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What's the purpose of a forecast?
Let’s talk about the BEST forecast ever. You know the one. You check it every day I bet.
WEATHER FORECASTS!
Weather forecasters are famous for being wrong. So why do we still pay attention to them?
But seriously… don’t quit to become a meteorologist. Keep the faith. Stay in RevOps.
The number one question asked to the CRO is "what number are we going to hit?" You can predict what happens next. The CRO logs into the CRM to see if they can calculate the forecast. So they try one of the first two methods below. Often times it’s the first method.
Manual forecasting
Forecasting software
Monte Carlo forecast
Then they’ll pull in their FP&A analyst or RevOps to perform #2. Rarely does anyone ever try to pull off #3. You’d have to be crazy to try it.
Well if you subscribe to this newsletter. I’m betting you’re crazy. Yes I called my readers crazy.
Why do timelines matter?
If your sales cycle is between 90 to 180 days the CRO will have a much stronger path to forecasting one to two quarters out. Why? Because the die is cast. The deals that will eventually win are already in the pipeline. Most likely these are the deals that have been beaten to death in the forecast and pipeline reviews.
For business selling into SMBs where the sales cycle is from a few days to under 30 days the forecast is clearer for the two to four week window. But when the CFO asks "what number are we going to hit this quarter?" The CRO has one month of strong data but has to make an educated guess for the back two months.
So what to do? The CRO then turns to Revenue Operations to help forecast the likely pipeline that will be generated and has a likelihood to close within the quarter. By adding these two numbers together the CRO has an informed forecast for the quarter.
But isn't there any other upside?
Expressed another way the forecast can simply boil down to
Expected value of walk-in pipeline +
Expected value of intra-period pipeline +
Expected value of Upside
In the previous section we didn't discuss upside. Simply put, upside refers to pipeline from outside future periods that pull-in. These deals were probably forecasted to a far out period and therefore not considered walk-in pipeline. Sales should firm up their Close Date criteria to make sure future periods deals avoid becoming parking lots or hiding places.
FWIW Clari also has a strong and acceptable definition of upside deals in this blog post. I suggest you give it a read.
Do you Monte Carlo?
For those who have studied decision analysis the Monte Carlo analysis is an excellent way to run thousands of scenarios against your pipeline model to determine outcome ranges. Forecasts rarely land exactly on the dot. For this reason, ranges help to explain what factors would need to be realized. For example you may have an assumption that MQLs will increase 3% month over month and thus driving more top line.
But what happens if your achieve only 1%? What happens if you over achieve and teach 5%? Talking to the VP of Marketing you ask the following questions:
Whenever you're ready, there are 2 ways I can help you:
1/ If you’re looking to further develop your Revenue Operations knowledge sign up for my courses in partnership with the RevOps Co-Op.
→ Unleashing ROI course. A ten-week virtual, live instruction RevOps course designed to level up your RevOps Impact (R.O.I.). Lessons from my career scaling from $10M to $100M+. Join 50+ alumni. https://www.revopscoop.com/learn/unleashing-roi-course
→ Sales Ops Masterclass. A six-week virtual, live instruction SalesOps course designed to take your sales operations skills to the next level. https://www.revopscoop.com/learn/salesops-masterclass
2/ Promote your Revenue focused startup to a newsletter with hundreds of revenue leaders. My eventual goal is to shift this to a completely free newsletter for my readers through sponsored ads. Reply to this email if you’re interested in receiving a media kit to learn more.
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