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Don't start planning i February. You can start with a simple approach already now - and you'll just need two things.
Creators and Guests
What is The Revenue Formula?
This podcast is about scaling tech startups.
Hosted by Toni Hohlbein & Raul Porojan, together they look at the full funnel.
With a combined 20 years of experience in B2B SaaS and 3 exits, they discuss growing pains, challenges and opportunities they’ve faced. Whether you're working in RevOps, sales, operations, finance or marketing - if you care about revenue, you'll care about this podcast.
If there’s one thing they hate, it’s talk. We know, it’s a bit of an oxymoron. But execution and focus is the key - that’s why each episode is designed to give 1-2 very concrete takeaways.
[00:00:00] Toni: Hey everyone, this is Toni Holbein. You are listening to the Revenue Formula.
[00:00:03] In today's episode, we are going to talk about the two things, and it's only two, you need for your planning. Enjoy.
[00:00:17] Mikkel!
[00:00:22] Mikkel: okay, you know what, I've been reflecting a bit, um, since we've been doing quite a few guests on the show as of late, which is awesome. I noticed the behavior where we are really good at the riffing intro chatter. Up until the point when the guest arrives. You realize that, right? And then when the guest is there, then it's like, Okay, so, uh, Go!
[00:00:50] Toni: I gotta say, it's also a little bit difficult. With some of the caliber of the guests not to be a little bit nervous
[00:00:59] Mikkel: it's
[00:00:59] Toni: know, it's like it's like the the the fun and joy that goes on in a classroom before the teacher arrives
[00:01:05] Mikkel: yeah that's true
[00:01:05] Toni: Authority enters the room and it's like oh, let's be let's be funny
[00:01:09] Mikkel: yeah yeah
[00:01:10] Toni: that's not so easy, you
[00:01:11] Mikkel: know no that's true but we had a pretty great run so far we're getting more and more you know great guests on the show
[00:01:17] so a lot more to
[00:01:18] Toni: to the caliber there
[00:01:19] Mikkel: yeah yeah yeah no i but you know i said it to you the other day uh Initially, you were like, you could feel the pulse and the heart like, uh, how am I going to be even able to
[00:01:28] articulate myself? Yeah, like all five of them. No, but then you get accustomed to it, you get more ideas, the conversation flows, so all good. We're still, you know, learning
[00:01:36] And growing just to talk with other
[00:01:37] Toni: German, uh, also they are only cooking with water.
[00:01:45] Mikkel: Yeah, yeah. Okay, should we get into the show then?
[00:01:49] Toni: I thought that was already a segue for you right there, but, uh.
[00:01:52] Mikkel: Oh yeah, you just need to put two things into the water one. It's so easy, it's so easy. Now we're gonna talk a bit about planning, our favorite subject, and the two ingredients, just the two ingredients you need to actually nail it.
[00:02:08] And uh, I mean we've done episodes about this theme before, it's nothing new, right? But it is gonna be a very important plan for next year, we're coming with a lot of changes. The last year and a half, switching from growth at all costs into profitability at all costs or however we want to phrase it, there are changes abound.
[00:02:26] Um, so we're going to hop into the planning bit today.
[00:02:29] Toni: No, that's it. And, um, and I think, um, some of this is almost motivated and inspired by, uh, I would say my own process that I ran through with, uh, the CFOs that I was working with. but also some of the, some of the conversations we've lately been having on that topic, right?
[00:02:47] Because yes, planning season is up on us or very soon you have some organizations actually started in June, July. Which is phenomenal and then you will have some others that be like, ah, I don't need to listen to this. It's, you know, until February.
[00:03:03] Mikkel: We do this next year.
[00:03:05] Toni: That really is a February kind of, you know, topic, Toni. so besides the timing, right, there's just a bunch of things to keep in mind and we actually wanted to boil it down and make it super simple. Uh, because I think part of the problem really is this, um, this back and forth. The zigzagging you have.
