How to build a Predictable Revenue Engine
B2B SaaS companies have metrics for everything. Every team has their go-to KPIs. But, at the end of every fiscal period, there is ultimately one metric that matters: Revenue. Period.
Finance wants that cash.
Sales wants to ring that bell.
Marketing wants to show that influence.
Customer Success wants to be that profit-center.
Yet despite the fact that all these teams have a role in driving revenue, leaders of these teams don’t always see eye-to-eye on the results, let alone agree on the targets and resources to achieve them.
Instead, what we often see is:
Finance hands down revenue goals for the year.
Sales sets quotas
Marketing plans lead campaigns and asks Finance for budget.
Customer Success sets renewal targets and preps to onboard all those new customers.
There is a gap between the financial plan and operating plan.
Everyone is working hard to build recurring revenue, but they don’t share the same roadmap to get there. They work in silos to create operational plans and assign targets, but these targets don’t tie back to shared goals. A telltale sign is that when sales talks about quotas and marketing talks about lead goals. Each team has its own set of metrics and ways to measure progress that lacks a common thread to the company plan.
Many teams take it one month or one quarter at a time, focusing on the total value of their pipeline and weekly forecasts that use mojo to predict “where we think we’ll land” in terms of closed-won ACV -- they need to be tracking pipeline creation to at least as far out as the length of their average sales cycle.
Even when a company overachieves on revenue goals, a lack of clarity and shared commitment raises questions about what’s really working, who is responsible, and how repeatable the results are. The conversation instead becomes about hero moments-- the brilliant email campaign that brought in 20% more leads; the “whale” that your best rep closed to retire her quota with a single deal.
When Revenue targets are missed...it gets even messier. Leaders show up to quarterly board meetings without easy answers on how to course correct; and who needs what from who to go get it done.
Every organization needs a predictable revenue plan that helps leadership find common ground, agree on pipeline creation targets, assign accountability, and provide a framework by which to consistently review results and continually optimize. A predictable revenue plan should be collaborative and enable holistic execution that maximizes growth.
So, to summarize:
Create a predictable revenue plan
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Profit!
Ok, let’s fill in the details.
Building a Predictable Revenue Funnel
Since revenue is our OMTM, this is where your plan should start. Working back from revenue, the best models leverage a few key dials that drive predictable pipeline.
average selling price (ASP)
conversion rates (lead to opp, opp to deal)
average sales cycle (how many days it takes to win a new customer)
One mistake we often see organizations make is using industry benchmarks instead of their own data. Often companies that go this direction do so because they don’t know which of their metrics to use or, if they do, are unsure how to do it. Other times they are driven by the belief that they should strive for “best-in-class” metrics.
This is a recipe for trouble.
Your revenue funnel is unique to your business! Not only are the dynamics of your business different than any other, but your processes and your definitions are too. A deal is a deal, but your definition of a marketing qualified lead or sales accepted opportunity most likely has different criteria than another organization. You may start the clock on your average sales cycle from the moment a lead comes in, while another company begins counting when sales accepts it.
I was recently chatting with a team that was trying to determine their definition of a marketing qualified lead (MQL). Should demographic or behavioral profiles carry more weight in scoring a lead? What was the right score to determine when a lead became qualified? What was the right number of MQLs needed to get Sales the pipeline they needed?
Defining an MQL is a big topic worthy of a series of blog posts in itself. For the moment, let’s focus on the question of defining “the right number”. This number should be the target for marketing to hit, but more importantly, should act as the SLA between Marketing and Inside Sales every quarter. “You give us this many MQLs and we’ll go close this many deals.”
But instead of working back from revenue to determine the number of deals, opps, and ultimately MQLs that would be needed, they looked at a benchmark report that showed companies at their stage had an average 15% MQL rate.
With a desire to get going, it was appealing to agree on the 15% figure.
All good until 15% of leads weren’t MQLs...
And likewise, all good until 25% were MQLs, but according to Sales they “really weren’t any good anyway”.
The problem here is that Sales and Marketing were going to let benchmarks define their pipeline, rather than using their historical pipeline to build a definition that both teams could agree on. Whether new leads MQL’d at 5% or 50%, the right conversion rate is the one that results in predictable revenue.
If you’re using a CRM system, you’ve got the data to understand the dynamics of your business (caveat, there is a difference between “having” and “using” - garbage in, garbage out).
