When planning for revenue, the source of the pipeline and the mix of the sources drive some key outcomes and resourcing needs for the business:
- The amount of revenue you will achieve
- The cost of generating the pipeline and
- The timing of when the revenue will be achieved
This is because each source has its own unique performance KPIs for cost, velocity, ASP (average selling price), and conversion rates. It is therefore critical that you plan by source, then roll up and aggregate to determine the best mix to achieve your revenue targets.
You can create a pipeline generation plan by first evaluating the marketing programs and budget by source along with determining the revenue contribution. If you want to deliver $404,000 in revenue, an initial pipeline generation plan may look like the below, where CVR (conversion rate), velocity, ASP, and cost per dollar of revenue are planning assumptions. You can then iterate on the plan to determine various mixes of sources, budget requirements, and the ability to deliver to achieve your targets -- and go with the best plan that meets your objectives, which may be a combination of cost and risk.
From the above example, we see that Outbound/ABM is the highest quality source when comparing CVR, velocity, and ASP. It is also the most expensive to generate pipeline, but the second-lowest in terms of expense to generate won revenue given its higher CVR and ASP. Conversely, note how a lower CVR and ASP for Organic impact the cost per won deal, driving it up to a higher level than Outbound/ABM, even though the cost to generate the pipeline is low.
But what happens when the actuals deviate?
In the above example, if just the mix of pipeline generated varies between sources, but all other actual KPIs match the plan, you will miss your plan. You generated the same amount of total pipeline, but given the shift to Organic and Webinar, the blended CVR and ASP decrease -- meaning you are generating less revenue for the same amount of pipeline. The overall unit costs of generating the pipeline for the lower revenue also increase.
The same is true if any other actual KPIs shift from the planning assumptions.
If the CVR by sources deviates from plan, while still generating the same amount of pipeline and pipeline mix by source along with ASP per plan, you may also miss your revenue targets. In this case, the lower conversion rates for Organic and Outbound/ABM, against your planning assumptions, resulted in lower ASP and deal count even as the CVR for the other sources increased.
This of course also works on the upside. If the mix moves to higher-quality sources or if other actual KPIs improve, you may have upside in your forecasts, reduced risk, and outperform your targets.
Given that even slight changes in the actual performance of these planning KPIs can drive risk and upside, and that they are likely to vary by quarter and even month, it is critical to constantly monitor, analyze and project (forecast) forward. This will provide early signals into potential risk, allowing you to make decisions to adjust budgets, mix of sources, or implement other tactics to improve the KPIs. If you're not staying on top of the quality and mix of your pipeline, you may be surprised when you look back in a QBR to understand a revenue miss despite reaching or even beating your pipeline targets.
In summary: Build a pipeline performance scorecard, update it regularly, use it to supplement your weekly forecasts, and make adjustments early.
