I was recently meeting with the CFO of a SaaS company who was looking to revamp their financial plan for the new fiscal year.  New market dynamics presented an opportunity that the board wanted to leverage for additional growth in 2020. That meant additional investment upfront and an updated hiring plan.

When I asked about the company’s new revenue target, something the CFO said underscored why there is often a gap between finance, sales and marketing plans.

The new Q1 number was $5M in bookings. The CFO added, “we should be able to hit that with the ramped sales headcount we have in place.”

This is not the first time I’ve heard bookings achievement thought about in terms of headcount capacity. Reps have quotas and if they deliver on that quota then it stands to reason that you you’ll hit your booking target (aka, # of sales reps x quota = your booking target). Usually quota attainment also includes a buffer, say 20%, to provide some breathing room to hit targets if things don’t go exactly according to plan.

Discussion of pipeline was initially missing from this conversation.

Talking about headcount and quota to cover revenue outcomes is a bit like planning a roadtrip and only considering who’s driving. You have 4 seasoned drivers that can each take the wheel for 100 miles of the journey. That means you can cover 400 miles without stopping to rest.

But without enough fuel you won’t reach your goal. 

If you stop to fill up, you’ll get there, but you’ll get there late.

Arriving an hour late probably isn’t the end of the world.  Missing your fiscal quarter by $1M...not great, Bob!

Predictable pipeline powers predictable revenue.

The problem wasn’t that the CFO didn’t understand the business. He had incredibly detailed and complex spreadsheet models that accounted for hiring plans, budgets, LTV:CAC ratios, and more. If you’re a finance geek or a spreadsheet nerd, they were works of art.

The gap existed because the plan was finance-minded, working through the prism of cash flow and expenses. It was these dimensions by which targets were passed to Sales and Marketing. Pipeline is something Sales and Marketing create detailed plans for, and then generate with the budget and resources approved by Finance.  These plans are often siloed, and separate from the financial plan, creating a blind spot for how pipeline ties directly back to the financial plan.  

Often pipeline is thought of as something that is needed to support the Sales reps - to ensure the investment in headcount produces a return.

And that’s where this conversation turned to pipeline.  

The CFO asked if I could assist in aligning the pipeline plan to the headcount plan.  The plan should account for generating enough pipeline to align to the ramp time of new hires. As they brought on new sales reps, initially their quotas would be lower than when they were fully onboarded. How would we model creating enough pipeline to cover initial quotas and growing to cover the fully-loaded reps?

This was the wrong question.

Our pipeline goals needed to be tied directly to the revenue goal, not the people working it.

It’s true that we did need to know how many reps were needed to close the deals. And as our targets grow we need to account for hiring and ramp time to make sure we have enough reps when we need them.

But that is a parallel conversation to how much pipeline is required.

Instead, when we look at the average win rate and ACV for new business closed across the team, we can determine how much pipeline we need.  If we need 100 opportunities to win 20 $50k-deals worth $1 million, then we need 100 opportunities to close $1M, regardless of if that takes 1, 2, or 10 sales reps.

To stretch our car analogy a bit further, we need to be fully fueled to get to our $1M destination. Whether that takes a single driver being asked to handle the entire trip or multiple drivers each taking a leg doesn’t change that fact.

The upside of tying pipeline to revenue rather than headcount is that whether we have just the right number of reps or not, we will have enough pipeline to hit our revenue goals.

This is what makes a cross-functional predictable revenue plan so critical.  It forces every team to understand the dials of the revenue engine, the interplay of these dials, and the shared goals they create.  It ties everything, and everyone, back to revenue. As a result, you’ll have the fuel needed to power your revenue engine when it comes time to adjust your destination and step on the accelerator.

For a more detailed look at how you build a predictable pipeline plan check out my previous post How to Build a Predictable Revenue Engine.