Sales Forecasts and Pipeline Reviews: Why and How
A methodology in five simple steps
I learned how to run forecast and pipeline reviews, first, by distilling what my sales managers did when I was a sales rep and, then, building my own systems as a sales leader at Revinate, at Framer, and advising a number of B2B SaaS companies. I still find it fascinating that there’s no formal training or widely accepted methods for such an important part of sales and that most of us have to learn on the job.
Going beyond my own methodology, I wanted to generate confidence that I’m following all the best practices, and in order to learn from the best in the field, I met with sales leaders in my network and from the Point Nine community (we held a sales forecasting round-table meeting this past summer). I’ve compiled everything I learned in this post and am confident that it offers a good and widely applicable methodology for any B2B software company.
Why forecasting?
Before we dive into the “how,” I want to briefly touch on “why” we forecast. If you’re running a business that relies on cashflow diligence, it is imperative to forecast future revenue to avoid a cash crunch when trying to scale. Many startups are venture-backed and aren’t reliant on short-term cash-flow predictions, which prompts the question: Why spend time performing forecasts if it isn’t necessary to predict cash flow? I’ll suggest two perspectives here.
First, from an operational standpoint:
- Forecasting helps leadership to accurately set goals and helps to clarify the roles that the team needs.
- Forecasting also turns sales reps into better closers by making them accountable for what they’re spending time on. It forces them to qualify prospects better, early in the funnel.
- Forecasting also brings a healthy dose of reality into your business. Asking reps to make forecasts and close on timelines will give you a better grasp of where the business stands.
Second, from a financial standpoint, accurate forecasting provides a true indicator of your level of understanding of your business and will help you to convince investors. Any new investor will want to look at CAC payback and unit economics in order to understand the scalability of your sales engine before investing more money. The ability to make accurate predictions becomes all the more important as your company grows.
But enough about the “why”, let’s get to the “how”.
There are five main questions that a sales pipeline forecast/review should answer, and we’ll go through them below:
1. Is the sales team following the steps of the sales system?
Your sales system is built around your CRM, and once the CRM is set up correctly as a workflow tool for the sales team, reps need to adhere to the system. The CRM is the one source of truth for prospect management, so make sure your team follows the activities and tasks of the to-do list and is diligent in moving deals through the sales stages. As the team improves its discipline and ability to adhere to the steps within the system, it will reach a level of operational excellence that allows for further fine-tuning of the engine and makes scaling far easier. If you want to go deeper into operational excellence, read the post “Operational Excellence as a Secret Weapon of Scaling Sales”.
Operational excellence is where I’m the strictest with my team because it’s the piece of the puzzle that is completely in the control of sales reps, AND reps get faster over time when they adhere to the system. As the speed and efficiency of your team increases over time, the amount of leads and throughput it can handle will also increase, as will revenue output.
The KPIs I measure in pipeline reviews are important activities that indicate reps’ level of effort/hustle/diligence. These are things like the number contacts added to email sequences/cadences, demos scheduled, and sales-stage movement, all of which show the level of activity that is going into the sales engine. Entering data in the CRM often requires a massive amount of multitasking and context switching on behalf of the sales reps, and the only way to make it repeatable and predictable is practice and strict adherence to a system. Pulling this data is often done manually, but it is critical to invest the necessary time and resources to get the data.
One way to easily check to see if reps are following the steps of the sales system is to track everything they do with CRM tasks and then audit the tasks in the pipeline/forecast meeting to see whether any reps are behind with their tasks. If they are, dig deeper; does every deal have a task and a next step scheduled? Are reps overdue on tasks associated with deals in the pipeline? Following basic processes such as these can make the difference between successfully running a sales engine and seeing the wheels fall off the bus.
2. Is the sales team meeting the KPIs to create “top of the funnel” leads?
This is easy to manage if your reps are following a system AND you have clear and measurable KPIs and metrics to oversee ToFU activities. This is a necessary part of the pipeline review and an important input that SDRs can control. Some sales leaders get a commitment from each SDR on the metrics or KPIs that they think they can achieve by the following week, such as “prospects added to a sequence/cadence,” “discovery calls,” or “demos booked.” This is a judgment by the SDR or rep on how busy their week is and how efficiently they can use the system. I usually request a quantifiable goal from the reps and then urge them to push to achieve an even greater number than they think is possible. This can be incentivized by some healthy competition. Each week we review performances against the commitments from the previous week, and in addition to instilling accountability in the team, these inputs help us to predict future outputs demos/deals/revenue.
