Lesson 50 - Forecast Your Business

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Accurate forecasting is critical for any sales business, and will no doubt be important to your team, your manager, and your own ability to hit quarterly targets. In this lesson, you’ll learn how to create reliable sales forecasts using data-driven techniques. Your assignment will involve building a forecast for your current pipeline and presenting it to your manager for feedback.

Transcript

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Nicholas, welcome back to the daily quota. I'm your host, Nicholas Hill, and in today's lesson, you're going to forecast your quarter based on the opportunities that you have in your current pipeline. Now, forecasting can be a tricky, stressful and challenging part of sales, but it is a very necessary one. Forecasting is incredibly important to your business. It is important for your organization because they're going to use the forecast numbers to understand how much money they're planning to bring in, and then they're going to use that to make investments. They're going to make investments in your product. They're going to make investments in hiring peers or giving raises or bonuses or revenue club numbers, they need to understand what accurately what revenue is going to be coming in. And it's important to your manager, because they need to be able to they are held to this as a responsibility. So for them, it's important that they have an accurate forecast as they report up, and it's important to you, because you need to know how you're going to get to your number, and the forecast is basically telling you how healthy your pipeline is right now. So forecasting is important, but it can be challenging, and there are three different ways to do it. There's the tops down approach, where you basically, in my opinion, that's not even forecasting. It's basically just giving quotas. Giving quotas. The tops down approach basically says this is our company level goal. We're going to break this down into team goals, and then we're going to break this down into individual goals. It's not a good way to do forecasting, because you don't actually know if it's accurate or not. It's basically aspirational. Then you have historical forecasting, which is closer. Historical forecasting uses past performance to predict future behavior, and that's a little bit more accurate. Historical forecasting can be valuable, but the number one thing that you're going to do in tech sales and in most sales organizations today is going to be some combination of bottoms up forecasting and pipeline based forecasting. Now, what do I mean by that? What you're going to do is you're essentially going to look at all of the deals in your funnel, and you're going to start making predictions on each deal. You're going to say, here's the amount of money that I could bring in if I close this deal, here's how likely I am to close this deal, and here's how far along this deal is. And though the combination of those three things, you will take a weighted percentage of the ARR you're expected to bring in, or the revenue you're expected to bring in, and that will be your forecast. That's going to make way more sense in a minute, it probably doesn't make very much sense right now. Also, your study guide is going to give you a calculated spreadsheet template where you can actually start to input these things and get your forecast. So let's talk about how we actually do this. The first thing that you need to do is accurately fill out the following three things for each opportunity. Number one is stage. What stage of the deal, is your opportunity in? Is it an early stage deal, a mid stage deal or a late stage deal? An early stage deal would be like, I've barely made any progress. I've had a discovery call. I'm doing a few discovery questions. I'm still getting to the right contacts. I'm still kind of building out my champion. I haven't really done a demo yet, right? That's early stage deal. A mid stage deal would be, I've achieved alignment on their pain. They have a pain, they have budget, they have authority, they have need, they have timeline. But I still haven't achieved the technical win. I'm still doing a demo. I'm still doing technical or security reviews, right? I'm still like showing them that I can meet their criteria. And then a late stage deal is we've achieved alignment that this is the right solution for them. We're talking to the economic buyer. We're talking to the final stakeholders. We're getting through final, you know, approvals, etc. And then finally, a committed deal means they have told me point blank, we are purchasing your solution at this price, and basically negotiations are done, and now you're just sending the contracts through for approval. So go through each opportunity first and write down what stage the deal is in early, mid, late, or commit. Your organization will have different names for this, but those are the gist. Then you want to go through and put each opportunity into a forecast category. So this is going to be, typically, it will be commit, best case and pipeline. A committed deal, is what we just talked about. You're certain it's coming in, they've agreed it's coming in. They've agreed on the price, they've agreed on everything. It's happening. A best case deal is one that is in a late stage, and you have good confidence that it has the momentum to close this quarter. The timing is important. If it's closing next quarter, it's not a best case deal, not for this quarter. So best case deal late stage. Confidence, and then a pipeline deal is everything else. And some sales orgs will have you break this down into strong pipeline and weak pipeline. Strong pipeline is something where you have a strong champion. Normally, it's already at the mid stage. Weak pipeline is like I've barely talked to anybody yet, or I haven't confirmed authority or need or timeline or budget, that would be weak pipeline. I'll give you a full breakdown of how to do this in your study guide. So don't let it confuse you for now. But go through write down the stages. Go through write down the forecast categories. Then you're going to write down your expected close date if a deal is in commit or best case, the close date should be this quarter. If a deal is in pipeline, it doesn't have to be this quarter. If you think it's going to close this quarter, follow your gut, but it can be next quarter or the quarter after you know, just whatever your gut tells you, then you want to write down the actual numbers. What is the ARR, the forecasted ARR of the deal and what is the upside? The upside, Arr, basically means what is the amount of revenue you're getting that your company didn't have before. So if you're already making $50,000 and you're renewing for$75,000 upside, arr is $25,000 it's that extra money that's in expansion, right? So write down the expected Arr, the upside ARR is the most important thing. Then make sure that you filled out med pick and make sure that you filled out next steps. These are the qualitative things that matter, because your manager is going to ask you to tell the story of these opportunities when you forecast, if you have something in commit, you better be able to explain why. If you have something in best case, you better be able to explain why. If something has been pushed out to next quarter, you better be able to