The Sales & Marketing Leading Indicator to Drive Forecast

for those that don't know me uh my name is Jeff Schwarz I'm founder and CEO of data room HQ uh we work with SAS companies to help automate and optimize their metrics their SAS metrics in doing that we've gotten to lucky enough fortunate enough to work with hundreds of companies and we've noticed a trend in working with those companies there's really two ways we've seen companies forecast their revenue the first way is through what people call sales capacity modeling and that's a little bit of a folklore thing when you ask them why they do it that way it's usually the answer is it's always

been done that way um but they don't actually that's really the answer you get from them the second way is the SAS 101 formula and we're going to talk about both these ways and what we've noticed is the companies doing the Folklore Way uh they seem to be over promising their revenue and not delivering those results and the people using the SAS 101 formula seem to be hitting their revenue uh projections quite quite in line so that's what we're going to talk about we'll dive deep into both of those and one of our customers uh was nice enough who uses the SAS 101 formula let use their data to actually

show how they did this uh throughout this whole process so talking about that customer um the end of 2022 is where we're going to be talking about and they grew from about 6 million to 15 million in 2023 and it's what they did at the end of 2022 to be able to predict uh what they were going to do in 2023 you could see the blue is the plan that they came up with at the beginning of the year and the green is what they hit so pretty much right in line uh between what they said they were going to do and what they

actually did so there's a fair question to ask first though why does forecasting Revenue even matter it's a very fair question to ask so let's say you a $10 million business you grow to 19 million uh and your plan was 20 million you grew by 90% you should be really happy right um but unfortunately you didn't hit your plan and that's gonna have a lot of impact to your business and um why is that the case well the the first reason is when a company is coming up with uh their forecast for the year one of the big

pieces is how much are they going to spend what their expense structure going to be like and by not having that going from 19 to 20 by missing that $1 million they're going to have a million dollars short in the bank account which is going to impact their Runway which is essentially going to impact how much time they have to hit whatever those strategic goals are so that's the first thing the second thing is the team is coming up usually with the best outcom so maybe a Company's trying to get to IPO maybe they're trying to get to cash flow positive maybe they're trying to raise that next round maybe they're trying to get acquired but the high level goals that they're trying to hit

is to hit those objectives so it is super important um number one I think is uh the most important a lot of times you see riffs or company shutdowns because of that one so at the end of the year usually what happens uh typically the October time period so in a month from now Finance gets in a room uh they start looking at their three to five year plan and they're saying hey next year we're gonna have to hit this many dollars uh in new business AR if we want to hit our plan sales is usually going to panic a little bit they're going to say oh that's quite aggressive um we're going to need more people to do that and

usually that's the answer is we need more people to do that my clicker doesn't seem to okay there we go so in this example their Finance team came and said we're going to have to hit 13 million to hit that goal to get to that 15 million they wanted to get to 13 million in new business AR and so and you can see that the jump from 2022 to 2023 the sales team said okay so what does that mean for me what do like how many people am I GNA have to bring on on to to be able to do that so they looked at what they call sales capacity and

what they did is they said okay we have 10 reps that are ramped um so there's this concept of r ramp uh that they that they use and the average quota was a million dollar a year they broke it down to 250k per quarter so how much do I think my team's going to hit and then what percent of that number am I assuming the team is going to hit so 75% was their assumption when you multiply those three numbers through they got to 1.875 million in new business ARR each quarter which equaled 7 and a half million in overall and that was based

off the 10 reps that they had now if you remember my prior slide though the finance team said hey we need 13 million sales team said hey we can do 7 and a. half million so there's this Gap 5 and a half million short where's it going to come from well from a sales perspective in capacity modeling they say okay well if I hire now it's going to take them six months to get up and um you know up to speed on the product and be able to sell and be what again they call fully ramped and they're only have a half a year left of selling at that point so they only can do 500k for their half of the year so I'm gonna actually need 15 additional people to be able to

hit that number and to me this is wrong uh and we're going to get into Y in a second but ultimately what the formula looks like is ramp reps quota assumed attainment you multiply those three that's what uh how sales teams usually forecast for the next year now a few major flaws in this the first major flaw and I think it's the biggest flaw if you look at the formula it assumes you could hire any number of people to hit any goal you want you want to hit a trillion dollars in new

business AR hire a trillion reps it literally the formula says hire more people you'll get more business from any talks throughout this week you can kind of get a sense when people went with hiring that's when they ran into a lot of issues if that was the answer to a problem uh it's usually you should take a second look so that was the the first major flaw the second major flaw is so teams that do hire aggressively to do that if they don't hit the number then they have to usually fire aggressively right you see these layoffs and Rifts and things like that happening at these companies the third thing and this is

