Stop obsessing over forecasts

Don’t. Obsess. Over. Forecasts…. They’re not fundamentally changing the performance of your business. We discuss where you should spend your time instead.

Show Notes

You can spend time creating the perfect and most accurate sales forecast, but what value is it really creating? Will you close more deals? Generate higher deal sizes? Not really.

You can only forecast accurately as far into the future as your sales cycle. Also, if it's being done to know whether people get commission, you're not creating actual value to the business.

What should you do instead? We're not gonna tell you in the description (sorry).... but listen in and get some very concrete examples and tips that create value for the business.

Creators and Guests

Host

Mikkel Plaehn

Marketing leader & b2b saas nerd

Host

Toni Hohlbein

2x exited CRO | 1x Founder | Podcast Host

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.

[00:01:16] Mikkel: Today. We're gonna talk a bit about forecasts. Yeah. And, You know, weather forecast they're notoriously wrong. So the, the other day I tried to get the kids ready for daycare and outside. It was sunny and hot forecast that rain.

[00:01:37] And how, how do you make a decision? So you just pack everything mm-hmm right. But we're gonna talk a bit about forecasting and why you might not wanna obsess too much about. And so there's a lot of type of forecasting you can do. The thing is we got some feedback the other day. Maybe we should take that feedback now. Right? So we have a bunch of acronyms. In our space.

[00:02:01] Toni: Yeah. I think SaaS, they go, yeah. Software as a service, very much, very heavy in all of those acronyms. And for some reason they're all three letters. Did you notice? Yeah, it's always, basically three letters. They're very few that are two or five or something like that.

[00:02:16] And I think to make it more accessible, we're gonna try and, you know, stop each other whenever applicable, and explain some of that stuff. And I think sometimes we're gonna. Some, some of the acronyms will at some point, just assume that people know. Let's see about that. And some of the other stuff that we are that we are using little bit less frequently, will, will kind of double click and explain.

[00:02:36] Mikkel: Yeah. I mean, we love feedback. We wanna make the show better. So if you have any drop us a message at [e-mail]. Yeah. Thanks Tobias. Yeah, good shout out. So what type of forecast are we gonna talk a bit about today? And, and how does it usually work? Let's let's start from the beginning there and just, you know, set the stage.

[00:02:54] Yeah. So there are all kinds of different. Things that people call forecast in SaaS or in, in sales. Sometimes the CFO calls, you know, the year forecast and kind of says re forecasting is what they do on a, maybe on a quarterly basis. Really what most people refer to as a forecast is in sales. When it is really a couple of opportunities are progressed to a certain stage.

[00:03:19] And then, someone asked the sales manager or the VP sales. What number are we gonna hit by the end of the quarter, that that usually then is considered the sales forecast, and what the VP sales then usually does either goes into the CRM, but basically, sums up all the different opportunities or deals that are open, checks, the probability of them closing by when.

[00:03:43] And then the value attached to those probabilities. Right. It's really kind of a, what is it, it's not called a weighted average, but basically kind of calculating it out. Yeah. And then there comes out a number and that then sometimes tends to be the forecast.

[00:03:56] Mm. And there's a couple of problems with that and I can already now.

[00:04:01] Maybe drop a bit of the shoe here. There's someone sitting manually entering this stuff, right?

[00:04:07] Toni: I mean, you can, so, so some of that forecasting problem has been solved also through tooling. I think there are a couple of issues here that you have the, let's just start with the, the, the most basic standard way of doing it.

[00:04:20] So, as I said before, you would have a, an account executive in a. Entering that information to a cm, custom relationship management software. I think it's, I think there's gonna be a challenge anyway. And then you kind of, you know, click a report and then you have that stuff, right? Some flaws here, obviously that the a are not putting in the, the data correctly that they maybe don't know.

[00:04:42] And maybe the VP of sales is a different opinion, yada, yada, all of that. And then there is you can use forecasting software as well, to basically look at those opportunities and, you know, check how similar opportunities have behaved in the past. They're using, you know, even activity, data and stuff.

[00:04:59] It's pretty sophisticated. It's pretty good. I think, and, it does help you to kind of shortcut this whole, you know, what's the number we're gonna hit at the end of the, of the quarter. Right? And, and then, you know, when you then go a little bit away from this midmarket enterprise approach where you have sales cycles that are 30 to 30 days, sometimes to nine months, right?