[00:03:23] And this is pretty established. Everyone has obviously a top down plan, period. I mean, yes, of course. and then many, many, many, uh, other teams then have a bottom up to support it. but it's, since both of them kind of, it, it's, I don't know, it's like a, it's, it's like a, like a bridge you want to build over the river.
[00:03:42] Um, and you kind of know where the other one is, but at the end you want to make sure that you actually meet instead of being crooked. Which we had, no joke, here in Copenhagen.
[00:03:51] Mikkel: Oh yeah, that's right, the bicycle
[00:03:52] Toni: had a bridge that was built and I just didn't want to meet in the middle. Um, I think the company got fired, went bankrupt, and then now we have a new site.
[00:04:01] It's a new site thing, thing of someone in a very artsy way trying to repair it. Um, but that's what you don't want to have happen to your revenue plan or to your plan and you know, at large. So, um, that's, that's, I think the topic for today.
[00:04:14] Mikkel: You completely threw me with that analogy, but that's cool. Um, yeah, so the other thing I was thinking about, which is hilarious sometimes with planning. There's always a bit of deal making going on in this scenario, right?
[00:04:24] And the funny thing is, if, you know, it's like, ah, we'll take it in February. And you kind of see the numbers, like. So we have like one week and then need to be locked in just, you know, open the spreadsheet. Good luck. Uh, take a look and let me know what you think just to prove it by, you know, two hours.
[00:04:37] Toni: what, this is actually a really good point. I think you as a, as a commercial leader, as a revenue leader, as a revenue operations, You should push for planning to happen earlier.
[00:04:49] You should actually push finance for this to happen earlier. Just like when you, uh, let's just say you, you buy some piece of software. You want to make sure that you have your own little timeline. I need to buy this thing by x. And sometimes Uh, you're trying to line it with their quarter end because then you know, they're going to be super squeezy when it comes to that.
[00:05:08] But also if you only have one or two touch points left, you know, there's not so much more time where you can ask and play around with the discount. So what are you going to do is you're going to try and at least, you know, depending on the size of the deal, at least, you know, start. six to eight weeks early.
[00:05:23] So you have enough room to be like, okay, let's send in the most junior
[00:05:28] And if that if that person exhausted all discounts, let's send in, you know, his or her manager. And then, and then only in the end, um, you pull the C level card and be like, sorry, I don't see the value. I think we need to cut this in half.
[00:05:43] Um, and you want to leave yourself enough time to kind of make those little finagling steps. Um, and you're right, that's totally the same with planning. Obviously, I mean, so number one, it's pretty clear also from research and from, um, from literature and stuff, there's totally gamesmanship going on. I mean, there's This whole, that, that's why this whole, you know, zero budgeting, or I think that's what it's called, was, was, you know, created because of the gamesmanship happening.
[00:06:07] I think less so in, in high growth early stage startups in terms of budgeting, but more on the, okay, what's the number we're gonna, we're gonna go for and how we're going to get there. Right. And, and I think, to maybe kind of transition into what, what we feel is, is pretty important. I think you as a, as a revenue leader or CEO, I think you should be You know, you won't be able to push your CFO to start planning.
[00:06:32] I think if any one of you goes to the CFO tomorrow and asks him or her to start the planning, first of all, you will get an eyebrow raised. Like what
[00:06:42] Mikkel: One or two, at
[00:06:43] Toni: are you, are you talking to me about that? I thought it's the other way around. but ultimately it's also a, you want to be careful not to push an agenda to the CFO in that case.
[00:06:53] Right. So generally speaking, be close with the CFO. I think that's, that's true for. Any different role that's out there, if you, especially if you're the CRO, the CFO will be extremely interested in what's going on, in your department or departments. We had this with Ben Murray that was on the show and he said like, Hey, there's so much money, flushing and slushing around and sales and marketing and that's so important at the same time. So he was like extremely close, um, and, and vice versa, the CRO, you know, don't want to hurt anyone's feelings, but the CRO usually can't actually decide, you know, some of the budget items that are coming up throughout the year.