I like using the last 4 quarters to establish consistent and reliable metrics for ASP, conversion rates and velocity. But it’s important to think about your business to determine which measures are right for you. For example, something may have changed in your business in the last 6 months (like a new product or additional investment) that has increased win rates or your ASP. Looking at data from 12 months ago probably doesn’t make sense in that case. On the other hand, you may have 12+ month sales cycles in which using a broader timeframe is required.
Dialing in your plan
Once you’ve established the dials that drive revenue you can use those revenue targets (monthly, quarterly, annually) to determine:
how many deals you need to win,
how many sales qualified opportunities are required to win those deals,
the volume of leads needed to hit the pipeline targets,
and perhaps most importantly, when you need to be creating them.
The dials of your revenue engine are a powerful tool for getting buy-in across teams and agreeing on what’s required to hit your revenue goals.
You may want or need to build some efficiency gains into this year’s plan. To achieve larger revenue targets more efficiently you could rely on higher win rates or larger ASPs. By leveraging the dials in your plan you can not only see the downstream impact of these efficiency gains, but also fuel discussion about what would be needed to hit achieve these target -- perhaps delivering new enterprise features is the key to higher ASPs, or a more proactive customer reference program would drive higher win rates.
Revenue dials also create much needed “sanity check” moments that let stakeholders weigh in on what’s possible and what is too big a stretch. Better to get everyone’s input now than when you’re scrambling to get answers heading into your board meeting.
With your dials set to agreed on and realistic assumptions, you can now back out from revenue to nail down how many deals, opportunities and leads each team is on the hook for. And each team also understands what they are accountable to deliver and what they need other teams to deliver to ensure assumptions meet reality.
This last piece is what makes the revenue plan so powerful. Without it, leadership meetings and pipeline reviews can devolve into endless attempts to get on the same page--deciphering everyone’s different metrics results in wasted time, nebulous next steps, and muddies the waters of accountability.
If you’ve been in a meeting that becomes a debate about “how much pipeline coverage is the right pipeline coverage?” you know this pain.
With a predictable revenue plan that has tangible monthly pipeline creation targets tied to ACV goals, every team is either ahead, on track, or behind plan. And the discussion is then “which specific actions can we take to improve/optimize our results -- and who is responsible for executing?”
What’s in your plan(s)?
A single set of dials in one plan will suffice if you:
primarily focus on net-new logo revenue
build pipeline through a single channel,
or the dynamics of that pipeline are pretty consistent across channels,
If your business generates pipeline with different characteristics, or you’re relying on Customer Success to create new revenue through upsell and cross-sell then you’re going to want to create plans for each of these teams. Each plan has its own set of dials for ASP, velocity, and conversion -- and each team will likely be on the hook for generating a different ratio of leads/opps/deals to revenue.
Stick to the Plan
A plan is only any good if you follow it, so it’s critical that all stakeholders understand their targets and commits to executing against them.
A great way to stick with the plan is to establish bi-weekly or monthly check-ins to review actuals against plan. This meeting should not be optional and should at the very least include stakeholders, but can also include key members of the teams responsible for execution.
These meetings should cover progress to date. Are you where you should be by this point in the quarter? Are you tracking to hitting this month’s targets? This quarter? If not, these are leading indicators that future revenue is at risk. And these are critical moments to identify how you course correct. If one marketing channel is performing better than another, it may be time to reallocate budget to drive higher quality leads. If a specific territory is way ahead of target, perhaps you need to turn down the spigot and turn it up in another geo.
Making these check-ins part of your cadence makes the company more agile and allows you to consider both short term and long term implications.
Get Started
Is a predictable revenue plan right for you? The most important element of a successful plan is a baseline of predictability to your revenue. Not sure if have you that? This most often describes B2B SaaS organizations that have achieved product-market fit (congrats!) and are now looking to scale the business.
An easy readiness check is to see if you’ve got answers to 15 key questions to build a predictable revenue plan. As a pretty cool bonus, you’ll get your free plan sent to your inbox. ;-)
Your predictable revenue plan will not just give you a roadmap for growth but it will align everyone in your organization to a shared goal, creating a culture of visibility, accountability, and teamwork.
I’d love to hear how you build your plans and align teams to revenue. Drop me a line if you have questions or want to bounce some ideas around. I’m always game for discussing a good challenge.