[00:05:20] We have forecasting is really impactful because, that, you know, the forecast basically. Something that only allows you to look into the future as, you know, your average sales cycle. Right. Maybe, you know, think about that, but that's basically only what it does. Then you have SMB businesses, or SMB companies selling to, companies selling to SMBs.

[00:05:40] And they sometimes have, sales cycles of two weeks. Yeah. Or 30 days or something like that. We can forecast two weeks out. So you can basically forecast two weeks out. And, the, the funny thing is your, the CEO will still ask the VP of sales. What number are we gonna hit by the end of the quarter?

[00:05:55] Yeah. And now the VP of sales actually needs to do, usually what they do is, they kind of guess a little bit been there myself. That's a little bit what you do. But basically now you are having, you're blending two things. You're kind of having on the one inside, you're having a little bit of a forecast.

[00:06:11] So you look at the stuff that you have in front of you. You say what the probabilities of those. And then you also know, Hey, I'm gonna create something tomorrow and the week after and so forth. And this is where in our world, we are merging in something that we would call a model. Actually, right now we kind of know, Hey, there's stuff happening in the future.

[00:06:30] That then also will close and that in total with what I have today and what is gonna happen tomorrow, that in total is then gonna be, you know, the number for the quarter.

[00:06:41] Mikkel: So, Why, why are we so obsessed? Mm-hmm about the forecast.

[00:06:46] Toni: Yeah. So, and that is a, that is a really good question. Thank you. I think, it's not that we've written it down or something like that for you.

[00:06:54] No, but, so I think there are a couple of reasons and, and forecasting obviously is super popular. A lot of people are obsessing a lot about it. We obviously believe that they obsess too much about it. But really the purpose of forecasting I think is, I think on, you know, number one, you, as a CEO, you, as VP of sales, you wanna be giving the correct number upwards that some of your peers then can lean on and, you know, then communicate.

[00:07:25] Potentially to the board, potentially to, you know, your shareholders, if you have something like that and so forth. Maybe you want to even make, or base investment decisions based on this. So it's, it's usually a pretty sensitive thing. Right? You wanna get it right? the, the other reason is a little bit more down to earth and practical.

[00:07:44] It's am I gonna get paid my commission or not this quarter. And that is, that is usually. Not not to try to kind of talk it down, but that's usually the, the driver that then the VP of sales test, then also to, you know, the rev op guys, it's like, Hey, you know, what number are we gonna have? And we really need to get this forecast tight and everything needs to be perfect.

[00:08:07] Sure. I need to report this up, but also am I gonna get fired or am I gonna get, you know, can I, can I buy a new house or something like that? Yeah. Right. Kind of those are, those are some of the motivations behind it, which are put in place on purpose almost. Right. That's the idea with all of that commission stuff.

[00:08:21] And I think those two things, you know, combined is a little bit of, you know, confidence, you know, that that's, that's what it describes and, what it helps you communicate. I think. The last part here is something that is more about, using it as a. Enablement tool for your sales folks, grilling someone on their, pipeline and deals to create that forecast usually is also a great coaching opportunity.

[00:08:54] Usually it kind of helps, focus, the account executives on the right things. And it reinforces the sales process that you may be put in place. Right. Mm-hmm but that's it. Yeah. So, and, and I think this is now, you know, rounding this. the issue is that you could argue none of it really created much business value.

[00:09:17] No, and that's kind of our problem with this. And, and then why we're saying people shouldn't obsess too much about it really kind of, you know, taking two steps back. Does it really fundamentally change a business if you close something on, you know, March 31st versus April 1st, or, or any other month or quarter.

[00:09:35] And the, the answer's likely no, right. You could probably say that, Hey, wait, wait a minute. You know, if you do all of this enablement for those reps, maybe their close rate is gonna go up. Maybe the ACV is gonna go up and that's probably true, probably totally true. But really, you know, zooming out and looking at the, you know, well, the revenue formula actually, you're really only touching two things in a slight degree.

[00:09:59] and we just believe it's, it's an insane amount of time. Yeah. Wasted on, you know, that specific part of the, of the funnel. Right. And the funnel is much, much larger than this last, last couple of steps in that, in that process. Yeah.

