There's an alarming trend that's not news for anyone watching the VC space over the past few years. Funding is in a slump, especially for growth-stage B2B SaaS startups.
In 2021, investors doled out about $621 billion to startup companies worldwide, according to Bloomberg.
North American startups received $329.5 billion (!) of this funding, according to Crunchbase.
However, there were visible signs of a funding drop in 2022, owing to the macroeconomic situation.
Per Bloomberg data, second-quarter funding fell 26% quarter over quarter. Late-stage and technology growth funding was impacted most.
Global venture funding fell again in Q3 2023 despite late-stage rebounds led by huge AI deals.
The stakes are high - and getting higher for investors who want to grow their rewards. No wonder boards have gotten more analytical and request even more detailed information about business metrics, sales pipeline, and revenue forecasts.
In this blog post, I take a stance on how conversion metrics and revenue projections are critical for venture-backed startups in the current environment and how you can rethink your revenue forecasting methods with AI.
Amateurs Talk Strategy. Professionals Talk Logistics.
Amongst my absolute favorite quotes in operations is the one from General Omar Nelson Bradley, a World War II veteran of the US Army. He famously said:
“Amateurs talk strategy. Professionals talk logistics!”
If you take a moment to grasp it, what the General says makes sense. What is strategy without a concrete step-by-step logistical plan for how to get to the goal? Nothing. And that is why businesses devised meetings. One of the critical regular meetings in any organization is between the sales team and the marketing team.
Connecting Marketing Campaigns to Sales Forecast
Before we get to what happens in a sales and marketing meeting, let's unpack what's important to each of the participants and why sales and marketing alignment is so important.
For marketing, it's crucial to present historical performance of marketing campaigns, market conditions, and the results of demand generation efforts in terms of leads, pipeline, and revenue growth.
For sales, it's critical to know if there are enough qualified leads for sales reps to generate a quality pipeline and deliver expected revenue in this sales cycle.
This has traditionally been difficult because of how Salesforce and HubSpot—the two biggest CRMs—have evolved their products. It has never been possible to dissect the entire deep funnel from social media activity to website visitors to lead to deal closure in one place. The challenge is to connect marketing campaigns with sales forecast revenues.
But even before that challenge, there is a greater obstacle to success that many companies face: how to align sales and marketing teams.
The Importance of Sales and Marketing Alignment
Sales and marketing alignment is the process of aligning the goals, objectives, and strategies of the sales and marketing teams. When sales and marketing are aligned, they are working together towards the same goals, and their efforts are complementary. This can lead to a number of benefits, including:
Increased revenue: When sales and marketing are aligned, they are better able to generate and nurture leads, and to close more deals. This is because they have a better understanding of the target market and the buyer journey.
Reduced costs: Alignment can help to reduce costs by eliminating duplication of effort and by ensuring that resources are allocated more efficiently.
Improved customer experience: Alignment can help to improve the customer experience by ensuring that customers receive a consistent message from sales and marketing at every stage of the buyer journey.
Increased employee satisfaction: When sales and marketing teams are working together effectively, it can create a more positive and productive work environment.
How to Align Sales and Marketing Teams
There are a number of things that sales and marketing teams can do to improve alignment, such as:
Set common goals and objectives: Sales and marketing teams should meet regularly to set common goals and objectives. This will help to ensure that everyone is working towards the same thing.
Share data and insights: Sales and marketing teams should share data and insights on a regular basis. This will help them to better understand the target market and the buyer journey.
Develop a joint sales and marketing plan: Sales and marketing teams should develop a joint sales and marketing plan that outlines their goals, objectives, and strategies. This will help to ensure that everyone is on the same page.
Communicate regularly: Sales and marketing teams should communicate regularly with each other. This will help to avoid misunderstandings and ensure that everyone is up-to-date on the latest developments.
Sales and marketing alignment is essential for businesses that want to succeed in the competitive marketplace. By aligning their goals, objectives, and strategies, sales and marketing teams can increase revenue, reduce costs, improve the customer experience, and boost employee satisfaction.
Key Marketing Team Questions
To be able to generate demand and optimize campaigns effectively, the marketing team needs to know:
- Which campaigns are working out well?
