Forecasting: Science and Art
Forecasting is hard. Regardless of the type of pipeline you manage, whether it be Enterprise or Velocity deals, there are so many variables that you have to consider. Do we have a compelling business case on our opps? Are we talking to power? Is it competitive? Which AE is working the deal?
The goal of forecasting is to give the organization a good gauge of where the pipeline quality stands. It also allows your colleagues (Channel, Sales Dev, Customer Success, Marketing) to understand what they need to do to help. It allows your teams to be aligned on where they stand and what they need to do to ramp up efforts.
Now HOW do you forecast? Great question… forecasting is a mix between Science and Art. The process that I use has 3 different models:
Rep Rollout on a monthly and quarterly basis
Leadership rollup on a monthly and quarterly basis
Weighted forecast on a monthly and quarterly basis
You want to get your rep rollup first thing on Monday to set the stage for the 1:1s with the AEs. Once those are collected you can get a sense of which deals are Committed vs Best Case. Once the managers scrub the individual pipelines you have 1) a clean AE pipeline and 2) you are starting to get a sense of your leadership rollup.
Now leadership roll ups can vary widely. If you have an Enterprise pipeline you are going to be looking at a handful of deals. There are still a lot of moving parts in those handful of deals but you want to get a sense EARLY in the quarter on where things stand. If you have a velocity motion then there is a threshold of deals you should look at (e.g $10k ARR as a minimum).
You’ll also want to know your organic growth. What is organic growth? Those are deals (new business and/or add on) that come in with an average sales cycle of 15 days or less. The thought process here is you need to know this velocity because you don’t want to sandbag your commit. It’ll give off the appearance that you don’t have command of your business. This is where the art aspect comes into play. For simplicity I usually take up to 12 months of data and come up with a monthly average. See below:
Lastly, you’ll want a weight based forecast. This is giving you an accurate gauge if you are managing the stages properly in your pipeline. I LOVE 3 forecast categories which are Commit (100% coming in), Best Case (50% chance it’ll come in) and Pipeline (25% chance it’ll come in). If I take those percentages and multiply them by the total ARR, add in my organic growth then I’ll get a weighted commit number.
Once I have all 3 of these models then I can look at them side by side to see the state of my pipeline. If the Rep rollup, Leadership Rollup and Weighted Pipeline are with 10% of each other then you have a clean pipeline that is being managed properly. If the variance gets bigger than that then you have a problem. Your AEs could have happy ears, the managers are not getting in trenches enough or you have improper stage management.
Now there are generally accepted principles on forecast management. One rule in particular is set in concrete… you should never lower your commit. Ever. Period. Commit is a blood oath to the organization and it’s your responsibility to make sure you get that. For a monthly forecast you want to manage that commit and have a pretty accurate guess by the end of week 2. Best forecasts will see the commit and best case “meet in the middle” around that time. On the quarter you should have this by week 6. That gives you enough time to determine what is needed if you are short OR if you are in a spot for over attainment then how to manage expectations with the CEO.
Obviously each pipeline has certain characteristics that need to be accounted for. As an example, do you own Add On Business as well as New Business? Do you only manage New Business? Is it a primarily outbound driven pipeline or is it inbound? Each scenario paints a slightly different approach to forecasting BUT… using the 3 model system is your foundation for every one of those scenarios. Try it out, you can not go wrong with it.