[00:10:12] Mikkel: And I think also if you have an organization where. The account executives need to sit and assess all this, put it into the CRM.

[00:10:19] So assuming you don't have a tool that does it for you, right. That takes a lot of time. Then the sales manager needs to compile that revenue operations is involved. Then you know, C level, there's a lot of people spending a lot of time on something fairly simple.

[00:10:33] Toni: And, and I think there's no. Well, you know, I'm not sure if it's simple necessarily.

[00:10:37] I think in some cases it's not so simple. But I think what it also creates is if you. If you create lots of air time and pressure and focus on it, as a, as a C level or as a, as a VP level, well guess what everyone around and below you will do, they will kind of focus on this all the time. Right.

[00:10:54] And instead, you know, thinking about growing your business, what could be more impactful than increasing your conversion rate by, you know, a point or two or your ACV? You know, maybe 10, 10 points or something like that. Well, it is, how can I get more of those opportunities? How can I get more leads? How can I set up another revenue stream?

[00:11:12] How can I do all of those things instead of, trying to, capture all the, the, the brain time in your organization to kind of focus on this forecast thing that really doesn't, you know, move the needle much.

[00:11:26] Mikkel: So basically we're saying. Forecasting is not like you should stop doing it. There's still some value, but too much time is being spent on forecasting in itself. And that limits you from doing, you know, other things that will have an impact on the revenue generating initiatives you can run.

[00:11:45] Toni: Yeah.

[00:11:45] I, I think if anyone here listening to is taking one thing away is that, Creating a forecast or focusing on forecasting really actually doesn't move the needle for the business. It really simply doesn't and you should spend time accordingly. Obviously, you know, you shouldn't disregard it, you shouldn't forget about it.

[00:12:09] It has a purpose. It's, you know, it's there for a reason. But at the other side, there, there's, there's a clear limit to what that can achieve for you as, as, as a growing company and, and having that realization. I think it's really important because there is a lot of time spent on. Where people just need to say, like, wait a minute, why, why are we doing this?

[00:12:27] Shouldn't we kind of do something else instead. Right. And I, and I do feel that, you know, VP sales, for example, you know, that is his or, or her full-time job, of course, but it's not the full-time job of the CRO. It's not the full-time job of revenue operations. Those folks actually are looking. The full funnel end to end, and that funnel starts with, you know, your demandgen activities and it ends with customers churn upselling. The forecasting bit is really just a small piece in between.

[00:12:55] Mikkel: So maybe going a bit, you know, taking a left turn. How, if you're in the situation where you have VP sales constantly in need of this forecast. You're sitting in revenue operations and you know, okay, this is not gonna help us move the needle.

[00:13:10] It's gonna be, you know, we can look out two, three weeks, that's it. And we're not gonna make a material impact for the coming months after that point in time. How should they navigate that conversation?

[00:13:22] Toni: Yeah, I think number one. Set up a system and structure around the forecasting. That makes sense. In some companies that might be a weekly meeting and some companies it's, you know, twice a month or something like that.

[00:13:36] And, you know, lock it in around that. Then the next thing, the conversation that you should have in those forecasting meeting should be highly structured. It shouldn't be. You know, going back and forth and every single specific deal should be discussed and, you know, and the, the, the prep for that should just be time boxed.

[00:13:55] Yeah. That's that's I think how I'm, how I'm thinking about it. And then usually what, you know, VP of sales and revenue operations then kind of end up with is kind of an Excel spreadsheet somewhere. And, you know, We all love and hate it. But try not overcomplicated it. Yeah. Right. Kind of don't don't, don't spend your time on this.

[00:14:12] If you are in the position to buy forecasting tooling for that, do that, by the way, Growblocks doesn't do forecasting, we're talking a lot about those tools, but there there's some other stuff out there you could, really nicely buy. And I think much more importantly, have a conversation with your stakeholder.

[00:14:29] That you could spend your time also on other things that drive actual revenue for the business. Yeah. And, and educate them potentially. And that sounds, you know, sometimes a bit, arrogant obviously, but you. Walk them through the logic here and say, wait a minute. You know, the time we're spending on forecasting, that really is a sales enablement for the AEs and we shouldn't overdo it.