quite important is by the time you actually know if your uh attainment assumption was correct at 75% number by the time you know if it was correct it's too late you either did or you didn't hit the number there's no no course correction um so you're you're relying a little bit on Hope um which is not the best strategy and then lastly what this is actually telling you sales capacity it even says it in the definition capacity how much can a rep if there's demand coming in can they handle how many meetings are they gonna have a day with follow-ups and things like that how much

business can they actually handle so it tells you the demand you can cons serve but it's not going to tell you what that demand is this could be super uh important though if used properly this is actually useful but it has to be used in conjunction with what you call the SAS one1 formula and that's what we're going to get to get to now so I saw this uh this comic the other day and I found it quite quite amusing I know not just because there's this bald guy on on stage giving this this talk um um and it's not just me on stage giving this talk but because he's saying the sky is

blue something so obvious and when I'm going to tell you is so obvious and so practical yet no one is really doing it most companies are not doing what I'm about to show you so what is it the SAS 101 formula well new business AR how many opportunities are you going to create what is your average deal size you multiply those two numbers together and then what is your win rates over time key thing here is over time most companies do not look at things over time they look at win rates it's very naive and let me explain why it's naive

they look at wins divided by wins plus losses the problem is is losses most companies their sales reps are leaving things in Salesforce open because they don't want to say it's lost so it creates a very aggressive assumption around you have this amazing win rate because nothing gets lost so it's really important to look at things that are open and included in losses if it's one month two months three months you you create this win uh win rate overtime curve so you multiply those three numbers together and that's how you're going to get to your new business AR so now let's dive into how this company um

did this uh in 2023 or the end of 2022 to plan for 2023 so the first thing they did is the number of opportunities they created a goal for that so first they listed out all their opportunities that they thought that they can actually generate demand buy inbounds events um they had some Outsource sdrs I believe they ran LinkedIn ads they had a referral program and there was an owner a name tied to each of those things it might be the same name tied to multiple like you someone might own multiple of them but there was someone who said this is how many opportunities I can create

given the current team that I have uh by month so you can see that it goes across each month um so inbound like 10 in the first month 12 in the next month and actually is saying how many opportunities I am going to create in each month and they look at their average deal size around 25k very important I think you should rely on historical data here unless there's a reason not to there should be a reason to deviate from a historical number here and not just put some number down because it's optim if it's overly optimistic win rates over time so they look at their one month six

month 12-month win rates which is what you see there and then of course going into a year you have pipeline so the first three things are future pipeline we call it the last thing is existing pipeline things do exist at the end of the year that you hopefully will close in the following year so I see people taking pictures so I'll pause a second before I before I go to the next slide but so they multiply all that stuff together and there's some key key benefits to this the first benefit is the thing the opportunities you're creating aren't going to close three to

12 months into the future right average salale cycle you know in Enterprise space could be nine months a year uh could be three months if you're selling smaller deal sizes but usually uh it's 3 to 12 months so by the time you know if you're G to if you hit that opportunity goal you have plenty of time to make up for it it's not too late so you can actually course correct that's very important the second thing is each source that you you see listed here there's a Playbook right if you want to

uh increase your events and you have a person who owns events you can sponsor a booth you can do you can work on your campaign prior to the event and after the event if you want to we just had a whole conversation on LinkedIn ads um so if you there's a whole Playbook right around LinkedIn ads you can try to increase your conversion and your click-throughs on LinkedIn ads you can try to um you can spend more on LinkedIn ads if you want to but there's plays you could do maybe you want to create an employee referral program or a channel partner program there's playbooks around all these things the answer isn't hire

more it's actually you can actually go one by one and figure out what things are you going to do to actually drive demand in your product so that's the second piece the third piece is if one of them starts to not work and again this is fluid right things sometimes stop working you can bring in new channels so maybe you were doing LinkedIn ads are working and you're like okay maybe we should try Facebook ads because some of our other channels aren't working you could bring these other things in maybe you want to try a podcast maybe you're you're going to create a news letter to drive inbound you could try different things and experiment and it really

creates this culture of experimentation which which is great and then last thing and the thing you know I'm a math person so the thing I like the most is this is a Formula um if you hit those indicators you are going to hit your number um it's it's just math and if you miss a piece of it you could always make up for it in another piece of the equation so they did all this and they got to their 2023 projections uh based off of that ranged from about 1.6 to 2.6 or 2.5 million based off the quarter um once they multiply those those number