[00:07:28] So you will need to go to the CFO to get it done. So the relationship between you and the CFO needs to be extremely tight. And I think, you know, to reference someone else, we had Udi Ledergor here on the call from GONG and he was basically saying like. if you as a CMO don't know how your COO wants, uh, wants his or her coffee, um, I think you're doing it wrong.
[00:07:47] I think this also applies here, right? If you as a CRO don't know how the CFO wants his or her coffee, I think you're doing it wrong and you should definitely have your little walk and talk route, uh, you know, picking up coffee somewhere to kind of figure this out, right? That kind of, that, that gives you an indication of how, uh, close you are.
[00:08:06] But when it then comes to the time of planning. really, really what's going to happen is the CFO will have some kind of budget prepared, some model in the background and that, that will be fantastic. But I think what, um, if you have a strong RevOps person with you, by the way, I think the, the only two numbers you should be asking from the CFO is, um, where should we be on revenue by the end of the year, end of next year in that case? And what is my CAC? How much money do I get to get there? Right? Customer Acquisition Cost. And, you can... The reason why those are the only things that really matter, we have a simplified version of this in a second, but you can immediately on the spot ballpark it and sniff out some funny business that might be happening below, right?
[00:09:00] Because number one, What you want to have as a benchmark is, and you can ask the CFO in this case, or you can calculate it yourself, but you want to know, okay, so what is the CAC Payback that we hit this year?
[00:09:11] Mikkel: Yeah.
[00:09:12] Toni: Or I expect it to hit this year. and what's the CAC Payback that you have underlying for next
[00:09:20] Mikkel: Yeah.
[00:09:21] Toni: This is where some of the truth will reveal itself. And I think if you have, you know, industry veterans CFOs, they will have that, you know, they have a good. Um, good explanation and stuff for that. some others might be caught off guard a little bit and, uh, and only realize, and you know, that happened to me once and that guy was actually pretty solid.
[00:09:40] It's still super solid. And now it's a total industry veteran. but uh, basically realizing, Oh, CAC Payback went like way down. Uh, and I, you know what? I think I need to go back to the drawing board and think about this a little bit more. Um, and, um, so number one, if the. When CAC Payback goes down, meaning efficiency improvements are expected, you should be very much checking how much is revenue growing compared to last year.
[00:10:14] If revenue growth is accelerating. Or it's staying at a very high pace, then you should question why the CAC Payback is going down. and the reason is, if you want to keep up the pace of growth, you need to hire a bunch of people that will by definition just be less... efficient than the folks that you have already ramped up.
[00:10:34] You will need to add additional dollars to your demand gen channels and those dollars will be by definition more expensive than the last because otherwise you would have spent them already last year and so forth. So there's a bit of a baked in, baked in understanding that if, if you want to hit strong growth, I think some of the...
[00:10:54] Efficiencies will go down, and you, you might say like, well, you know, that's, that's not, you know, we turned this around this year is all about, you know, not growth at all costs and so forth. but I think what you should then ask the CFO, if that is the case. Okay, what is, what is the underlying factor that gets you to this, to this improved CAC Payback?
[00:11:18] Just, just tell me, just tell me the story before I go off and try and figure this out. Just tell me the story. and depending on what that is, you can call BS and kind of say like, Hey, I don't think it's going to work. We can, we can run the spreadsheet. It's no problem. Uh, I can run a spreadsheet or Growblocks and we can kind of get it to this number, but, you know, we all know it's probably not going to happen.
[00:11:39] So let's have that conversation rather upfront, right? Um, I think this is, this is kind of your first, first of all, you have the two, uh, goalposts you need to hit, which ARR number to hit with what resources, but also you have your first. very strong conversation that you can have with the CFO and it's a kind of figure out, is this even a doable plan or what's, what's going on here?
[00:12:00] Right. And if the, if the answer to your question of how is that efficiency improvement going to happen? If that is like, well, that's what we need to show to investors and so forth. Well, well, now is it, now there's a real problem.
[00:12:12] Mikkel: Yeah
[00:12:13] Toni: Now there's a real problem because, um, the CFO has clearly no clue. Not that it is his job either, or her job either, but clearly no clue how to get to that, uh, efficiency improvement.
