Why traditional revenue planning methods are set for failure

The role of Revenue Operations within an organization is still fairly new. As it becomes increasingly clear that the go-to-market supply chain is interconnected, the need for an operations team that works across GTM functions and drives alignment and transparency between these organizations is paramount. 

We’ve made great strides in increasing accountability and revenue predictability through the birth of Revenue Operations. But with 80% of sales orgs still missing their forecasts by 25% or more, there is still much work to be done.

Revenue planning is not easy. It spans multiple departments, takes several months, requires massive coordination, and regular communication. The first step in any great revenue planning cycle is to determine the strategy and the priorities for next fiscal year and, in turn, what is deprioritized. Ultimately, these decisions are agreed to with the Board of Directors then communicated to company leadership.

Once the strategic decisions have been made and priorities agreed to, the RevOps and FP&A teams are then tasked to work with their partners to drive the planning details and execute the planning cycle. The goal is to drive aligned outputs such as:

  • Top-line revenue/booking growth targets and “quarterization” of the targets
  • Assignment of revenue/booking targets to geographies and segments
  • Allocation of targets to new business, growth from existing customers, retention and churn
  • Revenue/booking growth targets by product/offering software, and services
  • Tactics to achieve the above targets
  • Sales deployment model (organization, segmentation and teams by geography)
  • Quota setting, ramp modeling, and territory design
  • Sales rep hiring plans and sales capacity analysis
  • Sales Development Rep, Solution Engineer, Manager, and overall sales org staffing plans
  • Recruiting profiles and total comp
  • Demand gen budget and programs, pipeline generation and funnel conversions
  • Productivity and cost expectations

The above should be done in an iterative manner, evaluating alternatives to hone in on the best plan that aligns with priorities and risk profile.  In addition, the stakeholders who have to execute and are held accountable to the above must be part of the process.  They need to have a chance to provide input and feedback and to evaluate and comment on alternatives. They should also feel a sense of ownership and engagement in helping to shape the plan in order to get their buy-in and drive accountability to execution.

Why too many planning efforts result in failure

Company strategy not defined

If company executives and the BOD haven’t defined the strategy for next fiscal year, detailed planning is a waste of time.  This initial stage of annual planning is crucial because it sets the direction for numerous follow-on strategies and tactics that must be planned for, prepared for, and executed. For example, the company's strategic direction may be to grow its European business to be on par with North America, improve efficiency in its North American business, or grow a new product to 10% of revenue.  Each of these decisions drives various tactics and levers that impact the detailed planning around investment, spend, organization design, headcount, KPIs, and compensation. Unfortunately, even when there is a strategy, it’s not unheard of for the CEO and BOD to introduce a completely different strategy within 30 days or even after the start of next fiscal year, expecting the team to create a new plan in a short time period.  If planning doesn’t begin early enough before the start of the new year, the time available won't be long enough to conduct a thorough data-driven analysis, go through iterations, gain feedback and buy-in from stakeholders, and execute all the readiness activities required to start the new year ready-to-go.  All of this leads to plans that don’t have stakeholder buy-in, have poorly derived assumptions, and flawed expectations. 

Example: The North American Enterprise Business team has been primarily selling the company's lead product and exceeding their targets. Given a lack of direction from company executives on next fiscal year's strategy, they worked with RevOps to create a plan with the same strategy and growth of the year finishing up.  Two weeks before the start of the new year, the CEO announced that after a conversation with the CFO and BOD they’ve decided to accelerate the adoption of a new product and need to create a dedicated team in the enterprise segment exclusively selling that product.  All the effort and outcomes, including quota, territories, organization design, headcount planning and demand generation, put into the already developed plan have to change as the team is busy finishing up the fiscal year and planning kick-off.  The new plan is rushed and not optimized and some previously communicated decisions need to be walked back leading to low moral and poor results.  

Recommendation: Start driving next fiscal year’s strategy discussions, conducting offsites, collecting and evaluating data, and getting input from segment leaders starting at least 90 days from the start of the coming year. If you don’t know how to do this, engage with outside consultants who have a ton of experience, proven frameworks, and the ability to facilitate this effort. Give your company enough time for deliberate thought, debate, and evaluation of alternatives to complete the planning of the details.

No planning calendar

Planning can have hundreds of specific steps and tasks and dozens of plan iterations over many weeks and months.  Many have dependencies, like knowing if a goal is to grow a segment by 15% or 50%, that impact that segment's strategies and tactics, organization design, headcount and capacity plan, cost and productivity measures, and demand generation tactics and budgets. If you aren’t executing against a shared calendar you will fail to plan for all the pieces, in the right order, in an efficient way, and in a manner that drives collaboration and accountability.  

Example: Due to lack of a planning calendar and a communications plan, the sales team for the Mid-Market segment has been working on generating a plan to drive 50% growth YoY while the marketing team in parallel has been working on a demand generation plan to drive 30% growth YoY.  With a month to go until the start of a new fiscal year, they are pulled into a joint planning review meeting that was scheduled just a day prior and asked to share the 40% YoY growth plan. They are given just one week to revise and present the 40% plan.