[00:14:53] We should rather spend some more time somewhere else. And here two other projects I could do instead. Dear VP, should I rather work on this or should I, you know, tweak the, the forecast on a weekly level to the end degree? Mm.

[00:15:04] Mikkel: So we talked a bit about, forecasting now mm-hmm right. What it is, you know, why you should still have some level forecast, and also how you can buy essentially time to other things. One of the things you and I discussed, last week was essentially, well, what do you then do with that time instead?

[00:15:21] Right. And where can you then start to make an impact on revenue? Because that's ultimately where we want to get. And I really, you know, I really find it helpful that we're providing a process you can follow, to kind of make sure you don't overspend on, on forecasting, but you might then wanna channel that time into something else.

[00:15:41] Toni: Yeah. So I think this is, so I had this problem a. And also from a RevOps perspective. So how can I actually kind of help drive growth? I mean, it, it comes a little bit back to, I was kind of touching on this very briefly just before kind of the revenue formula. Yeah. Right. And in its simplest form, the revenue formula means number of opportunities, times the conversion rate of those two closed one times the average contract value ACV.

[00:16:10] Times the sales cycle. Yeah. You know, in that case, sales cycle is a little bit, you know, different, and then leading to revenue right now you have those four variables. And if you look at them, you will very quickly kind of come to the conclusion that the conversion rate stuff, it's kind of channel dependent.

[00:16:29] If it's outbound, you know, you will have 10%, depending if it's inbound, it might be 20% in the midmarket. It might be 40% in the SMB. but, but it's usually pretty locked and pretty stable over time. Yeah. You can do some enablement, but it's difficult. Your average contract value usually also fairly locked in.

[00:16:48] Right. You can do some product development and so forth, but usually the, the contract value is also simply dictated by the competition you have, right. There's a market. Sales cycle is basically dependent on the average contract value that you have, the higher that is the longer your sales cycle's gonna be.

[00:17:04] Right. So you're gonna end up looking at this and realizing, wait a minute, those three factors here, they're kind of locked. Yeah. They're kind of, you know, stuck in time. Maybe can move, you know, one or two of them up just a little bit. What's gonna come out of the, you know, at the end, in terms of revenue, it's kind of limited, right.

[00:17:22] So really you're gonna default back and be like, well, the one thing that I can, 10 X or a hundred X or a thousand X is this opportunity thing. Mm right. And then spending time on, you know, figuring out how can we get more of those. And that sometimes is. Is, is a twofold thing. So one is, you know, what other channels can we create?

[00:17:43] And you know, how many more SDRs can we SDR sales development reps? Can we, can we add, you know, or can we, can we do something else here with partnerships and so forth? But the, the other side of the coin is also. Which of those channels is maybe, most impactful in a CAC payback perspective. So customer acquisition cost, payback it's.

[00:18:04] So that really means, it's the return of investment on your sales marketing investments. And, you know, looking, looking at that channel by channel, it, you know, the reason why this is interesting is you could then figure out. You know, where can we maybe improve efficiency wise? Why is it important?

[00:18:20] Well, then you have more money. You can, you know, put back into the machine in order to create more of those opportunities. Right. And looking at that problem for a long time and really deeply, solving that and creating more opportunities. That is really, that is really the key. And sometimes I kind of, I joke about it.

[00:18:40] And the one thing that's not discussed in those forecasting meetings, which should be discussed all the time, are all the deals that never ended up being created and therefore not being in the forecast. Mm. Right. Is kind of all of the, all of the opportunity, largely, you know, largely speaking all of the people that don't know you, all of the deals that didn't get to a specific stage.

[00:19:00] Those are, this is probably a much, much bigger. A source of, of additional revenue then, Hey, is this still gonna close? In two weeks or in three weeks?

[00:19:10] Mikkel: yeah, I think it's, it's helpful to kind of have that Northern star of knowing if you can increase the throughput of that formula, then you will get more revenue mm-hmm and I remember we at some point talked about, Hey, can we lift the production per SDRs or sales development rep, meaning how many meetings they would book mm-hmm and.

[00:19:30] Obviously we didn't know, but we tried and it didn't work out in that case, but I think that's the type of work you need to hone in on and figure out where do you have some levers potentially you can pull to impact this and, and the forecast, guess what is not gonna be, what helps you get there? Yeah, it's just not,

[00:19:48] Toni: I think this is a great point, actually.

