Revenue Strategy and Planning
- Mike Pinkel
- 1 day ago
- 37 min read
Updated: 4 hours ago
One mistake you can't unmake is being too late to start your annual planning cycle.
For B2B SaaS startups with substantial sales cycles, the window to impact next year’s numbers closes before many companies even start planning.
Companies with moderate sales cycles need to start annual planning no later than October. Companies with long sales cycles need to start at least informal planning in June.
Why? Every major initiative takes longer to move the needle than you’d think. Early-stage startup founders used to acting fast and driving quick results need to adjust to a world where today’s outcomes have a lot to do with moves you made six months ago… or even longer.
Here’s the really challenging part: It’s easy to be in denial and not even realize you have a problem. Annual planning feels objective (you use a spreadsheet!) but it’s based on assumptions that are malleable. You can put whatever numbers you want into a spreadsheet.
If you start too late or don’t have a firm grasp on the real condition of your business, you’ll find it easy to come up with the numbers that make it look like it’s all going to be ok even if those numbers have little to do with reality.
To put it another way: When planning goes really wrong, it’s usually not because of bad math. It’s because of bad judgment.
This article will help you avoid planning pitfalls that stop great companies from reaching their full potential and show you how to identify the revenue strategies that will power your business to success.
We'll help you focus on the critical categories of revenue you can generate and identify the major levers you have to influence each category. For each lever, we'll share example initiatives that you can deploy to drive growth. Consider which of those initiatives best fit your context, model the likely outcomes, and dive into growing your business.
Here's an outline of the article with clickable links that will take you to each section:
Planning Pitfalls
Lack of Lead Time
Starting early is critical because you have to get ahead of your sales cycle. Your sales cycle is the average time that it takes between when you create a qualified opportunity and when you close a deal.
The length of your sales cycle is like gravity: You can’t see it or touch it. But it shapes everything you do.
If you plan effectively, you can build yourself a rocket ship that overcomes the gravitational pull of your sales cycle and lifts you to your revenue goals. But you can’t make your sales cycle go away by ignoring it or putting extra pressure on your sales team anymore than you can make gravity go away by pretending that it doesn’t exist or by putting a gun to someone’s head and telling them to fly.
Let’s say you have a sales cycle of four months, which would be common for a company that sells deals in the $50,000-$100,000 ACV range. We’ll assume that this is your situation throughout the rest of this article.
Now let’s say that you decide to grow revenue by increasing the size of your team. You opt to hire more account executives (AEs) to close deals and more sales development representatives (SDRs) to generate leads for your AEs to close.
How long would it take for these initiatives to impact revenue?
Hiring AEs: Nine Months
You need to start hiring new AEs 9 months ahead of when you want them to drive serious revenue.
Shocked? Let’s break it down: You need to hire AEs and then they need time to ramp up to full productivity.
Time to Hire: Three Months
Plan on it taking at least three months from the time that you start the hiring process to the time that you’ve got your AEs in seat.
Running a good hiring process takes time. Here’s what goes into it:
First, you have to build a strong candidate pipeline. This involves standing up a sourcing process and doing several revs on the target profile so you’re honed in on the right candidates. It also means learning to pitch the role so great candidates are excited to interview.
Next, you have to run an effective selection process. You should have at least three interview rounds that test different skills. That means that it takes about a month for a candidate to make it through the process. Plan on having at about ten first round interviews for every candidate that you ultimately select.
Take time to calibrate; don’t hire the first batch of minimally acceptable candidates. You may adjust your target profile and selection process once you see what’s out there.
Finally, you’ve got to close the hires. This means checking references, getting signed offer letters, and waiting while your hires complete their notice periods for their current employers. This adds another three weeks.
Add it all up and it would take us about two months to hire if everything proceeds perfectly, meaning that we immediately get good volumes of ideal candidates, select exactly the right reps right from the start, and have no friction in the process.
Of course, perfection never happens, so add on another month to account for reality.
If this feels frustratingly slow, remember that the worst thing you can do is take shortcuts and raise the risk of hiring bad AEs. Bad AEs burn leads, money, and time… and then you have to start the hiring process all over again.