[00:12:24] And at the same time, it's like a company killing event potentially to get to this number. And it's kind of being pushed to you, and that might be the right thing to do. But now at least you have identified that, hey, there's a, there's a massive problem coming up that, um, you, you don't want to start figuring out in February.
[00:12:41] You want to start figuring this out now.
[00:12:43] Mikkel: Yeah. Yeah. I was basically just going to say, you don't want to figure out that, you know, you have some kind of.
[00:12:48] Terminal illness. I don't know. That was too dark. Let's go there.
[00:12:53] Okay. So segue into the next here.
[00:12:55] Toni: Um, so, and I think, you know, you have those two things, you know, roughly in, in, in place right now. And I think, I think a more simplified way. To then, you know, work on the plan is actually to ask on what's my, what's my headcount?
[00:13:10] What's the FTE number? and, and usually the, the big levers in your, in your CAC, uh, it's a pull, it's going to be headcount. It's going to be ad spend, uh, tooling is going to be by itself and, you know, commission is an outcome and so forth. So it's really how many folks can I hire and how much money can I spend on, on, on marketing?
[00:13:29] Um, so try and. maybe get it broken down like this. I think, um, I usually worked off CAC just by itself and built the model from there. but I think it's, uh, it might be a bit easier. And I've seen this now a couple of times that it's really around, you know, what's the FTE number I'm, you know, I'm, I'm going to hit or I have in order to achieve this.
[00:13:49] Right. And then, and this is what I did, but this is, you know, also what I'm, what I'm seeing a lot of folks do is, they go off with their. sometimes it's like a commercial FP& A person, but much more often it's, it's RevOps and it's going to be your RevOps in most cases because yes, they have a similar skill set like, uh, financial or commercial FP&A.
[00:14:12] but at the same time, they also, you're trusted right hand. Um, they know the numbers, they know the tools, they know the people, they know what's possible and they basically kind of enable you to. share the thinking, in order, in order to try and, and try and build the plan and, you know, try and try and match it up.
[00:14:30] Right. and that's usually kind of then the, the start, right. And it's really the, okay, in order to get to this revenue number. I, okay, how much, how much of that is going to be the customer base? Where's my customer base going to be? How much upside can I expect? You take this bigger chunk out, then you have your new biz stuff.
[00:14:46] How's that going to split between the demand, areas and so forth. And then how many people do I need to do in order to staff against that? I mean, this is the simplified version. We have like a couple of other episodes on that specific thing. but that's basically how you kind of, quickly move through those steps in order to build your bottom up plan.
[00:15:03] Mikkel: So, would you actually recommend... tapping FP&A under the CFO in this case and work with them.
[00:15:11] Just not, not that there's gamesmanship,
[00:15:14] but in order to have some kind of partner over in that camp who can be there with you when you then walk through it. Because it's always going to be different if, if you come just as, you know, the CRO with your rev ups person against the CFO and their FP&A person, you know, there's different agendas
[00:15:31] Toni: Yeah, I think, I think you should do it with RevOps. And the reason is, um, is as I mentioned before, they just know the business a little bit better, but I think what you should be doing is, whatever comes out of your model, you should, before you even talk to the CFO, you should connect to your commercial FP&A, uh, guy or lady and say like, Hey, can you run those numbers through?
[00:15:54] Where do you get, where do you get with those numbers? Right. Because, um, the financial model will always be different from your, your commercial model. Um, because they have. Um, the taxes need to be paid for the salaries and, uh, the vacations and, uh, how many desks you need and how much more lunch you need to buy and, uh, how, how big are the allowance for the summer parties?
[00:16:18] I mean, there's so much stuff that you, you don't want to take care of on your side. And so you, you go back and run it through the, uh, the model. And especially if you're trying. only get high level numbers from the CFO, it might be that you end up a bit more expensive or cheap on the headcounts. It might be like, Oh, I've hired a couple of more AEs and SDRs, and maybe the CFO saw it the other way around.