[00:19:50] So let's just maybe quickly come up with one or two or three examples of where can, you know, small improvements lead to more opportunities. Mm. Maybe we look at it like that. Actually. One, as you mentioned, increase the average, meeting booking per month per sales development rep mm-hmm right. We, we, we tried that before, sometimes the work sometimes didn't, there's some, you know, hilarious stuff that went on there, kind of, we spend a lot of.

[00:20:15] commission money. Didn't move the needle at all. and then really this is a great revenue operations job actually kind of okay. What is really the limiting factor here for those SDRs and sometimes it's, workflow, sometimes those access to leads. Sometimes there's something else sometimes it's, Hey, this, this thing in Salesforce takes me 10 minutes.

[00:20:33] Every time I need to do it, I need to do it a hundred times a day. You know, can someone optimize that away? Right? That's totally one. I think another one is, if you think about the inbound side of things, how can we, and this is a, this is a typical one and then some people hate it. But you know, it does work though.

[00:20:50] How can we cut down the time for first response, to below five minutes or two minutes? Yeah. Or something like that on an inbound. Right. So inbound land. How long does it take for, one of your, in this case market development reps, you I'll jump on a call and reach out or write an email or touch them in any other shape or form, could sometimes also be, through chat app and stuff like that on the website.

[00:21:15] Right. If you decrease the, the, the time to first, you know, dial basically here, you know, you know what your, your contract rates are gonna. And if you have more connect rates, you will be able to have more conversations which will lead to more actual opportunities, right? There's some, you know, outdated potentially by now, but have a business.

[00:21:38] Review study or something like that, kind of showing this curve, like very clearly. So those were kind of two examples. Mm-hmm

[00:21:44] Mikkel: there's a third. And the third is you're in most cases gonna have a marketing department that spends a lot of money on paid advertising. Yeah. And what happens? And I, and I, and I know this because I've spoken by now with a few marketers at different B2B SaaS companies is you keep running things the way they are.

[00:22:01] And you just pull more money equally into the different channels and markets. But the problem here is you're gonna have a market where you can go and buy an opportunity for less money. Mm-hmm. So why wouldn't you start scaling that at the expense of another market? And usually this is a really tricky conversation.

[00:22:18] Yeah. Because you're gonna have a sales manager responsible for whatever market that you potentially want to cut a bit on. And then it's, you know, a bit of politics and this is a point where revenue operations play a crucial role. Yeah. Because they're not biased. They can present the facts and there could be a conversation around how do we then change the allocation.

[00:22:39] And I think there is so much opportunity here. Even if you start looking per channel, you're gonna have the same where it's, Hey, we've always run Instagram ads or, or something else. But there's not value in it. And it's, it might be more sensible to take that budget and say, well, Hey, this is not demand gen mm-hmm

[00:22:58] This is, we can use that for awareness building mm-hmm let's go and do something else where we measure it differently. So it has a long term. Yeah. Impact instead

[00:23:06] Toni: no, and revenue operations can totally help out. And, not only navigating that conversation with, you know, the sales manager, but also.

[00:23:13] Maybe staffing this other team that gets more to a different degree, right? Yeah. Kind of basically thinking through the full funnel kind of when we, when those two things are being, you know, achieved and built, that that makes actually a bunch of sense. And then maybe kind of a last one is, your existing customer base, right.

[00:23:30] It's kind of a typical, you know, great way to get some opportunities. tactical stuff is. you will obviously have in your customer base, lots of, turnover on the, on the customer side. Mm. So your DM or your user or something like that will DM is decision maker will leave, and go to another company, figuring out how to that.

[00:23:55] And then feed it back as an opportunity or is it in that case kind of as a lead to sales or to account management is a perfect way to say. Hey, John, you know, I know you really loved working with us, back there, you know, company X, Y, and Z. Have you thought about implementing in where you are right now?

[00:24:13] Right? Kind of that is inherently difficult to kind of, you know, piece this together. but it, it can work and it then is really, it's a very warm, spot for your reps to prospect.

[00:24:25] Mikkel: This is the most tactical we've probably become. Yeah, I kind of, I kind of like it. I hope there's gonna be some good feedback on, on that one.