With 2021 officially underway and your Revenue Planning cycle in the rear-view mirror, it is a great time for CEOs to reflect and capture learnings for next time. Aside from “starting earlier next year,” what are the biggest takeaways from your Revenue Planning process? SBI has seen a dramatic difference in how market-leading companies build their revenue plans vs. market laggards. Read on to see how your organization stacks up.

Regardless of your industry, the number of employees, annual revenue, or any other characteristic, SBI has seen several similarities in how market-leading companies build their revenue plans. These companies are defined as the top 9% of organizations that grow organically faster than the industry and their competition.  2020 introduced many new variables into the revenue planning equation, but the core principles remained the same.  Market-leading companies use the following 4 approaches to develop and operationalize their annual revenue plan.

 

Revenue Planning Best Practices From High Growth Companies:

 

  1. A framework that incorporates top-down and bottom-up modeling to balance expectation and reality.
  2. Clear decision criteria are used to prioritize “big-bets” that will be used to close the gap between top-down and bottom-up models.
  3. A shift from a “one-time project-based” planning process to an ongoing evolutionary program.
  4. Execution and alignment driven by interlock and tracking of behavioral, leading, and lagging KPI’s

     

Before we get into the details of each best practice and see how your organization compares, you can download our Dynamic Revenue Planning Tool to review and leverage as you kick-off 2021.

 

Download the Dynamic Revenue Planning Tool Here

 

Framework That Incorporates Top-Down and Bottom-up Modeling to Balance Expectation and Reality

 

All organizations use a top-down methodology to arrive at their annual target, while few use a true bottom-up approach.  A top-down model should incorporate a combination of industry growth rates and historical growth rates to land on a target, which is then cascaded down through the sales organization based on team and sales motion.

 

Many organizations fail to understand how achievable these numbers are based on rep level performance—a true bottom-up model helps achieve this.

 

A best-in-class bottom-up approach works by leveraging rep level performance data and improvement assumptions to arrive at a likely revenue scenario for the upcoming year.  Data points to include are current pipeline dollars by stage and likelihood of closing, percentage of deals that will be created and closed in year, win rates, territory potential, and sales cycle length.  A baseline needs to be determined for each KPI, and then assumptions are used for percentage improvements based on new programs that will be executed.

 

Example calculation: (Current FY21 Pipeline + Assumptions for the number and $ of opportunities created and closed in year) * close rate = preliminary rep level bookings assumption.  Adjustments should be made based on territory potential and sales cycle length to arrive at a final rep level bookings assumption.  These rep level assumptions can be rolled up and used as the bottom-up model, which can be compared to the top-down objectives.

 

Clear Decision Criteria Used to Prioritize “Big-Bets” That Will Be Used to Close the Gap Between Top-Down and Bottom-up Models

 

After comparing the top-down and bottom-up numbers, there will likely be a gap that needs to be closed.  Market-leading organizations use clear decision criteria to prioritize “big-bets” to close this gap.  From a go-to-market perspective, select 2-3 big bets that will drive improvements in one of the core KPI’s from the revenue model.  For example, scaling the inside sales team will increase sales velocity and drive additional in-year wins. At the same time, a targeted enablement program will improve win rates or new alignment for your sales engineers will shorten sales cycle length.  This clear framework will ensure the right bets are placed, and the revenue plan is achievable and measurable.

 

Shift From a “One-Time Project-Based” Planning Process to an Ongoing Evolutionary Program

 

Most organizations view the planning cycle as a finite point in time from September to December of the previous year.  High growth companies view planning as an ongoing revenue program that is constantly being measured and iterated.

 

A Revenue Growth Office (RGO) is the operating mechanism for ongoing revenue planning.  This function is typically aligned to revenue operations or set up as a standalone function, but the same key principles apply.

 

  1. Define the integrated Workplan and cross-functional dependencies to ensure all revenue growth initiatives are successful
  2. Establish an execution-oriented governance function with weekly cross-functional reviews of scorecards and revenue impact
  3. Focus on speed, agility, and consistent execution – “perfection is the enemy of progress”

     

As the RGO is rolled out and initiatives are executed, this forum is used to monitor, iterate, and adjust plans to ensure targets are achieved.  High growth companies do not sit back and hope their plan is achieved; they ensure results are realized using this ongoing process.

 

Execution and Alignment Driven by Interlock and Tracking of Behavioral, Leading and Lagging KPI’s

 

The foundation that holds the 3 previous best practices together is a consistent set of KPIs and functional interlock process.

 

  • Behavioral indicators – measure if the team is doing the right activities, i.e., number of sales meetings held
  • Leading indicators – predictors of future results, i.e., dollar pipeline generated
  • Lagging Indicators – rear-view mirror telling you what has happened, i.e., Dollars booked

     

Once the standard set of behavioral, leading, and lagging KPIs are defined, an interlock process is established between sales, marketing, product, customer success, and any other key functions.  The RGO process will facilitate these interlocks, and the output is aligned on what each function needs to deliver to achieve the goal.  For example, product must deliver 3 enhancements to enable sales to sell into a new vertical, which is tied to a big bet for 2021.

 

What’s Next?

 

How did your FY21 planning process compare to the best practices of high growth companies?  The good news is many of these concepts can be implemented now to ensure 2021 is a success.  It is not too late to complete a bottom-up model to identify risks in the plan, ensure your big bets are defined, or stand up an RGO with the optimal behavioral, leading, and lagging KPI’s.  You can also check out SBI’s Revenue Growth Maturity Model to identify risks in your revenue plan and pinpoint your strengths and gaps.  See where you rank on the RGMM by taking the diagnostic today.

 

Download the Dynamic Revenue Planning Tool Here

 

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ABOUT THE AUTHOR

Andy Hastings

Leverages expertise in operations, sales and marketing to implement new strategies that help clients make their number

Prior to SBI, Andy spent 8+ years at Constant Contact in a hyper growth SaaS environment. He brings significant expertise in direct sales, channel sales, marketing, operations and project management. Most notably, he delivered results on projects that included sales and marketing strategy, CRM design and implementation and sales productivity / enablement. Known as a problem solver who can quickly diagnose sales and marketing gaps, develop a strategy and lead cross functional teams during implementation resulting in organizations making their number.

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