[00:16:40] And there could be stuff like that, right? That suddenly, you know, breaks this thing. but that would really be the, uh, that would really be the approach. And then that is a great. First of all, it gives an indication where you land. Um, it gives you also an, you know, a way to prepare for the next meeting that's going to happen, which is again, you and the CFO.
[00:16:59] and this then, helps you to figure out where's, where's the gap and why, and what could we potentially do about it. Right. But what's really important here is now that when you have the next conversation with a CFO, it's not going to be a, Oh, I don't want to have this number because the number is too high.
[00:17:16] Um, it's going to be a, uh, with that resource allocation that I have here, and all the wonderful things I used in order to get to the right, uh, approach here and all my creativity already used in order to get to those efficiency targets we need to hit. I come across those five issues that make it.
[00:17:35] Very, very difficult for me. And the way I used to express it is to say like, it's very risky. It's a very risky plan, which translates to chances of success are low, which translates to it's difficult to pull off, right? And um then you can have that conversation, it's.
[00:17:56] It's data driven to a degree, um, it's rooted in reality, it's rooted in your, in your funnel and in your data and your conversion rates and all of that good stuff, and then gives you, uh, a, a solid basis to drive that conversation with a CFO in order to say like, okay, I'm not sure what we want to do here, right?
[00:18:15] Depending on, on what the issue is.
[00:18:17] Mikkel: Okay, so you basically, basically you said that the next is the meeting with the CFO after you've done the plan, build the volume roles, then what happens after that?
[00:18:28] Like you, you're going to disagree and commit and then execute or?
[00:18:34] Toni: So I think depending on the severity of the problem, and
[00:18:38] this can trigger a couple of different things, right? Let's just say the CFO needs you to hit 15 in CAC Payback and get you to 50 million of ARR. But you only get to 18 of CAC, CAC Payback, and only to 42 ARR. Um, if, if you're that far apart, which might happen, I think it might trigger like a bigger conversation because it might simply also be that, okay, if we cannot get to this ARR number, if we cannot get there with that efficiency, There are many to, uh, fundamentally change something about the layout of the organization. You can't reach the next funding milestone, um, and, uh, that then will probably trigger a longer conversation, right? Which then includes not just you and the CFO, but everyone around, uh, the C level as well. Um, and, uh, and that usually is kind of the, the, the worst case scenario and the highest escalation, if you will.
[00:19:38] I think. Uh, what usually then happens is this typical dance of the CFO doesn't want to give you more, FTEs and you as CEO don't want to say yes to more magical, uh, efficiency improvements. Um, and in the end of the day, usually the CFO wins. That's usually actually what it is, at least in, in, in my, uh, in my experience.
[00:20:04] And the reason is simply the CFO. seems to be a better judge of the company situation overall. he or she goes across, you only see a part of that. and therefore the CFO is. Uh, let's just say closer also to the CEO's ear. And I think what's really important though, is that the, the easier time you have to create a plan, the harder it's going to be when you go and execute it.
[00:20:34] So try and pull most of that conflict, uh, most of that friction, try and pull this into the planning phase itself instead of just pushing it out and delaying it. Right. And, and again, you as, as a revenue leader, you will be the expert on. How to actually get to this point, whatever it's being chosen. and the, the CFO will be the expert on how to reach the next financial milestone for the organization, which might be another funding round or profitability or whatever it might be.
[00:21:04] Right. and, and it's really important that those two things are being balanced against one another in a, in a proper way. And, uh, again, use a, use a data driven approach, but usually, usually it ends up. that you are able to, uh, you know, disagree and commit, right. That's, that's basically kind of what it usually is.
[00:21:23] And then the trick now becomes to, you know, with the FTEs that you have. To be as efficient as, as, as humanly possible. Right? And, um, there are really some things where, um, uh, while the FTE allotment is what it is, uh, what, what generally happens, yes, you might be delayed in hiring, but the reason is that you don't, Uh, expect for people to leave.