Time to Ramp: Six Months
AEs now = revenue now, right?
You know better than that! It’s going to take at least one sales cycle before they start delivering serious dollars because the deals they’re working on need time to move through the process.
But here’s the kicker: You should plan on 1.5 sales cycles, or six months in our case. They might close some revenue earlier, but don’t count on reps getting close to quota before then.
Why? AEs don’t start generating quality sales activity until they’ve been trained and get some experience. In the early days, their work quality is mixed and they do everything slowly.
Here’s an analogy that might help a product-focused founder: When you hire a new engineer, they have to learn your code base and your operating cadences before they start producing useful work at a reasonable rate. Before that, they’re not adding much value even if they’re talented.
The same principles apply to AEs.
Plan on it taking AEs half a sales cycle to get up to speed. Long sales cycles are a sign that you have a complex sales process; that means it takes proportionately more time to learn to sell your product.
Hiring SDRs: 7 Months
The lead time for SDRs is shorter because they’re simpler to hire and don’t need as much time to ramp.
Plan on two months to hire rather than three. You don’t need as many revs on the hiring profile (they’re typically early in their careers so the candidate pool has less variety) and the selection process can be simpler (their job involves fewer activities so there are fewer skills to test).
Build in a month for training. Don’t expect them to learn by osmosis from other SDRs. If you do, you’re going to get delayed productivity and a high failure rate. SDRs often don’t have prior experience so there’s a huge return to giving them structure.
Finally, factor in your sales cycle, which is four months in our case.
Hidden Problems
Up to this point, revenue planning seems predictable. It takes a lot of lead time, but you can estimate how much and plan for it.
But sometimes it’s harder than that. Your business may have hidden problems that have to be solved before revenue starts to become predictable.
Everything comes down to whether your company has a scalable way to generate high-quality leads.
AEs only close revenue if they have enough good leads. If you hire more AEs without scaling your lead gen, revenue may actually go down because you’re taking the same pool of good leads and dividing up amongst a larger team, some of whom are inexperienced and close the leads at a lower rate.
SDRs generate leads, but only if you give them an effective process that scales. Lead generation has gotten much harder as channels have gotten more saturated. Blasting out emails and calls without a strategy isn’t going to work. That means that you can’t rely on your early-career SDRs to figure out your lead generation process.
It’s also important that your channels are decently efficient in light of your deal size. If you have to host swanky dinners to generate leads for a product that costs $1,000/year and has high churn, you have more work to do before you can scale.
This issue can sneak up on you. Many companies think they have a scalable way to generate high-quality leads… but find out that they don’t when they try to grow.
Premature attempts to scale waste scarce capital. You grow your headcount and fund growth initiatives… and don’t get much back. You might survive making that mistake once, but make it too many times and you’ll exhaust your resources without getting a fair chance to see if your business can take off.
So inspect your business for hidden problems before you try to scale. The sooner you spot them, the sooner you can get to work on fixing them.
Here are three ways that companies get surprised by hidden problems:
(Over)fishing in a Small Pond
Sometimes, you have a way to generate leads but it won’t scale well. Think of this as fishing for customers in a small pond. Fishing twice as much doesn’t catch twice as many fish because you’ve depleted the pond.
Let’s say you’ve been able to generate leads by sending an email campaign to people you met at a conference. You need more leads so you decide to send a second email campaign to that group.
The second campaign won’t get the same results as the first. The most interested prospects already responded; the group that’s left is less interested than the group you had before.
That simple example is clear enough. But it’s easy to miss some of the ways that this principle might apply to your company.
Your startup’s first signs of traction may be in small ponds. There may be a particular type of webinar that generates good leads or a specific type of stakeholder that responds to your outbound messaging.
It’s easy to over interpret these signs of traction and think that all webinars work or that all kinds of stakeholders respond. That can make you think that your lead gen will scale better than it really will.
Small markets are another trap. Many startups (quite reasonably) pursue small markets these days: Focus gives you better odds of dominating your sector because you face less competition.
Small market companies may not see this as a limitation because they feel that they can capture a large percentage of their small market. If they make that happen, it adds up to a lot of potential revenue.
