Revenue forecasting helps businesses plan for the future. It is like having a map when you go on a road trip. Without a map, you are more likely to get lost.

Of course, no one can predict the future perfectly. Forecasting is more or less a calculated guess—you can’t predict the market conditions, seasonality’s impact, and other forces that will throw cold water on your plan. 

But you are still much better off having a plan so that you can course correct along the way and still reach your destination. 

However, forecasting for an SMB is very different from forecasting at an enterprise.

Sales teams in enterprises are typically working on bigger deals which have a longer sales cycle compared to SMBs. While enterprises in general do invest in forecasting, the number of deals they work on at any given time is lesser than the volume handled by product-led SMB SaaS companies.

SMBs, on the other hand, need to play the volume game, handling a wider range of deals in order to generate enough revenue. This means that they need to be on top of their forecasting game to ensure no deals slip through the cracks.

Through this blog post, we will look at why SMBs miss their forecasted numbers and what revenue leaders can do to streamline them.

SMBs need to streamline forecasting the most

Everyone in the GTM leadership knows and relies on revenue forecast as a key metric and yet leaders in most SMB SaaS don’t have a streamlined forecasting process. 

What makes it more difficult, especially given the current economy is that you probably have fewer people on your GTM team than a year ago. Yet to stay afloat, you cannot afford to slow down your revenue growth. 

That means as more opportunities come into your ecosystem, it gets harder to manage them and ensure that every single deal gets the attention it deserves.

At Avoma, we work with a lot of SMB customers and have noticed some interesting patterns:

Sales cycles are short but in higher volume 

SMBs have less time to close deals and even less opportunity to recover from deals lost. So they may be more likely to miss out on potential revenue if they do not have a good forecasting process in place. Forecasting can help SMBs to avoid letting deals slip through the cracks by giving them complete visibility into every deal in the pipeline, helping them identify potential risks, and take action as needed.

Low confidence in forecast accuracy

Our conversations with sales and customer leaders tell us that less than half (45%) of them are confident about the accuracy of their revenue forecasts.

And as we dig a level or two deeper, the reason for such low confidence in the accuracy of revenue forecasts often points to the way most GTM teams have built their revenue workflows.

In a typical forecasting workflow, sales and customer success managers set pipeline targets for their team where the reps submit their individual forecast numbers. The sum total of the individual forecasts becomes the team’s overall forecast.

The reason why GTM leaders have low confidence in those revenue forecasts include:

  • The CRM does not provide predictive insights about deals in your pipeline. The forecasts shared by sales and customer success reps are often ad hoc and based on individual hunches.
  • Manual forecasts are estimates. Sales and customer success reps are just as likely to underestimate their forecasts as they might overestimate them.
  • In the modern SaaS environment, reps are likely constantly switching context between meeting booking tools, CRMs, meeting assistants, conversation and revenue intelligence tools leading to inaccuracies and tool fatigue

These numbers are more often than not based on intuition and not evidence of deal movements. Simply put, these forecasts are neither predictive nor reliable. 

Forecasts need to go beyond publishing numbers. It needs to track progress and attainment based on deal health signals and calibrate the potential revenue regularly. That way the forecast doesn’t remain a north star but rather becomes a compass that shows you which deals are slipping so that reps take control of them in time.

3 forecasting metrics for SMBs to track

There are going to be times where you might fall short of targets and there are also going to be months where you go well past the forecasted numbers. But the problem is when you don’t know what went wrong or what really worked well. 

So let’s start with tracking 3 KPIs that’ll help you understand how the deals in your pipeline are progressing.

1. Annual forecast vs. quarterly 

While you might have an annual forecast at the beginning of your financial year, it makes more sense to keep revising your forecast from the lens of quarterly performance and results. It helps you pause and check if your annual goal is still achievable and what are the gaps that need to be filled towards that pursuit. 

2. Pipeline coverage 

Pipeline coverage is another key KPI for your forecast. It means having a target pipeline value to achieve your forecasted sales numbers. Depending on the deal cycle and close rate of your organization, pipeline coverage can be anywhere from 3–5x of your forecasted monthly and quarterly sales revenue. 

3. Deal movements and risks 

You need to have clarity on what are your current open deals, which deals are committed for the month, what’s the best case scenario, and more. If you do a good job in maintaining your CRM hygiene, platforms like Avoma help you further in identifying the potential risks for each deal based on the account engagement. It helps you ensure you don’t let deals slip through the cracks.

Making forecasting work for SMBs

Once you define the KPIs for forecasting, the next step is to deploy the necessary resources and frameworks to make it work. 

