If you have not read the two parts of this blog series, you can find Part 1 here and Part 2 here.
We have worked to ensure that our deals are truly understood, and now it is time to pull it all together.
At Mentor Group, we recommend a specific cadence that has a direct impact on forecast accuracy. We recommend three regular events that must happen consistently. We recommend that you practice good deal hygiene, review your current quarter forecast, and review your future quarter pipeline.
By using simple dashboards and relevant metrics, we can identify and correct issues in deal data before discussing deal progress. Deals that have past-due close dates, missed quotes, or lack prospect champions or decision-makers should be regularly reviewed and updated in your CRM. Then, the actual forecast meeting is focused on deal strategy.
Those forecast meetings, however, need to be split into two, one focused solely on current quarter forecast, and one on the future quarter’s pipeline.
In typical forecast meetings, the focus tends to be limited to the current quarter. When that happens, there is little or no time to drill into future pipeline, so every quarter starts at zero, which is clearly a non-optimal scenario. Sometimes, they start with the deals that have slipped, which implies a need for more comprehensive deal reviews.
For the forecast review, we often ask the following questions:
• Can I commit to the monthly/quarterly quota target? If not, why not? We observe that quotas are often set up as or perceived as stretch targets, making consistent attainment more a matter of wishful thinking than reality. It’s better to set attainable targets based on rep potential (number of reps and their productivity), then set stretch targets with commensurate rewards.
• Do I have enough quality pipeline at this stage in the quarter? How much pipeline do I tend to generate in-quarter that will impact the current quarter? (i.e., deals that close in 60-90 days or less). The quality of the pipeline is validated during deal reviews using your sales methodology.
• How much of my forecast is truly committed, and how much is based on less mature deals? We often use a simple rule of thumb that recommends that you have 50% of your deals committed on day 1 of a quarter, 75% after month 1 completes, and 100% after month 2 completes (again, depending on your average sales cycle length). For example, if you have a $1M commit to the business, you should have $500K of actual deals committed in month 1, $750K in month 2, and the full $1M starting in month 3. If you cannot confidently commit those deal values, then you may need to adjust your $1M commit to the business (or look for ways to accelerate less mature deals). Or, in the more positive scenario, you can increase your commit to the business when you have more deals committed.
For the pipeline review, we examine three key areas: quantity, quality, and source. We are focusing on the next quarter or perhaps two quarters ahead. If you have a short average sales cycle, one quarter may be acceptable. If your average deal size is, say, six to nine months, it makes sense to review one to two quarters out.
• Many sales leaders focus solely on quantity, such as the common “3X” target. There are at least three problems with this. One, some products may be more challenging to sell, requiring a more extensive pipeline to achieve the necessary wins. Two, some locations or verticals may not be as mature as others, which again implies that more pipeline is needed. Lastly, the deals in the pipeline may not have the quality needed to close when intended, if at all.
• We referred to applying a deal metric using MEDDPICC above, or using an AI metric from a forecasting tool like Clari. Understanding deal quality is critical to validating your pipeline.
• Lastly, we look at the source of deals. Another fallacy that some sales leaders succumb to is assuming that their pipeline comes from three sources in equal measure: sales, marketing, and partners (what they refer to as the 1/3, 1/3, 1/3 model). Depending on the segments you sell into, this can be wildly off base. Typically, Enterprise deals are more reliant on self-developed (sales-generated) pipeline. Your marketing team should have higher targets for Mid-Market or SMB territories. Partners make up the third leg of the stool, and they are often looked at in some businesses as “nice to have” when it comes to generating pipeline.
Ultimately, we want to set reasonable targets based on the markets we are selling into and our ability to execute with our current resources.
We need accurate and timely information to make informed decisions. Having a well-defined analytics approach is essential. As indicated above, good hygiene (avoiding the Garbage-in, Garbage-out problem) sets the stage.
The next step is to tie sales metrics to overall corporate metrics. For example, the corporate target may be based on Annual Renewable Revenue (ARR), and the sales target may be based on net new business (new customers or expansion of existing ones) and lost current business (churn). We recommend keeping the number of metrics to the minimum needed to manage the business. Too many metrics can become confusing, hard to track, and quickly outdated.
Lastly, metrics should be tied to roles and levels. A CRO should focus on the aforementioned net new business, ARR, and churn, while a first-line manager should primarily focus on having a sufficient and high-quality pipeline and a high conversion rate. A business development manager should be more focused on lead conversion and how their contribution ultimately leads to revenue (the latter point often missed in BDR teams because “sales cycles are too long”.). Customer success should be focused on clear metrics for customer health and of course, reducing churn. And on and on.
Relying on spreadsheets (like many companies do) is a recipe for failure due to mismatched data and delayed updates. Investing in good analytics tech like Qlik, PowerBI, Tableau, or Looker pays dividends by having “always-on” information at your fingertips.
There’s no substitute for discipline and hard work. Forecasting almost always gets better over time when consistency, focus, and effort are applied.
One last point: no matter how hard you try to avoid it, bad stuff happens. Great sales leaders often have backup deals to cover deal delays or completely unexpected losses. When that doesn’t happen, the last and most important rule applies... tell bad news early. In larger organizations, earlier warnings give a senior leader time to make adjustments, usually by driving another team to pull deals in early or otherwise overperform. In smaller organizations where expenses may be tighter, more time can be your most valuable asset.
Predicting the future is, of course, hard to do. We can come close, though, and hitting a forecast is one of the more gratifying things we see in sales.
Mentor Group has worked with many of our clients over the years from a sales productivity and enablement perspective. One of the key areas of success has been driving a consistent, effective, and accurate forecasting process. Reach out to us at *** where we can share those successes with you.