explain why. So be able to fill out Med, pick, tell the next steps. What are you doing to get the deal across the finish line cool. So for every opportunity you should now have the stage that it's in the forecast category, the expected close date, the upside, Arr, med, pick and next steps. Now stop for a second and look at it and ask yourself, is it real? Is it really? Really real? Does my gut tell me that this is true, that I'm not exaggerating, right? Because your manager is going to pressure test you. So the first thing that you need to be able to do is pressure test yourself. Do you have a valid argument for why every deal is exactly where it is? Be ready to vigorously defend each of these now, once you feel rock solid about each opportunity, the next step is to assign each deal a probability of closing. And normally, your business will actually tell you what your organization where you work, will actually tell you what their probabilities are that they like to assign things based on the stage of deal it's in and the forecast category it's in. So for example, I'm making up these numbers. But for example, you could say for all of my commit deals, the probability they're going to close is 100% otherwise they wouldn't be in commit. For late stage deals that are in the best case forecast category, I'm going to put them at 80% for me. For late stage deals in the pipeline category, it's 60% for mid stage deals. It's 40% for early stage deals, it's 15% right? I probably messed up some of those numbers. But ultimately, you're going to look at this, you're going to say based on these two things, forecast category, whether it's commit, best case, pipeline and stage of deal, whether it's early stage, mid stage or late stage, you're going to assign it a probability of closing. Now, once you've assigned each deal its corresponding probability of closing, then it's easy take the forecasted ARR of each opportunity, multiply it by the probability of closing and arrive at a weighted forecasted. Arr, then add all of those up for the quarter, and you get your forecast for the quarter. That number is going to be, I think, I think they call it. Let me write, read what I wrote down in my notes. That's what you're going to present as like your most likely scenario. So if they ask, like, what is your most likely scenario, that's what you're going to present. But most organizations will actually have you write down different types of forecast. So they might say, I want to know your commit forecast, your best case forecast and your floor forecast, or like your worst case scenario. So a commit forecast is basically just the number of deals you have in commit. What are the deals that you're 100% sure coming in this quarter? You should always get to that number. You should never be off. The second number should be your best case forecast, which is going to. Add the ARR of all of your best case category deals to all of your committed deals, and that's going to give you like in a best case scenario. This is everything that should go right. And then finally, you give your floor, which is your worst case scenario, which is pretty close to everything that you've already closed, right? It's basically just how much have I closed it already? Because in the worst case scenario, nothing else closes. And you know, maybe one or two of your commit deals can be in there as well. Again, forecasting is an art and a science. Your organization will do things a little bit differently, but those are the basic steps to pipeline forecasting. Now, having said that, I probably just irritated about a million sales leaders, they're saying, Nick, that is absolutely not how you forecast. In fact, the correct way to forecast is x, y, z, you're probably right. Every organization does it differently. Every organization I've ever worked at has forecasted differently. It doesn't seem like there's a tried and true approach, or a standardized approach to doing this. You will have different exit criteria for sales stages, different definitions for what's commit best case pipeline, different calculations, different percentages. But at the end of the day, the philosophy is worth teaching. The philosophy should be the same. You're looking at how late in the deal am I? How likely is it to come in? How confident am I? What percentage Am I assigning that? And then I'm going to multiply my ARR by those percentages to get my final numbers. If you can do that successfully, then you can start to iterate, and you'll learn to adjust based on a number of different factors. So at the beginning you might look at historical accuracy, you might say, well, how have we done in the past? Because I'm brand new, and I don't really know the percentages of things that are going to close. Once you've been selling for a while, you'll start to look at your own forecasting accuracy. Do I normally forecast too high? Okay, then I'm going to lower it by a bit. Do I normally forecast too low? Okay, I'm going to raise it a little bit. You'll be able to look at your closing ratios and apply those to your deals to see you know what the likelihood might be. And then finally, you know, I said it at the beginning, but I want to say it again. Don't underestimate the power of nerves and stress and pressure to change your forecast. Remember, you are biased. You want your forecast to be high, and so does your manager, and that's what makes it so difficult. Everyone around you wants your forecast to be high, so you have to gut check. You have to have someone that you trust to be able to come in and look at Med, pick and look at next steps and say, Hey, man, hey, late. You know, I don't think that's going to close this quarter. I don't think that's a best case scenario or a commit scenario. I think you should take that out so make sure that you're not artificially bumping your forecast number. And don't under commit either. You know, it's funny, I always say, yeah, you want your forecast number to be high, but some people will do the opposite. They'll they'll make their forecasts low. That way, they look like the hero when they blow their forecasts out of the water. Don't do that either. You want your forecast to be accurate. I've said it a bunch, but it really needs to. I really need to drive that home. There are so many tools that are going to help you with your forecast. The number one tool right now is Clary, but Salesforce can help you forecast. I mean, so many other tools can help you with forecasting. I believe Gong can do it now too. So make sure that you're looking at the tools that you have. Ask your new hire Buddy, what do we use to forecast here? Ask them if they have any dashboards that they use that you can just plug your numbers into and maybe you can make a copy of that report, right? Don't reinvent the wheel, but you can always build this into Google Sheets. And in fact, I'm giving you a template in your study guide where you can plug in your probabilities, you can plug in your own stages, your own deal, where they are, where it is in the deal, and then you can look at it based on that. So yeah, work with your mentor manager, new hire buddy on this your study guide, to walk you through it every step of the way. But yeah, your your assignment today is to forecast your quarter end results, follow each of the steps that I've given, and you should be good. Thank you so much for listening, and we'll see you next time bye.