One of the biggest problems companies face today is one they might not even realize they have. It may seem like revenue teams are chugging along and business is holding steady, but Clari data shows that the average company is leaking nearly 15% of its revenue at any given time. In fact, Boston Consulting Group estimates that organizations lose over $2 trillion a year in missed revenue capture, sales waste, and lost enterprise value.
There is a way to course-correct, recapture revenue, and prevent this kind of revenue leakage. It’s called revenue precision—and it’s the key to ensuring your organization sets itself apart from the pack and thrives.
What Does Revenue Precision Actually Mean?
Revenue precision means that every employee who impacts revenue in some way—also known as a revenue-critical employee, who make up to 50% of staff across sectors such as finance, sales, marketing, and customer success—has full visibility into their revenue process, resulting in reliable and consistent outcomes. In short, revenue precision is the operating standard that results in full, predictable, and repeated revenue capture.
Revenue precision allows your CEO to answer the most important business question: Will we meet, beat, or miss our revenue target?
Knowing the answer to this question enables organizations to plan, forecast, and grow with accuracy and confidence.
“Revenue precision is achieved when people, processes, and systems work seamlessly together,” says Andy Byrne, Clari’s CEO. “This means discovering their blind spots, consolidating their tools and processes, and ensuring constant collaboration between their teams.”
What Causes Inaccurate Sales Forecasts?
Various culprits can cause inaccurate forecasts. For example, you might miss your number because you didn’t treat revenue as a process—one that requires constant vigilance and maintenance.
“Hitting your number at the end of the quarter doesn’t just happen. It requires careful inspection and execution throughout the quarter,” explains Kevin Knieriem, Clari’s chief revenue officer.
Let’s say that a deal on track to close eventually stalls. Perhaps the revenue team didn’t follow up sufficiently, or there was a poor handoff, or key stakeholders were excluded (the deal wasn’t multi-threaded). Now, let’s say nobody was rigorously inspecting this deal to ensure all these pieces were in place. That deal may slip to the next quarter.
Clari research shows that every time a deal slips, the likelihood it will close drops by 66%. If your average win rate is 20%, that means less than 7% of slipped deals can be expected to close. That’s money out the door—and a forecast missed.
Using spreadsheets to track and analyze data can also lead to forecast inaccuracy. Not only does manual data entry result in human error, but deals are also constantly evolving. Spreadsheets, due to their manual nature, are always outdated.
The cost in terms of wasted hours is significant, too. Recently, Forrester released The Total Economic Impact (TEI) of Clari Revenue Platform study, commissioned by Clari, in which Forrester interviewed Clari customers. One communications technology firm revealed that each sales team member spent dozens of hours every week collecting, managing, and analyzing sales data.
Tracking data in spreadsheets means each department might use its own, which means data is tracked and reported differently or saved in different versions of the document. This lack of a shared source of truth (SSOT) requires a lot of time to roll up the forecast into one accurate, cohesive report.
Other factors, like the lack of a clear sales process, limited visibility into historical data, and subjective rep behavior—everything from sandbagging to happy ears—can contribute to missed targets.
The Impact of an Inaccurate Revenue Forecast
Despite the importance of accurate forecasting, Gartner found that fewer than half (45%) of sales leaders have high confidence in their organization’s forecasting accuracy. Yet an inaccurate or unrealistic revenue forecast can have disastrous consequences for your business.
If you end the quarter under your predicted target, you’ll have less cash flow. Your company will suffer from reduced hiring, programs, and investments, as well as potential layoffs. You can also expect to see decreased valuation and a drop in your company’s stock price, meaning investors will be more skittish and you’ll have less ability to fundraise. This impacts everything from overall confidence in your executive team to employee morale to public perception of your brand.
Meanwhile, if you end the quarter over your predicted target, you’ve missed a key opportunity to grow your business or invest for the future. Since inventory was likely purchased or prepared based on your forecast, you may end up without enough product or service capability. Your teams might be understaffed to handle demand, leading to poor customer service and increased staff turnover. Accounting rules mean your organization might need to spend unexpected revenue before the new fiscal period begins, resulting in hasty purchase decisions and wasted dollars.
The soft costs of coming in over your forecast are also significant:
- Your board, investors, and customers might lose confidence in your executive team
- Reactionary increases to sales quotas might be premature, causing a major shortfall in the following quarter
- Trust in your CRO and CFO might disintegrate.
How to Improve Revenue Accuracy
Improving your revenue accuracy can yield big results. In fact, companies with accurate sales forecasts are 10% likelier to grow their revenue year-over-year and more than 7% more likely to reach their quotas, according to research from The Aberdeen Group.
The best practice to improve your accuracy is to perform a revenue audit.
Performing a Revenue Audit
There are several steps involved in auditing your revenue:
- Identify common mistakes in your sales forecasting process. This includes those issues mentioned earlier, such as not engaging in regular deal inspection, using spreadsheets to capture and track data, lacking a SSOT for your data and having limited analysis of historical information, lacking a clear sales process, and relying on rep reporting and behavior.
- Assessing your organization’s current types of sales forecasting reporting, and implementing an SSOT to standardize and unify your data.
- Relying on quantitative, not qualitative, techniques to remove the guessing game from your sales forecast prediction process.
- Modernize your sales forecast process with the implementation of a Revenue Operations Platform and AI-powered predictive technology.
The Benefits of Revenue Precision
“Revenue precision spells the difference between ad hoc measurements and siloed teams, versus teams collaborating with full visibility toward a shared goal,” says Clari’s Byrne.
And the payoff for that can be huge. For example, organizations that took steps to achieve revenue precision through Clari saw a 39% increase in revenue capture, according to a Clari Labs survey, and prevented 5-10% in revenue leak, according to the Total Economic Impact study. Further, the TEI study found that Clari helped organizations improve forecast accuracy from more than 10% off the mark to closer than 5%, thereby saving the companies hundreds of thousands of dollars in otherwise wasted investments.
Revenue precision is driven by three main concepts:
- Visibility and transparency. In order for teams to collaborate, everyone needs to be on the same page. That requires visibility and transparency when it comes to your data. Using standardized, easily accessible metrics helps all revenue-critical teammates know where deals stand, so they can deliver predictable revenue.
- Collaboration. In addition to working from the same playbook, revenue-critical employees need a clear, repeatable process for effective collaboration. This can help improve handoffs and advance strategy. If marketing has visibility into at-risk deals, for example, they can tailor campaigns to help.
- Governance. To ensure that transparency and collaboration run smoothly, you need governance: a process of oversight and encouragement. That way, everyone who touches revenue is following the approved process and best practices. You can trust both your people and their work and know that your forecasts are accurate.
As your business grows and its needs become more complex, ensuring revenue accuracy becomes mission-critical. Revenue precision can take you there. But in order to achieve revenue precision, you must ensure Revenue Collaboration & Governance.
Revenue Collaboration & Governance unifies the entire end-to-end revenue process by connecting the systems and revenue-critical employees in the business that work on capturing and generating revenue.
“Revenue Collaboration & Governance is a strategic framework that brings together every revenue-critical employee in every department to collaborate on revenue, and governs every component of the revenue process for execution at scale,” says Byrne. “By managing revenue as an enterprise process instead of an individual or departmental function, companies are able to stop revenue leak, achieve revenue precision, and know with certainty if they’re going to meet, beat, or miss on revenue.”
Learn how Clari can help you assess your existing revenue leak, stop that leakage, protect your existing revenue, and achieve revenue precision going forward.