How to Build Accurate Forecasting into Your Sales Process

Headshot of Paul Williamson, Head of Sales at Plaid

Paul Williamson
Head of Sales – Plaid



Ready to take your revenue to new heights?

Hand placing a token labelled with a dollar sign in the middle of a bullseye
Hand placing a token labelled with a dollar sign in the middle of a bullseye

The current global crisis has pushed sales leaders to search their deal pipelines for predictable revenue amid this black swan event. Strong headwinds have raised the stakes, making an accurate sales forecast more critical than ever.

As Head of Sales for Plaid, I’ve found that data plays an important role in helping us build a more predictable business. Data gives our executive team and board a detailed, accurate understanding of the business. And that matters in this new environment, where we as sales leaders have an even greater responsibility to be focused and granular in our assessment of where the business stands.

I expand on those points in this recent interview on The Forecast:

In my view, the importance of forecast accuracy will only increase going forward, which is why it’s key to build the foundation for predictable revenue into your sales process now.

Why Accurate Forecasting Matters

Accurate sales forecasting gives your business predictability. It allows you to plan further into the future, particularly if you’re a startup. With a forecast that shows you’re trending towards a good performance result, you can think about adding new account executives to the team, or expanding into different markets or verticals.

Accurate forecasts from sales leaders also build trust with your executive team and board, trust that can result in greater latitude to experiment, to change and grow the business. Leadership trust gives you room to try things that might be outside the norm for your company. So ultimately, reliable forecasting can accelerate your company’s overall growth.

The Role of Sales Reps in an Accurate Forecast

Driving predictability in the business starts with getting your salespeople on the same page in terms of forecasting principles. This isn’t easy — it takes work.

A couple of years ago when I shared deal pipeline information with three account executives, I’d get completely different forecast results from each — even though they were looking at the same inputs. The problem was that we didn’t have good definitions of each opportunity stage.

So we started defining in detail what it meant to be in each stage of the pipeline. More importantly, we mapped out specific activities our AEs needed to do to move an opportunity through each stage.

We also thought about other factors that could affect how we built and understood our pipeline, like the fact that account executives might downgrade opportunities to minimize risk. They might call a $100,000 opportunity a $65,000 one because they weren’t sure if it would close.

While that approach was understandable, it wasn’t great for leaders. When a deal closes for $35,000 more than you expect, it’s upside, yes, but that upside is actually a sign that you’re not in good pipeline health. You don’t have a true sense of your deals, which means your forecast won’t be accurate and your business, in turn, won’t be predictable.

We addressed this problem at Plaid by agreeing as a team that everyone would pipeline all deals at the true opportunity amount. But we also gave the AEs some wiggle room by allowing them to define the percentage chance — or probability — that a deal would actually close.

Using Probability to Build Greater Predictability

Our sales team tracks a few key metrics each quarter: contractually recurring revenue from new clients, annual contract value, and overall sales velocity, which is the number of net new customers. Beyond those metrics, we’re very focused on pipeline quality.

As we look at potential deals, we assign each opportunity stage a set probability: 20% that a deal would qualify, 30% it would make it through needs analysis, and so on. We use that weighted analysis to understand pipeline health.

As mentioned, we allow the account executive to adjust the percentage likelihood that a deal will close—but that’s the only thing they can adjust. Giving your AEs too many places to make adjustments results in a diluted version of the pipeline that causes other issues. If you think you’ll miss your Q3 number, you might ask the SDR or BDR organization to build more pipeline fast. Aggressively trying to find and close pipeline in-quarter will cause further problems, like your reps discounting heavily and lowering your ASP.

Building a Layered Quarterly Forecast

Sales forecasting methodologies vary, but at Plaid we look at the forecast from three perspectives. The first is what I call the unknown or unseen pipeline, which includes inbound sales that will likely close in-quarter. This is high-velocity and mostly early-stage startups. For this segment we use historical quarterly data to project forward to the baseline revenue we expect.

For our remaining startup and mid-market business, we have known pipeline entering each quarter, with deal volume large enough that we can use a probability analysis to make our prediction. We know that for X amount of pipeline, we have Y percentage likelihood of closing, which will net us Z amount of revenue.

For our enterprise business we actually don’t do any probability analysis. Instead we look at these deals as binary: you either win that quarter or you don’t. We essentially forecast per deal.

How COVID Has Changed Our Forecasting Process

Our forecast methodology was consistent and accurate prior to COVID, but when the pandemic hit we re-qualified nearly every deal. Given that every business must take a hard look at needs versus wants in times of crisis, we cut prospects from our pipeline who considered our product a want, not a need.

Our reps let those prospects know we wanted to respect their time and would re-engage when their business was in a better position. We’ll continue to educate those prospects so that when they’re ready to make a decision, we're in a position to help.

Winnowing out the wants gave us the time and latitude to focus on the top prospects in our pipeline, those that truly saw our solution as a need.

Sales Excellence and Predictability

Getting that sales forecast right matters to the health of the whole business, but it’s really, really hard. To forecast well, your sales org needs to excel at the fundamentals: understanding your customers, qualifying their needs, and prescribing the right solutions. Combine that with a coherent, consistent, and accurate approach to quantifying your pipeline, and you’ll build predictable revenue and a healthy business.

Interested in more insights from revenue leaders? Check out The Forecast video series here!