The trouble is that it’s easy to overestimate how much of your market you can realistically capture with your current product. We’re naturally biased when we think about our own company. We think the problems we solve for customers are incredibly important and we think the ways that we’re different from competitors are clearly compelling.
But prospects may see things differently. Many of them may not feel the problem as intensely as you hope (meaning that they don’t buy any solution at all) or be as impressed by your differentiators as you’d like (meaning that they buy another product).
The solution to the small pond problem is to find other ponds: Look for new campaigns, new channels, and new markets.
But it’s hard to know how long this will take. You may need many attempts. You may also need to make deeper changes to your messaging or your product.
Whatever you do, don’t ignore the issue. Don’t assume that you can keep the same conversion rates as you scale your lead gen efforts and don’t ignore your sales reps if they tell you they’re having a tough time because they’re prospecting into the same small number of genuinely promising accounts over and over.
The Leads You Can Scale Don’t Close
All leads are not created equal. You only care about leads that ultimately turn into revenue. But you might find that the type of leads that you can generate more of don’t actually close.
Let’s say you have two major lead sources: (1) outbound from SDRs calling and emailing prospects and (2) referrals from current customers and contacts who recommend that prospects get in touch with you.
Outbound scales… so you’re good, right?
Maybe not. When you look at your revenue by lead source, it may turn out that it’s almost all from referrals. The outbound leads don’t close.
This can be a trap. If you only look at your blended close rate across all leads, you might see that it’s solid and assume that more outbound leads means more revenue. And then… it doesn’t.
How long will this problem take to fix?
You don’t know until you know why it’s happening. It could be that you need a more effective sales process. It could be that your outbound efforts are targeting the wrong kinds of prospects. Or it could be a sign that you don’t really have product-market fit.
Hidden Lack of Product-Market Fit
You’ve got product market fit when you’re solving a serious problem for a clearly-defined set of buyers who have the ability to purchase your product.
Lack of product-market fit is the root cause of a lot of sales problems. If you’ve tried 58 different versions of your outbound email copy and nothing is working, the issue might not be your email copy. It could be a lack of product-market fit.
If you haven’t got product-market fit, you can improve your sales process and drive your team to follow up with prospects more frequently, make more cold calls, and visit more prospects in person… and none of it will make much difference.
It’s easy to get false validation of product-market fit. You might have sold some deals to personal connections, like batchmates from your startup accelerator program.
But there’s a difference between your buddy purchasing your product and an unconnected buyer purchasing it. So before you start making big revenue plans, check in with reality on your level of product-market fit.
Self Deception
One of the toughest planning problems is that it’s easy to ignore your planning problems.
Let’s say you’ve started your planning too late and there’s no way to hire and ramp enough AEs and SDRs fast enough to hit your goal given the length of your sales cycle.
You probably won’t realize it right away. Why?
You’ll change the assumptions in your model to make everything look like it’s going to be ok. It’s not intentional. But faced with the pressure of making your number, you’ll look on the bright side anytime there’s a judgment call to make.
Most of your optimistic estimates won’t come to pass. You’ll fool yourself for a while, until reality takes hold.
These are some common ways teams engage in self deception:
Revise Your Sales Cycle Downward
Your root problem is that you don’t have enough lead time given your sales cycle.
So… what if your sales cycle were actually shorter?
The easiest way to fool yourself is to base your estimated sales cycle on the fastest deals you’ve closed rather than the average. You can tell yourself: “That’s our real sales cycle; we just need to sell better and then all our deals will close that quickly.”
Maybe.
It’s more likely that there was something unusual about the deals that closed the fastest. Maybe you were reviving a deal that had almost closed before. Maybe you had strong connections to the account. Maybe you just got lucky.
You can’t plan to do those things repeatably in the future.
To be clear, you absolutely should work to shorten your sales cycle. But that takes time: You have to redesign your sales process to do a better job proving value and organizing the evaluation process. You may need to change your product to make it easier to buy.
But there’s no magic solution: If you sell big, highly regulated companies, you can’t make all their internal procedures go away.