[00:21:46] So what you should totally be doing if you already squeezed on the, uh, on the FTEs, what you should totally be doing is starting to hire, even though you don't know that someone is going to leave. and that usually takes a bit of a conversation with a CFO. To make sure, yes, I need you to, uh, approve this, this headcount requisition.
[00:22:06] And yes, I need us to spend some talent attraction time on this now. even though the, we are already above budget on our FTE allotment, uh, but we're doing it because we know someone is going to leave.
[00:22:17] Mikkel: Yeah. Greg hasn't resigned yet.
[00:22:18] Toni: Yeah, um, we don't know the name yet, might be Greg, um, but, uh, but some, someone will leave, right? Um, because what you then get alternatively is, oh, someone is resigning and then you start the process and suddenly you have, let's just say one or two or three FTE slots, depending how quickly you're able to fill this again.
[00:22:38] that kind of go unused, where budget is almost returning, and, um, you won't get a pat on the back for that, for coming in under budget, especially if you're also coming in under, uh, revenue target, right? So really, try and manage this FTE budget as, as tightly as possible. And in some cases it might even be beneficial to you if, if Talent Attraction HR sits under the CFO, to allocate some of your customer acquisition costs to fund Talent Attraction, to make sure that they have enough resource in order to give you enough headcount.
[00:23:11] And, you know, that's always a funny conversation, um, that you probably will have with a CFO as well. But as, as you're being locked in on the FTE side, you really need to make sure you absolutely you know, using this to the fullest. because if you, if you're behind there, even if you hit all of these efficiency improvements will be magical anyway, um, you're still going to miss the plan, right?
[00:23:33] So it's kind of super important to manage that well.
[00:23:35] Mikkel: guess an important piece around this whole disagreeing commit is also then you've kind of, like you said, you actually spend enough time talking about what are the inherent risks. Associated with the plan, so it's not going to be a surprise to anyone when you start executing and you couldn't lift a conversion rate from 10 to 20%.
[00:23:53] Toni: 20%. So, I mean, it's, it's not about preparing your
[00:23:56] Mikkel: No, no. right?
[00:23:57] Toni: But it's, um, it is about, um, making it clear to everyone where those challenges are. And then ideally in your, I don't know, on a, on a monthly basis, update the team, how, how this is going.
[00:24:10] Um, and, and what, what this will then put you in a position of is. Um, as the year progresses, those changes will persist and, and stay, and then you can have a different conversation. The mood in the room will be different. The mood during planning is always being super bullish and, hey, you know, it's, it's just, it's four quarters
[00:24:30] Mikkel: Yeah.
[00:24:30] Toni: come on.
[00:24:32] Mikkel: Just sign
[00:24:32] Toni: All kind of stuff will happen until then. but when you're sitting in June and July is suddenly Q4, it's not that far away anymore. And I think the mood will shift a little bit. Um, but, uh, basically kind of this is, this is, I think this is a way how to stay friends with the CFO. By the way, um, and get through this planning in the right, in the right approach.
[00:24:53] Mikkel: Boom. So super simple approach actually to get started.
[00:24:57] Toni: Ask, where do we need to be on ARR by the end of the year? How much money do I get for this? Uh, from that you can deduct efficiency. Ask the CFO, what's your, what's your take? Why, why all of those efficiency gains? Um, and then, you know, work with your RevOps team to degree careful also with, uh, commercial FP&A.
[00:25:18] On, you know, building this plan out, then you have the back and forth and yeah, usually the CFO will win on the efficiency gains, but you need to make sure to manage those FTEs as crazy as possible.
[00:25:29] Mikkel: That's it. I guess we're probably not done talking about planning yet. There's still plenty of folks getting ready for February. , yeah.
[00:25:40] Yeah, as always. As always. No, but it was good. I, uh, definitely think there's some stuff in here that get people going. Get some numbers, get some math running now and already get a hunch of, uh, how should the plan look next year. That's it. That's what it is.
[00:25:57] Toni: Mikkel, thank you very much.
[00:26:00] you, everyone else, bye.
[00:26:00] Mikkel: Bye.