoms up?
I find that many Revenue Operations folks spend too much time in GTM systems and not enough time in Excel.
Well that’s BLASPHEMOUS!
Think about it. If you have a hand in modeling the business you would be able to identify if the business is on or off track. Reports and dashboards are one step closer to knowing your metrics inside and out. Helping to co-pilot an operating cadence is a second step to taking ownership of the business’ performance. One thing I teach in the Unleashing RevOps Impact (ROI) course is the importance of developing the operating cadence of the business.
The last step is to dig into the maths. Somewhere there is a model that describes your business in detail. For example, here are a few sub-models to consider:
Leads Model
A leads model aims to project how many leads are created by channel. If you have an MQL motion you should also see conversion rates from lead-to-MQL and MQL-to-Opportunity. You might call the opportunity an SAO or an SQL. No matter how you label it, it’s essentially converting marketing inputs into marketing outputs such as sales opportunities.
Outbound Model
Whenever you're ready, there are 3 ways I can help you:
1/ Sign up for my Revenue Operations courses in partnership with the RevOps Co-Op.
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