Overvalue Your Current Pipeline
Another trap is overvaluing your current pipeline.
Most companies close the year out with a ton of pipeline that pushes from Q4 to the following year. If you apply your standard close rate to all those pushed deals, it looks like you’re going to get a lot of revenue out of that existing pipeline.
The trouble is that most of those pushed deals are actually dead. The prospect decided not to buy and went dark. They never officially said “no,” so the sales rep left the deal open.
That means that you’ll wildly overestimate the amount of revenue you’ll get from that existing pipeline if you apply your standard close rate.
Until you’ve had the team follow a rigorous process for closing out dead deals and inspected the pipeline yourself, assume that your existing pipeline will close at a small fraction of your standard close rate.
Rely On Whale Deals to Save You
Some companies have a few deals in their pipeline that are many, many times larger than any deal they’ve ever closed before and with companies that are much, much larger than their typical customers.
Let’s say your company has never closed a deal over $250,000, but you have three opportunities in your pipeline that are a million dollars each. You normally sell to small and medium sized businesses, but these opportunities are with Fortune 500 companies. Your founder has been involved with these “whale deals” and feels good about them.
If you assume that one of those whales will close, that’s a huge edge for a small company trying to add five million in new business revenue.
But here’s the thing: Deals like those rarely close and they hardly ever come in at the massive dollar figures you're hoping for. You should value them at $0. They’re like lottery tickets; it’s amazing if you win but you shouldn’t count on it.
Why?
There’s a good chance that these “opportunities” are really just conversations. Big companies love having conversations with startup founders: talking with founders makes them feel current. Founders are also often brilliant, dynamic people. Who wouldn’t want to have a chat?
If they are real opportunities, it’s extremely likely that you’ll lose. Big companies have requirements you haven’t run into before in areas like security, governance, and compliance. They have to follow those rules, which means that they probably can’t buy from you even if you impress them.
What’s worse, a big company might send you a false signal of hope by encouraging you to submit a proposal for an upcoming RFP. They feel good having a startup in the mix and it costs them nothing to encourage you to submit a response. But it will bend your whole company out of shape for weeks for you to produce the reams of documentation and obscure information that their RFP requires.
To be clear, there is an outside chance that you’ll sign some kind of deal with the big company. But odds are that it will be a small pilot with a low dollar value. At best, you’re a promising but risky vendor that doesn’t have the track record they’d prefer. Put yourself in their shoes: Isn’t it safer to start with a small test rather than a major engagement?
It’s not easy to tell a founder that the “whale deals” should be valued at $0 given the work the founder has put in and the expectations they’ve built up. If the subject proves challenging, try doing an organized deal inspection by following a qualification framework like MEDDICC. Don’t allow a criteria to be satisfied on vibes; ask what specifically the prospect has said or done that satisfies each criteria. And be sure that there’s been a detailed discussion with the prospect about their technical requirements so you’re aware of all potential blockers.
You’ll probably find that most of the qualification factors aren’t present. In that case, it should be possible to agree that the deal will either be valued at $0 or dramatically discounted relative to your normal close rate.
The Path to Success: Four Revenue Categories
So let’s say that you’ve started our planning process early enough given your sales cycle and thought through the potential hidden planning issues that might trip you up.
Now it’s time to look for the initiatives that will power your business to success. Everyone has ideas for ways to grow (that’s the fun of a startup!) but try to begin your process with an organized analysis of the major potential sources of revenue so you can decide what to focus on. Once you have your focus areas, you can model the resources you’ll need and the likely outcomes.
Every B2B SaaS company has four major categories of revenue:
New Business - Existing Pipeline: Opportunities generated this year that will close next year
New Business - New Pipeline: Fresh opportunities you'll generate and close next year
Current Customers - Renewal: Existing contracts up for renewal next year
Current Customers - Expansion: Additional revenue from your existing customer base
Let’s look at each of these in turn:
Category 1: New Business - Existing Pipeline
Some pipeline that you generate this year will carry over to next year. This existing pipeline is critical if you have a long sales cycle because you have less time next year to generate pipeline that can close in the same year.
So how do we think about maximizing this category of revenue?
