I was frequently asked about booking numbers for the upcoming quarter when I led the GTM FP&A function prior to Planwhiz. There are many methods to do a booking forecast. In the article below, I’ll share the three most common and powerful methods.
#1 Sales Leader Commitment
The most straightforward way to do a booking forecast is to directly get the monthly numbers from leaders in each sales region. It may sound counterintuitive to do a forecast without first crunching numbers, but this method is effective if done under the right circumstances.
– When the company doesn’t have access to clean CRM data.
8 out of 10 start-ups have an operations team that is stretched thin. Without time to ensure CRM data is cleaned up for forecasting purposes, using the data for forecasting purposes only results in garbage in and garbage out.
– When the company’s bookings are largely dependent on a handful of large deals.
Timing and closing quantity are difficult to forecast with large deals.
– When the sales team is new.
With a new sales team, the sales history is not reliable. As such, the quota capacity model is ineffective.
Under these three circumstances, a seasoned sales leader will have a better intuitive understanding of the overall team’s performance than any forecasting that can be done. To ensure a successful financial partnership, it is crucial to work closely with the sales leader to understand the team’s performance and forecast at a frequency that works best for both sales and finance.
Instead of relying Excel/Google Sheet, Planwhiz incorporates this workflow into its software to encourage efficient collaboration between sales and finance on the same platform.
If you have more sales history to work with, Quota/Capacity is the most accurate way to forecast bookings in most cases. In my experience through multiple funding rounds, this is the preferred method of most investment bankers.
This method doesn’t require clean CRM data. A proficiency in Microsoft Excel is all that is required to build a model to incorporate:
- Different quotas for different levels of reps/sales regions
- Monthly seasonality based on historical data
- Ramp schedule for different levels/sales region
- Different buffers for different levels of reps/sales regions
After which, you will have a functional quota/capacity forecast model. This method is also effective for multi-year sales forecast with # of future hires plus a YoY percentage increase in sales quota.
As this model is consistent across all companies, we integrated it into Planwhiz to ensure you can efficiently make use of it to forecast without having to rely on Excel. Provide the information detailed in the 4 bullet points above and Planwhiz will do the calculations for you.
While popular, this method comes with several challenges:
- Ineffective if reps don’t update their deals on time in CRM, including but not limited to deal amount, stage, closing time, etc.
- Bookings can swing wildly due to 1 or 2 large deals
- Conversion rate fluctuation
If you’re able to avoid these issues, then you can use this method to forecast bookings.
Simply use Pipeline dollar amount in each stage x conversion rate for each stage. The caveat is that pipeline by stage changes every day. It can be cumbersome to incorporate this method into your financial model.
Planwhiz connects your CRM to your financial models, eliminating the need to manually update data.
I hope this article has helped inform your decision about which model to use when attempting an accurate forecast of your bookings. There is no better feeling than having a confident and up-to-date answer for your CEO when asked about future bookings. To learn more about how Planwhiz can save you time and allow you to better focus on growing your business, request a tailored demo today.