Recommendation:  Create a cross-functional planning calendar. This should document what needs to be done, when and in what order, who does it, and who needs to know about it.  A decision-making framework, whether it be RAPID, RACI, or something else, needs to be deployed along with a communications plan and cadence for review and status updates. This is to ensure that the needed participants are consulted and engaged so alignment is achieved, that there is clarity in who approves decisions, and that outcomes are communicated across stakeholders and organizations.  

Data chaos

Massive amounts of data need to be leveraged for planning.  This includes historical data, forecasted data, and data allowing for analysis to be conducted.  The data that is needed is often incomplete, non-existent, or not fully trusted resulting in a massive amount of time and effort to get it to a place where it can be comfortably relied on and incorporated into planning.  Data chaos is often a result of several factors including a lack of standard data definitions and models across systems and online and offline sources across teams making it difficult and time consuming to combine into a single analysis. Sources are not always defined and the same data may exist in multiple locations each contradicting the other with no clear point of view on which to use and trust. Some data needed may have never been captured historically and efforts to work back in time to create this data often lack accuracy.

Example:  RevOps is facilitating the effort for Sales and Marketing to jointly develop a demand generation plan, programs, and budget to drive significant growth across all segments.  Marketing collects lead sources in their marketing automation solution and sales collects them when an opportunity is created. These sources have not been defined and aligned between Sales and Marketing and don’t flow through all the systems to provide linkages. When each team surfaces their data on sources, the differences were so vast that it was hard to reconcile. In addition, given that a governance document and workflow was never developed, the team is finding it impossible to go back and link thousands of opportunities created by Sales with the upstream lead sources. The team now has to work with data that’s incomplete and unreliable to develop the plan. Neither Sales nor Marketing is comfortable with the plan or confident it will lead to results given the untrustworthy data.

Recommendation:  Create and empower a cross-functional data quality team whose mandate is to solve the data chaos challenges.  The team's deliberations and work should produce a governance document as the main deliverable.  This document will describe data ownership and sources, workflow through systems, data definitions, by whom and how data is updated and verified, and a process to ensure maintenance and changes are conducted in a manner that retains a high level of integrity and trust.

Spreadsheets remain the norm

Spreadsheets remain the backbone of planning and forecasting, especially when it comes to sales capacity. But, they are heavy on administration, tedious to upkeep, and are difficult to control, scale, and share, which often results in a lack of transparency and accountability.  Models can quickly become large and complex as your business grows and evolves with potentially dozens of worksheets and thousands of rows making them hard to maintain.  Updating them with actuals on a regular cadence is laborious, and even if you tried, it’s hard to monitor a large set of KPIs when there's no alerts for missed signals.  They are also brittle and error prone; It’s easy to create data errors, break formulas, or pull from the wrong cell making these errors hard to spot and so many remain unidentified. Sharing and creating visibility is a challenge, and because it's difficult to generate multiple scenarios it often isn’t done.  Structured workflows are non-existent and little context is captured when changes are made.  Sheets are not multi-user friendly, even if you share with others in view-only mode, and it is nearly impossible for someone that hasn’t lived in the spreadsheet to understand what they’re looking at, find what they are looking for, or trace the drivers.

Example: RevOps, FP&A and Marketing have been working on modeling and analyzing a combined funnel plan, from leads to closed-won for each of their segments and geographies to drive total alignment between the GTM organization.  But, with the number of segments, teams, and reps increasing the planning spreadsheet has grown to over twenty worksheets and thousands of rows.  The formula to calculate the conversions from MQLs to qualified opportunities was entered incorrectly and pulled from one stage further downstream.  This error was perpetuated across all segment and geography combinations, leading to conversion rates that appeared higher than they actually were. This resulted in a MQL plan that understated what was needed to generate enough pipeline to achieve the goals.  This was not discovered until the new fiscal year was underway and the company started to forecast misses in both their pipeline and revenue targets.  The discovery forced them to drop everything they were working on and a massive, rapid effort to replan MQL targets and related marketing programs and budgets ensued.

Recommendation:  Ditch the spreadsheet.  Solutions like Revcast let you take advantage of a best-in-class capacity planning model and avoid the challenges and limitations of continuing to rely on spreadsheets. 

The future of revenue planning 

It’s time to stop wasting company resources and missing revenue targets with sub-optimally executed, error-prone, and brittle revenue planning methods. By building better and more accurate plans you are able to improve performance.  The current methods make it hard to align pipeline, sales execution KPIs, recruiting funnels, sales quota, and other planning assumptions. And there is an over-reliance on status meetings just to update the data. Once you get into the fiscal year, it is challenging to update actuals as often as needed and monitor drivers of performance. In addition, because there are no risk alerts, key signals are often missed. The result is that corners are cut in the planning cycles, and the plan isn’t managed or forecasted against with the frequency it should be.

Outstanding revenue performance starts with a great plan.  What we need now is the ability to build better plans and identify risks and opportunities earlier resulting in improved forecasts and increased revenue. While there are best practices organizations can adopt right now to begin to address these issues, what RevOps and other leaders involved in planning really need is a non-spreadsheet based, collaborative planning and forecasting solution that allows you to shift to being more proactive and strategic and less administrative. 

Revcast is being built by RevOps leaders for RevOps leaders to address these challenges.  To learn more about how we could help your sales organization, click here.

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