- Have we identified the right Ideal Client Persona (ICP)?
- What happened to the marketing qualified leads (MQLs) they generated?
- Is the MQL to pipeline conversion healthy?
- What demand generation activities are the most efficient?
- Which events are not working out?
- Are there new ICPs emerging in the data points?
Key Sales Team Questions
To be able to convert opportunities and meet sales quotas, the sales team wants to know:
- I signed up for a million-dollar quota. Do I have enough pipe coverage?
- Historically, what were the win rates in the region I signed up for?
- What regions have the best SQL to SAL conversion?
- What contact titles have converted the best from POC to Pipeline?
- What industries have not worked out in my region?
Each function has precise questions about the funnel and revenue forecasts. But these questions can't be answered by Salesforce or HubSpot. Your RevOps has to fall back on spreadsheets and manual revenue forecasting models because there's no way to answer these questions with traditional platforms.
Micromanage Your Business Metrics and Revenue Data
Accurate revenue forecasts depend on what I like to call "micromanagement." This means taking a deep dive into all the data at a granular level.
If you think about it, you will see that if marketing managers and sales reps can micromanage their lead generation and sales pipeline, then marketing and sales leaders will micromanage campaigns, revenue forecasts, and business metrics.
That is an excellent place to be, but hard to get to.
Your marketing and sales teams need the ability to see what is working and what is not from the top of the deep funnel to deal close. Your MarketingOps and SalesOps teams must be armed with a tool that empowers them to build insights, validate hypotheses, and forecast revenue.
Case Study: Revenue Forecasting Methods In Action
CloudTrain has a $50M sales target for the year. Historically, the company has had a 20% win rate. Their Average Selling Price (ASP) has been $18K.
Sophie joins CloudTrain as an Enterprise Account Executive in the LATAM market and owns a $5M target for the year.
Question: Did Sophie sign up for success or failure? Will she be able to hit the goal?
Here's the catch. For you to be able to answer that question, you need to know a few precise numbers.
- What is the win rate for LATAM?
- What is the ASP for LATAM?
- What is the conversion rate from SAL to Win?
- What is the conversion rate from SQL to SAL?
- What is the conversion rate from MQL to SQL
- How many MQLs has Demand Gen promised for LATAM?
Let's say the RevOps team works through half a dozen spreadsheets to understand what the conversion rates for CloudTrain in LATAM look like and what the historical data shows.
Based on their budget and campaigns, marketing at CloudTrain has promised to deliver 4200 MQLs for LATAM.
Using this information, we can calculate the forecasted revenue and whether Sophie will hit her revenue goals.
Take a look at the calculations of exactly how many SQLs, SALs, and Wins Sophie will hit based on the current conversion rates.
Sophie has signed up for failure. She will see a shortfall in future revenue of $455K.
Take a Holistic Look at Your Revenue Forecasts
To get a holistic look at your revenue forecast, you must account for the percent of your MQLs that will convert into SQLs, the percent of those SQLs that will convert into opportunities, and so on to pipeline and closed/won deals.
We explain the math and also include a sales funnel simulator in this blog post. You can punch in your numbers to see exactly how many deals you need to win, among other pipeline metrics.
While the math helps, there are two fundamental problems for any growth-stage company scaling fast.
- This method is reactive. Your RevOps team is spending days to harvest data from half a dozen spreadsheets to arrive at this math. By the time it is delivered to you, it's marginally stale from what is happening in your markets.
- This method delivers static numbers but cannot help you strategize where to focus. It doesn't provide actionable recommendations.
Sure, Sophie's going to miss her quota by $455K. How do you fix that? What levers can you move? Are those even the right levers? Should marketing spend more to get more MQLs? Is demand gen attracting the wrong ICPs in LATAM? Can sales better their pipe-to-win rates? Do we know which events performed best? Which campaigns?
Moving Beyond Traditional Revenue Forecasting Methods
Common revenue forecasting methods are slow, inaccurate, and difficult. Pipeline revenue forecasting models are ungainly and impossible on spreadsheets. For a high-growth company, good data is an advantage. But what separates winners from losers is how fast you execute on that data to action.