Assembling the right team for forecast reviews

Never let your forecast be just another number. Hold yourself and your team accountable by mapping actual deals in your pipeline that you can close in the given month, to your forecast submitted.

So to start with, it’s about having the right people attend the forecast review meetings. While you don’t want too many people in these meetings, you need to ensure that the key stakeholders such as the Sales Managers, AEs, SDRs and RevOps are included. 

We could even recommend including the Customer Success team in these reviews. Involving a diverse group of GTM stakeholders enhances the quality of discussions, and ensures better forecast accuracy, and even opens up valuable coaching opportunities.

At this stage, your teams meet and your reps commit to their respective forecasts. Typically, the forecast numbers of each rep is based on the deals in their pipeline that they expect to close in a given time period, for example, deals they expect to close this month. 

From our experience, we at Avoma recommend you to have a forecast commitment number in addition to your consolidated deal value. This is to accommodate any deals with a close date later than the given period, but reps expect an accelerated closure.

Once the committing process is streamlined, the next next step is reviewing the forecasts from time to time.

Standardize the approach for reviews

Deals across all stages and forecasts need to go hand in hand. We’ve often noticed that during reviews, a lot of teams tend to focus only on the deals that are moving towards closure, and suddenly your sales pipeline looks empty because the deals you had in the relatively earlier stages don’t get the attention it deserves.

Therefore what happens is—you build your sales pipeline, empty your sales pipeline, and then start all over again. To avoid that rollercoaster ride, we at Avoma developed a model we call “Create. Advance. Close” where we always focused on deals across different buckets:

  • Create: What’s coming in top-of-the-funnel
  • Advance: Deals that are early in the funnel as well as late in the funnel that need to be advanced to the next stage
  • Close: Deals that need to closed, i.e., what’s needed to get the customer signature on the dotted line

At any given time, this approach means reviewing the deals won, deals lost, existing pipeline value, and the current gap between revenue attained and revenue committed.

It’s the responsibility of every leader to make sure that we spend enough time on all the deals across all three categories and ask questions such as:

  • Who is the key decision on this deal?
  • Who is the champion at the prospect account for this deal?
  • When was the last communication with the prospect?

Using a forecasting tool like Avoma ensures that you are alerted on various deal risk parameters based on how each deal progresses, so that you never drop the ball.

In fact, Avoma alerts on a number of positive and negative deal health factors such as:

Example of positive deal heal alerts include:

  • Competition: If your prospect mentions 2 or more competitors during your conversation displaying high buying intent.
  • Positive Moments: If there are 5 or more Positive Moments during your conversation.
  • Upcoming Meeting: To nudge you to prepare for a meeting with a prospect in advance if it's coming up in the next 48 hours or less.

Examples of negative deal health alerts include:

  • Single Threading: If you have only one stakeholder at the prospect account, Avoma flags an alert nudging you to add more stakeholders.
  • Email sentiment: If the sentiment of the latest email from your prospect account is negative, Avoma will alert you so that you take appropriate action.
  • No Recent Activity: If a deal has been stalled for 20 days or more and there’s no email, call, or meeting recorded.
  • Positive Moments: This one is also a risk alert in cases where your deal conversations don’t have even a single Positive Moment.
  • Time Since Last Meeting: If there has been no meetings for more than 15 days, indicating that the deal is not progressing.

The next step is learning from the alerts and planning the next steps.

Realign and plan the next steps

Successful forecast review meetings involve capturing learnings, addressing the gaps, and realigning on the expectations. It may so happen that some deals might get pushed to the next month or quarter, while for other deals it might be about identifying the next steps and assigning action items. 

It is crucial to document the action items so that the execution can be followed through. But Avoma being an SMB friendly platform, ensures that while you have your entire focus on the forecast review, its Generative AI Notetaker takes notes for you on your behalf.

Establish an optimal frequency for reviews

Given the volume of deals SMB SaaS reps are handling at any given time, we would recommend conducting weekly forecast reviews. Regular reviews of deals ensures progress and provides insights into the business, leading to more impactful review meetings in the future. Regular review meetings also give you insights into the average sales cycle length, win-loss rate ratio, most frequently compared competitor, and thereby improving your forecast accuracy.

Summing up…

At the end of the day, every SaaS business needs to build a predictable pipeline. Investing in an all-in-one conversation and revenue intelligence platform with a strong forecasting engine can help you: 

  • Improve your forecasting accuracy
  • Save time and manual errors otherwise resulting in spreadsheet hell
  • Manage potential deal risks in time, and
  • Free up your time to focus on what you do best – selling

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