Growth at All Costs gave us the famous “Triple, Triple, Double, Double.” This was an amazing way to grow from $1M to $3M, $9M, $18M, $36M, $72M in revenue.

It was also an amazing way to waste capital, hire too many people too fast, and end up with layoffs – or going out of business. It represented an ambitious goal for companies that need a big exit for their investors. Unfortunately, it also represented planning based on hopes and dreams… not realistic and data-driven strategies.

In other words, it was Top Down instead of Bottoms Up. In this newsletter we’ll break down how to do a Bottom’s Up plan you can bring to your board with more assurance and more connection to reality.

The Problem with Top Down

To dive slightly deeper here, the problem with top down is that it reflects goals, not past performance.

For example, we want to grow from $50M ARR to $75M ARR next year. We want NRR to be +100%, or $50M ARR so we want $25M in New Business ARR. We want 3X pipeline coverage, or $75M in pipeline.

We hope that doubling the size of our sales team and increasing investment in advertising will help us generate that pipeline… and close it… before FYE. But will it?

If we double marketing spend, will it actually double pipeline? What about sales capacity? Can our reps close twice as much business… and still prospect… as many ramp up in a new role?

We can ask and answer all these questions but it helps to just start at the bottom. So let’s do that now.

Starting with Net Revenue Retention

The first place we should start is by estimating how much ARR we will have from the customers we had at the start of the year.

First, we need to assess our Gross Revenue Retention or Churn. We may go so far as to do a manual forecast, as we do internally here at USC once per week. (Our NRR is currently 107%, which is pretty amazing for a services business.)

We might look at retention or renewal rates last year. We might need to break this up by segments if customers renew differently in different industries, company sizes, locations, or products.

Next we need to look at our expectations for expansion. How much expansion pipeline were we able to generate and close last year as a percentage of revenue? What about this year to date?

We might also forecast this out customer by customer, especially if we already have pipeline set to close next year and/or long sales cycles.

Capacity Planning for Success

Before we get into new business, we have to ask if our team has the capacity to work these deals and serve these customers. If we have double the number of customers this year, have we doubled the size of our renewals team and/or improved efficiency to accommodate? Or are we just hoping they figure it out?

I’ve spent the last 20+ years closing new business, renewals, and expansion deals. I can’t even count the number of times I’ve looked at my pipeline and thrown my hands in the air because I could barely manage it, let alone find time to prospect and proactively engage my existing customers.

In every job there’s a number of deals that, once I’ve hit it, I have zero time for anything else. Most revenue leaders do not know this number.

While this can be a nice problem for reps to have, it represents volatility and inefficiency for the business. Before we think about managing more pipeline and customers, we should be sure we have enough resources to handle it.

Planning Inbound Targets

If inbound is meaningful in our business, we need to break it down by lead/pipeline source and estimate the amount of leads, pipeline, and revenue we can expect by source.

For example, this could mean we look at:

• What we spent on ads last year
• How many leads we generated
• How much pipeline we generated
• How much of it converted to revenue

We do this by looking at specific conversion rates, close rates, average sales price, and sales cycle.

Sales cycle tells us the date by which we need to create this pipeline. If our sales cycle is 90 days, we need to hit our pipe gen target by 09/30 in order to hit our sales target by 12/31. Anything created after September is unlikely to close by EOY. This may also vary by channel, from ads to webinars to events etc, as prospects come in at different stages in their journey.

If all of our inbound variables are blended together, how can we pinpoint problem areas (or the most successful ones)? This is why “unblending the funnel” is a crucial practice for getting visibility into our inbound engine – and planning for the future.

Here’s an example of how a blended or “monolith funnel” can give us an inaccurate forecast. With the blended funnel, it seems reasonable that by doubling MQLs we should be able to double ARR.

When we unblend the funnel, however, we get a better idea of where the majority of that revenue is actually coming from. In this case, demos, which aren’t as scalable as webinars. Even acquiring more than double MQLs from webinars does not compensate enough for the demo bottleneck.

We talk more about unblending the funnel, and other GTM optimization strategies, here.

Planning Outbound Targets

Capacity planning should also be done for outbound. Once we know how much time our reps have to prospect, we can drill down further.

How many meetings can they book in that time based on past performance? How long does it take new SDRs and AEs to ramp to pipe gen goals?

We might also need to break this down by company size, industry, geo, product, etc. For example, we should not expect SMB and ENT reps to generate the same amount of pipeline in the same amount of time.

We should arrive at a target for pipe gen and revenue by rep (or by team) that is based on the time they have, the activities they can log, and our past performance for conversion, close rates, ASP and sales cycle.

Closing Deals

If we can assume the same Close Rate, ASP, and Sales Cycle across all New Business Pipeline, then there’s not much to do here, so long as we have the capacity on our sales team to close deals.

However, if we’re growing the sales team, we should really think about ramp time. All too common we’re looking at the performance of our best tenured rep(s) and expecting new reps to magically produce the same.

We need to look at what a good (not great, but good) rep is producing after ramping and what percentage of reps reach this level. We need to look at our current team to see which of our tenured reps we can expect to be there immediately, which ones still need help, and what we can expect of new hires.

Based on this, we can extrapolate an estimate for Close Rates, ASP, and Sales Cycles by rep and by team. We may also want to factor in improvements in these numbers if we have solid plans that give us confidence.

If we pair this with our Pipe Gen estimates above, we can get a much better plan for next year.

Bringing It All Together

It can be easy to go overboard with this. There’s a never-ending opportunity to slice and dice past data to get the perfect estimate of what’s possible next year, but we’ve attempted to outline the most important things to consider.

We have to look at how much time revenue leaders and operations have for this planning and, more importantly, what moves our business. What matters most is getting an estimate for NRR and New Business ARR that we feel as confident in as we can.