Two important points should be further noted here:
First, measuring these “top of funnel” metrics can help to uncover potential strengths or weaknesses in the lead lists with which the reps are working. Some might be great and deserve more attention, but others might have low conversion rates and deserve to be scrapped. It also helps to identify if there are enough leads for the reps to hunt.
Second, this measurement process enforces discipline and shows reps how their work impacts the team as a whole and how it benefits the sales pipeline and overall revenue production for the company.
3. Is the sales team moving deals through the sales stages/funnel with the level of diligence and urgency necessary to create the shortest sales cycles and the highest amount of throughput?
The most important element to consider when tracking deals through the sales cycle is to ensure that i) the sales stages are defined correctly and ii) most deals follow the same rules and patterns throughout these stages.
For i): It’s helpful to involve reps and map out the workflow of the sales cycle when defining sales stages; doing so creates milestones and gives reps a guide as to what steps to follow and enables them to make more accurate forecasts. For managers, the measurement of conversion rates for each stage enables macro reporting on pipeline health and value. The key here is to decide on very strict definitions for each stage, bearing in mind that if there are too many exceptions, then the exceptions become the rule, and the stages need to be overhauled, or a new stage added.
For ii): Although it is difficult to manage and report on, the inter-pipeline deal movement is empowering to understand; there is incredible value to be gained by reading the cohort flow of deals. In his article “A Better Way to Visualize Pipeline Development?” Christoph does an awesome job of showing how valuable that information can be. This article inspired much of my thinking on this topic, but before we report on the data, we need to move the deals through the pipeline.
Sales leaders with whom I’ve spoken want increasingly quick deal movement in the pipeline to shorten sales cycles and increase conversion rates. Here are a few of their best practices:
The best sales leaders want to know how many deals or opportunities a rep has in “Stage X” and how many they will move out of that stage in the coming week.
The best managers also push reps to move deals to the next stage or to move them to the “closed lost” stage (“closed lost” just means “not now”). It is important to maintain strict diligence around movement for every deal. Ensuring that deals don’t stall for too long in any stage guarantees that there will be pressure in the funnel to get throughput and earn more wins/revenue. To this end, the best managers are brutally realistic with their pipelines and if they don’t see clear next steps, they move deals to “closed lost.” This is a common mistake made by inexperienced sales teams, which leads to an enormous waste of time (that could be used on new deals), with reps holding on to deals they aren’t likely to win and delusions about future revenues. With every day that goes by, if a deal isn’t moving forward, the likelihood increases that it will get stale and lead to a lost opportunity.
4. Are reps able to forecast accurately the deals that will close to achieve their quota and can the sales VP use this information to accurately report revenue forecasts to the CEO/CFO/board?
We’ve arrived at the forecast! Many people call it a “forecast meeting,” so let’s get to the forecasting. I’ll explain the theory and then lay out the math below.
It is not easy to predict the future. You can easily see the difference in the forecasting accuracy of experienced reps and new reps; predicting the future of closed deals is an art and a science that requires constant discipline and remains an ongoing learning process for everyone. If you instil this skill with practice from the earliest moment of selling, you will build a culture of excellence within a sales team. Accurate forecasting demonstrates to investors that your business is predictable and that you are building the basics of a sales engine of growth. It also indicates whether the sales engine is calibrated and ready to scale.
My philosophy on forecasting is to try to understand how much influence a rep has over the outcome of a deal and what that outcome is likely to be — all the while remaining aware that you have a strong bias about what you want to happen: “closed won.” This forecasting process can require you to negotiate with reps about how much pressure they should apply to deals to achieve their quotas. More importantly, this process uncovers any oversights in qualifying the leads and exposes deals that may not be qualified or should not be discussed as potential opportunities that could or will close in the current period.
Having spoken with many sales leaders and as a result of my own process of learning and refinement, I’ve managed to boil forecasting down to a framework that should work for any business. The forecasting is always forward-looking and is built based on a few simple categories:
Closed won deals are obviously deals that have been won in the current month or quarter.