through now is the perfect time to Overlay sales capacity on top of that to see if there's enough capacity to cover that demand which is what they did if you remember earlier on there was 1.875 million in capacity per quarter and when you do that one of three things is going to happen either the numbers are equal which is great you're in a state of equilibrium which means that your supply and your demand are equal and uh there's enough demand and Supply everyone's gonna be happy there's another situation where you're creating more demand than

reps you have in which case you will have to hire more reps to cover that demand otherwise the reps are going to be too too you know busy um the other situation is you have a ton of uh sales reps but there's not going be enough demand to do it in which case you probably need to unfortunately course like you know right siiz your business um and I think it was Sam who was earlier talking about this actually he was talking about you before you hire a rep look at their calendar and see if they have I forget exactly how many maybe it was 15 meetings a week or three three good meetings a day and if they're

not then uh then you probably shouldn't hire a new rep and this is similar to that it's do is there enough capacity uh and demand you should be aligning those two things so you overlay that that in this case their first three quarters were pretty aligned the fourth quarter there was this Gap um they needed uh they had 2.6 million in demand but they can only cover based off their formula [redacted phone] million uh so they decided they have to hire more then they used the capacity model to figure out how many reps did they have to hire in this case it was four reps they overlaid that and then they compar those three numbers

things started to align um so that was how they put that piece together and then the beauty is you could course correct like I mentioned so they um in I think it was May uh when they were tracking how many opportunities were being created by Source they were able to see which channels were doing good which channels were doing bad and a few channels were not performing well um so they actually I think so 70 something was the how many opportunities they created uh or they were wanted to create in May and they only created about 55 opportunities so

they were short 18 so then the question is how are they going to make up for that right it's not too late they have plenty of time to to figure that out again the opportunities they Clos there aren't going to actually convert for three to 12 months into the future so they still have time to make up for it so they actually did four things uh one thing is they looked at they were doing very well on events so they did um I think they added four events to their event calendar sponsored one of those events the other thing that they did uh was they saw LinkedIn was doing quite well so they increased their linkedin's

ad budget that is an expense place so that is a conversation that had to happen um and then the third thing uh that they did was they actually had each sales rep host a local dinner um in different territories throughout the throughout the country um because they saw events were converting well so they they invested a little more in in person so they were able to course correct uh when they right when they fell behind and the result as I showed at the beginning was you had the blue blue and the green line right in line so they hit exactly what they said they were going to

hit so the beauty is this is so simple to apply um and it's very easy to to utilize so I'll quickly go through how you can apply this to your company um so the first thing just list out every single lead Source possible that you can go after inbound channels Tech Partnerships events uh ads um there's so many out there and assign a person at the company to each one of them someone should be responsible for that channel the same person might be responsible for multiple channels if you're a small company but someone should be

responsible and have them come up with a plan for how many opportunities they're going to create each month and maybe that plan isn't meeting your expectations so there is a discussion that happens there around okay maybe we want more opportunities in certain months so there's a discussion that could happen there determine the average deal size and the win rate over time and this should be based off a historical data right again this should be an analysis done to figure out what you should use as assumptions now there are ways to optimize those things so you can uh you know if for instance win rate over time

you can invest in sales enablement and things like that and coaching to help increase win rates or maybe you start to go up Market to increase average deal sizes so there's things you could do but there should be a reason that you're changing those assumptions you multiply those numbers through you add your existing Pipeline and that's going to get you to the new business ARR from a demand standpoint how much demand there is uh that you can actually uh cover um um after that you are going to then overlay your sales capacity you're

going to say okay this is how much demand I have now let me look at my sales capacity are those aligned if they're not aligned Something's Gonna Have to gonna have to give then bring in the finance plan make sure those three things are aligned this is where a lot of the conversation happens between sales marketing and finance or should happen between sales marketing and finance um if things aren't aligned here something's going to break throughout the year and uh so you have to be get very aligned on number six here and then seven if you ever fall

behind on the number of opportunities uh that you that you created in a month again it's 3 to 12 months until that's actually going to convert so you have time uh to catch up and then the beauty is it's a math formula if you hit these numbers these indicators you said at the beginning of the year you are going to hit your plan at the end of the day it's just a math formula so u i see people taking picture this so I'll wait a second but uh this is I think the last slide so I'll leave that up there but uh if you have any questions I'll be around for a little bit appreciate the time and and thank

you very much [Applause]