How to Use the Delta Between Forecasts to Build a Focused Sales Plan

Blog
Apr 15, 2021
3 min read
Sales forecast gaps can be a huge source of anxiety and uncertainty for sales leaders. Learn everything you need to know about top-down and bottom-up forecasts to hit and crush your revenue targets with confidence.

Your company probably does two separate forecasts at the same time: a top-down forecast and a bottom-up forecast. And at the end of that process, there’s probably a gap between those two forecasts. Is that gap supposed to be there? Well, yes. 

If you’re a sales leader, this gap can be the source of anxiety. You want a specific target to work toward, not a pair of numbers. Does the higher of the two define success? Is the lower of the two a mark of failure? What if you fall in between? 

Just relax. If sales leadership is using its forecasts the right way, this gap can drive planning that gives you the tools to meet—and possibly beat—your number.

The two types of forecasts are conducted because they serve very different purposes. The bottoms-up forecast looks at your key accounts and begins the process of territory planning. Sales Operations creates an inventory of each current account and its historical sales. Sales Ops also generates pipeline reports and provides them to the field reps, who then assign a forecast and risk level for all expected revenue. 

The sales leader then speaks to the sales team about these forecasts. Accounts are listed in descending order and the sales leader reviews the top X% of revenue (e.g., 80%) with the account owners. Revenue is classified as at-risk, secure or growth, and the sales leadership team gets a better understanding of what the “word on the street” is.

Leadership reviews the pipeline and probabilities are assigned to all expected revenues. This is the basis of a bottom-up forecast. However, there are no additional productivity drivers in this forecast, so this forecasting is done based on the sales engine you have today, not the one you need to build.

A top-down forecast begins with pressure: the pressure of competition and rates of return. Corporate leadership reviews market returns and growth from similar companies. Your company structure is analyzed, the results of prior strategic moves are reviewed, customer trends and economic factors are assessed, and a rate of growth is produced by the leadership team. Finance looks at run-rate results and proffers a recommendation on where growth can come from. 

The bottom-up and top-down analyses leverage different methodologies to arrive at a forecast, but the key difference is that the bottom-up forecast is based on the current pipeline and sales organization structure, while the top-down approach is based on the business’s goals and market conditions, and assumes the sales engine will need to produce more to attain the required results. This is where the gap between the top-down and the bottom-up comes from, and this creates the need for sales leadership to come up with a way to fill that gap. Enter the sales plan!

The sales plan is the portfolio of strategies that the sales leadership creates to fill the productivity gap between the top-down and bottom-up forecasts. This portfolio of strategies contains all of the sales effectiveness levers: sales sizing, territory planning, job role design, sales compensation designs, and technology efficiencies (i.e., people, processes, and technology). The sales plan is built from the sales strategies and investments required to increase productivity to the required point.

Building the sales plan usually starts with mapping the buying process and the corresponding sales processes. Job roles are assigned to specific selling tasks, with an eye toward improving the current process. For example, it may be found that extra headcount in lead generation would reduce prospecting time and increase the customer-facing selling time for sales reps by a certain percentage, which in turn would increase conversion rates to the level needed to meet the forecast. Another example would be a technology investment that increases the productivity of the sales team. 

From there, sales sizing can be done – you know your sales capacity/bandwidth and you’ve identified the addressable market, so some simple math will tell you how many reps you need (note that there are numerous methodologies for sales sizing, but that is for a future blog). You then need to assign or refine territory/account assignments and design the sales compensation plan. If there is significant sales team training and staffing, then HR and Sales Ops will need more heads to support this. Keep in mind that there is usually technology underpinning all of these moving parts!

All of this is triggered by two forecasts that do not meet. Sales leadership will present this portfolio of go-to-market strategies to senior leadership and describe the investment required to meet the productivity gap. In other words, this is the price to build the sales engine to grow the company. The larger the productivity gap between the top-down and bottom-up forecasts, the larger the investment will be required in the sales plan.

  • Forecasting
  • Revenue
Author
Jason Rothbaum
Jason Rothbaum
,
Consultant

Jason is the Sales Compensation Lead Consultant in Xactly’s Strategic Services group. Jason has over 20 years of experience in Sales Compensation with tenures at both the Alexander Group and in the Deloitte Sales Effectiveness team. He has led dozens of engagements with a large spectrum of clients on compensation plan design and implementation—from Fortune 100 to 40 employee startups. Jason holds an MBA from Yale University and an MA in economics from NYU.