Committed deals are those that are 100% likely to succeed (or are as close to certain as possible) in the current time period. We joke that this deal is written “in blood” and that you would “bet your job” on them.
In-play deals are all the deals that could close in the current period. They may or may not close but during the current forecast session, it’s tough to be sure either way. These deals are mostly later-stage deals. (Note this does not include “committed” deals.)
Upside is a numerical estimate of the “in-play” deals that you think will close during the current period. I’m very conservative (in fact, brutally realistic and almost pessimistic) about this number, but these deals need to be accounted for in the forecast. Because forecasting involves trying to predict the future, it is necessary to account for the gray area, and this is captured in the “upside.”
The “upside” is calculated as follows: Imagine you have ten deals in play, each one worth $1,000. It’s early in the forecasting period, and there is a likelihood that some of those deals will close. However, if you have $10,000 in play, based on historical data and on the sales reps’ insights, you might calculate that only three of these deals will close (you don’t know which ones, or you’d have put them in “commit”), amounting to $3,000. In this example, 30% of your $10,000 in play will close, which amounts to $3,000 for the “upside.”
Forecast = “Closed won” deals + “Committed” deals + “Upside”, which is simply an aggregate of the categories. It should result in a reasonably accurate forecast early in the month and become more accurate as the month progresses.
Best case = “Closed won” deals + “Committed” deals + “In-play” deals. This is a representation of what is possible if the stars aligned. As it includes all “in play” deals it’s obviously very optimistic, but some sales leaders like to track this number and it’s aspirational.
The “Best case” number and the “Forecast” number begin to converge as the month/quarter draws to a close.
*Some companies like to omit certain deals. I call these “Swing” deals because they are atypical or too large and only serve to distort the forecast accuracy.
A few companies reward reps who consistently forecast accurately with praise and bonuses, and although I’ve never done this myself, I like the idea. I take forecasting with my reps very seriously. It’s the moment where I hunt for the truth and impress upon my team the importance of engaging in their own hunt for the truth during every deal. Only by making commitments on what you think will happen can you calibrate and get better at forecasting.
5. What are the coachable moments and areas that the sales VP can uncover and focus on?
Leadership and sales management are all about coaching. Although I emphasize operational excellence every chance I get (and this is also coachable), the reason why the sales leader has that role is because they will have a strong level of sales experience and be able to coach their reps on the various areas in which they can improve. Because each rep will have certain strengths and weaknesses, this is a great opportunity to task various reps with coaching each other. I love the moment when I ask a rep if they will join me to give a presentation about something they do very well so that other reps can learn from them. I often learn a lot myself and, if you’ve done a good job hiring, your reps will be better than you in different areas of sales, and the whole team will be up-leveled by each other’s strengths!
The sales pipeline forecast and review meetings are an audit of the sales engine, and they uncover areas to fix, bottlenecks in the funnel, and ways to coach the reps. The use of these meetings to uncover weaknesses in the sales cycle and, then, to plan one-to-one coaching sessions or group training to ensure that the team is constantly up-leveled and always working toward perfection. By leveraging the best talent on the team toward various areas that need coaching, you can build a strong organization that is continuously improving its best practices and ensuring a sales culture of excellence. A full range of knowledge and playbooks will help to shape the pieces that need to come together for the right hiring profile and onboarding plan… and now, we’re scaling!
In summary
I know that this is a lot to implement immediately, but this is an iterative process that strengthens over time. It is hugely valuable if, with pipeline management and forecasting accuracy, you can implement the right mindset for whatever goal to which you’re aspiring. When I start with a sales team, I work toward implementing most of these elements, and it does take time. Often, the systems/CRM don’t allow for the data extraction, and/or the team needs to be trained on how to think and perform effective sales pipeline management and forecasting. If they understand what we’re collectively working toward, we can build it together. I’m never discouraged because it’s something that takes time; it’s a learning process for the entire team to build a sales engine. As I’ve been writing this piece, I’ve been able to simplify things for myself that I’d overcomplicated for years. Perhaps most importantly, I’ve learned from other leaders about their best practices, and now, I can make them my own. I look forward to learning more in the future about forecasting and pipeline management, and I welcome new insights and conversation.
Thank you to Christoph Janz and Louis Coppey for your insights and feedback!