For that, you need granular data that few dedicated data analysis teams can deliver. Typical approaches rely on historical data once it's logged and cannot identify emerging patterns amongst hundreds and thousands of variables in your systems. It is not humanely possible.
Salesforce Research's recent State of Sales study highlights an important insight.
88% of reps say current economic conditions make it essential to anticipate customers' needs. Across the board, high-performing organizations track these insights much more closely, using them to flesh out a holistic picture of who customers are and what they need.
Rigid deal terms that worked historically may need revision as customers buy more cautiously. Leaders recognize that flexibility is vital, rating it as their top tactic for success over the next 12 months. Despite some fears, AI isn't displacing human talent in sales. AI-fueled sales teams are adding headcount at a faster pace than their peers!
At RevSure, we spoke with dozens of CROs, CMOs, demand generation, and revenue operations leaders. Predictability across every stage of the GTM funnel and insights on what is working, converting, and what is not are top of every leader's mind.
Revenue Forecasting Recommendations for Sales and Marketing Teams
Rethinking your revenue forecasting methods might be in order to meet the demands of your investors and board. Here are seven actionable recommendations to drive a predictable pipeline and achieve revenue goals.
Micromanage your business metrics. This means tracking your conversion rates at every stage of the GTM funnel, from visitors on the website to deals closed. This will help you identify where you are losing leads and make necessary adjustments.
Use a tool to build insights and validate hypotheses. This will save your RevOps team time and allow them to focus on more strategic tasks.
Track key metrics. Tracking win rate, ASP, and conversion rates for different regions and industries will help you set realistic goals for your sales team and identify areas where they can improve.
Use a revenue forecasting tool. Calculate how many SQLs, SALs, and wins your sales team needs to hit their goals. This will help you identify any potential shortfalls and take corrective action early.
Be flexible and adaptable in your sales approach. The current economic conditions are forcing customers to buy more cautiously, so you need to be willing to adjust your deal terms and sales strategy accordingly.
Use AI to amplify your sales efforts. AI can help you automate tasks, identify new leads, and predict customer behavior. The right pipeline acceleration solution can deliver actionable recommendations to drive growth.
Recommendations specifically for sales teams:
- Focus on building relationships with key decision-makers. This is more important than ever in the current economic climate, where customers are more likely to buy from companies they trust.
- Be proactive and anticipate customer needs. Don't wait for customers to come to you. Reach out to them regularly and offer them valuable insights and resources.
- Use data to drive your sales process. Track your progress and make adjustments as needed.
Recommendations specifically for marketing teams:
- Focus on generating qualified leads. Not all leads are created equal. Focus on generating leads that are likely to convert into customers.
- Nurture your leads. Don't just abandon your leads after you generate them. Nurture them with valuable content and offers until they are ready to buy.
- Measure your results. Track your ROI on marketing campaigns and make adjustments as needed.
By following these recommendations, sales and marketing teams can increase their chances of success in the current economic climate.
The Value of an AI-Powered Revenue Solution
One of the most powerful lever for success today is the new generation of revenue pipeline acceleration tools. These solutions enable accurate revenue forecasting models and deliver actionable recommendations that go far beyond traditional approaches.
Typically, marketing attribution is historically based, analyzing what has been done previously. These solutions evaluate which channels and sources of engagement have been touched by a prospect and which have a higher weight on their journey to customer. Attribution software focuses only on marketing touch-points, ignoring impacts of outbound teams.
Meanwhile, AI-based pipeline acceleration solutions are able to analyze historical data and predict results. These predictions on where pipeline will come from and what it will amount to provide immense value for startups and companies at all stages.
Today's solutions use AI to analyze all of the historical full-funnel inputs around leads and opportunities and offer you the opportunity to change potential outcomes earlier with insights into the most effective channels, sources, and campaigns. These solutions also consider the impact of inbound and outbound efforts and evaluate the holistic buyer journey from prospect to customer.
Sales pipeline management tools can maximize the efficiency and effectiveness of sales performance. Learn how to evaluate and select the best tool for your business.