The Bottom-up approach to Sales Forecasting starts with the Marketing Funnel

Most sales forecasting starts once the deal is logged in the CRM. However, it's like attempting to win a battle once the enemy has landed at your shores. There's enough objective data and science to prove why forecasting needs to start with the marketing funnel.

Rajesh Bhattad
July 14, 2022
min read

Did you know a little water is being used up somewhere on the mighty earth, every time you do a google search?

For that matter, every time you watch Netflix, upload a file to Dropbox, send a friend request on Facebook, or post on LinkedIn – a little water is being used up somewhere.

Wonder how?

Here's the thing – all the services mentioned above use the cloud. And the cloud is basically hundreds and thousands of processing units stacked inside data centers that compute and process every single request. And to keep these data centers cool, all cloud providers, from Google to Amazon, use water.

But we are not wired to think like that, now are we? And we don't believe that we are to blame. Compounding as a concept is still hard for us to grasp (and hence those hundreds of LinkedIn posts every month "1% better every day!" 😅)

Humans evolved to think linearly.

The realm of this linear thinking gets into how we sell and how we can sell better.

Here's an example:

Let's say Lucy joined your Enterprise Sales team today, and she is ramped up and given a million-dollar quota for the Quarter.

How can Lucy be sure she can hit the million-dollar quota?

The general rule of thumb in Enterprise Sales is a minimum of 3x your quota in the Pipeline to achieve target

Applying this thumb rule, Lucy now needs $3M worth of deals in her Pipeline to hit her $1M goal.

Suppose Lucy does have $3M worth of Pipeline, but as she starts speaking to these prospects and qualifying, she realizes some of the Opportunities should not have been created in the first place, like say the prospect does not have the budget for your product. They are "not sales accepted" – hence not SAL (Sales Accepted Lead).

You now realize that having just the Pipeline coverage is unimportant. We need SAL Pipeline coverage – meaning the Pipeline that was qualified and accepted by the sales rep as genuine Opportunities.

SAL Pipeline Coverage > Open Pipeline Coverage

Do you see a pattern here? We are going back in the process, and the further back you go, the further you get a strong sense of where your revenues will land.

Let's visualize the entire process. Take a look at the below diagram.

Lead to Closed Won/ Lost Process
Lead to Closed Won/ Lost Process

All your raw leads are the first set: Leads. They all go through marketing qualification, which is usually pre-defined with parameters like:

· Is the Lead coming from a premium ID?

· Is the Lead landing from one of your form fills?

And so on and so forth. Once it is MQL (Marketing-Qualified-Lead), is when it goes through an actual human qualification – an SDR (Sales Development Rep), who picks this MQL and speaks to them to run through the checklist of qualifications like:

· What is their detailed requirement?

· Do we support it?

· Do they have the budget for our product?

And so on and so forth. Once it is SQL (Sales-Qualified-Lead), the SDR deems it "worthy of sales" time and creates an opportunity out of it.

Now, it is possible that some of these Opportunities should not have been created. Maybe a new SDR created an Opportunity without qualifying if they have the necessary budget. That would be a bad Opportunity, meaning not a SAL (Sales-Accepted-Lead).

Whatever your SAL is your True Pipeline.

Lucy needs 3x of her quota in this "True Pipeline" to have a chance at closing her $1M quota.

This is much different than just looking at your Pipeline and Forecasting how much will close. That would be Forecast accuracy, which is different from Pipeline coverage, given other variables you account in, like historical win rates.

Let's say you have a win rate of 30% in Enterprise Sales. In which case, you are giving a forecast accuracy of 30%*$3M pipe=$900K closing in. That's different from Pipeline coverage of $3M.

In the bottom-up approach to Forecasting, you are reverse-engineering the entire model to get to the point of the first touch with the prospect as leads. And this is much more significant and conclusive than the usual Sales Forecasting on Opportunities.

Suppose you have a Sales Forecast of hitting your target of $10M this Quarter based on the committed Pipeline. That is all amazing. But let's say your website was revamped two months ago, and a few things broke on the Inbound form that took two weeks to fix. The effect will show in the upcoming months, accounting for how long your leads take to convert, those Opportunities to be demoed, and then going through the deal cycle. But had you done thorough bottom-up Forecasting of the funnel from MQL to closure, you could have seen this iceberg on your path to sink your titanic!

Accounting for what percent of your MQLs convert into SQLs, what percent of those SQLs further convert Opportunities into SALs into the True Pipeline to wins – gives a complete glimpse and control over bottom-up Forecasting.

You are gauging not just what percent of Lucy's Pipeline will close this Quarter.

You are telling your marketing how many exact MQLs you need each month to hit that Quarterly target.

You are telling your SDRs exactly how many leads they need to convert to hit your revenue target.

You are telling your sales reps precisely how many deals they need to hit their monthly quotas.

You see, you are dissecting each part of the funnel in this Forecasting method – you are looking back and asking "why" at each step of the process – identifying the stakeholders who need to act and act how. Much different from just walking into a sales meeting to look at your existing Open Pipeline and tell how much will close, eh?

Bottom-up Forecasting is concrete. It is fool-proof.

🧮 Here's a sales funnel simulator you can tinker around with to know precisely the number of MQLs you need to hit your target. It's fun. Check it out!

What makes Sales Ops folks the time-travelers in data-stream is this ability to dissect data back in time to say what the future might look like for sales.

Happy Forecasting!🍻

No more random acts of marketing.

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