Let’s start by defining the factors that influence the category. We can then consider each factor and think through how to improve it. We’ll use this approach with each of our four revenue categories.
It’s sometimes helpful to write out a mathematical formula that yields the amount of revenue and then think about how we can influence each variable in the formula. In the case of New Business - Existing Pipeline, our formula would be:
Pipeline Amount × Close Rate = Revenue
That gives us two levers we can pull: increasing the amount of pipeline and improving the close rate.
Increase Pipeline Amount
The more good pipeline we have that carries over to the next year, the more revenue we’ll close from existing pipeline.
One way to influence this is to start scaling marking efforts in Q4 of the current year rather than waiting for Q1 of next year. Starting your planning process early lets you spot this opportunity and take advantage of it.
Another way to influence this is to make sure that AEs keep prospecting to develop leads in Q4. Most teams get the bulk of their leads through their SDRs and marketing, but AEs do some prospecting on their own.
To be clear, you absolutely do need your AEs to focus primarily on closing deals in Q4.
But you can’t let prospecting fall off a cliff. When this happens, your revenue looks like a yo-yo that goes up one quarter because there’s pipeline to close and then plummets the next because you were solely focused on closing deals the quarter before and created too little pipeline.
Look for ways to adapt your prospecting targets to the time of year and the condition of each rep. Reps that don’t have tons of deals to close in Q4 need to go all out on prospecting. Those that do should have a lower prospecting target… but one that’s greater than zero.
Improve Close Rate
The most important way to raise close rates to focus on deals that are live and close out deals that are dead. Leadership also needs to ensure that deals in the pipeline are real so you can apply a predicted close rate.
This can be traumatic: Reps have put a lot of time into their deals; the idea that all that effort has gone to waste is hard to stomach. It’s also potentially burdensome: You don’t have tons of time to argue with reps about what deals to close when you’re trying to have a strong Q4.
One approach is to come up with clear criteria for what deals need to be closed, like the PAN rubric. Deals that have PAN are live; deals that don’t need to be closed out.
These are the PAN factors:
Problem: Do they have a problem we solve? What’s one fact that the prospect told us that proves that?
Authority: Do we have a champion with influence or authority? What have they done in the last month to help us?
Next Step: Do we have a next step on the calendar in January of next year that moves the deal forward?
Another approach is to create a list of deals with no meaningful contact in the last month. The presumption is that these should be closed out. If a rep wants to keep a deal open, give them two weeks to complete a scheduled call with the prospect (booked on their calendar where everyone can see it) and come up with an agreed, written action plan for early next year.
Sometimes, reps want to keep a deal live because they’ve informally agreed to reconnect with the prospect at a vague time in the future like “sometime in January.” That usually means that the deal is dead but the prospect wants to let the rep down easy. But sometimes the deal does come back to life.
It’s fair to keep the deal live if something very specific is going to happen after that check in call. For instance, it’s a live deal if the prospect wants to touch base “sometime in January” so they can get the information they need to submit the deal for budget approval during the Q1 budget cycle. But the deal is probably dead if it’s a check in with no specific agenda and no specific date.
Ok, so what about the deals that are real? How do we maximize their close rate?
Some of this comes down to good sales work: Create a joint plan for next steps for next year, update your business case for the deal, and refresh your understanding of their decision criteria and your case for why you beat the competition.
Some of it comes down to the product: The market demands more from your product the more you grow. The early adopters already bought; today's customers need more polish and a clearer fit with their needs. And your competitors aren’t standing still either.
Open next year with some great new features that you can tell your prospects about so they’ve got an incentive to reconnect and drive deals forward.
Category 2: New Business - New Pipeline
This is the one that everyone thinks about first, but in some ways it's the toughest because it involves opening conversations with new prospects. On the other hand, new conversations give you the chance to shape the deal from the start with a new and improved sales process.
Let’s use a slightly different formula for this category than we did for Category 1 so we can illuminate an important additional revenue lever:
Number of Opportunities × Close Rate × Average Deal Size = Revenue
That gives us three levers we can pull to increase revenue from this category: create more opportunities, increase our close rate, and raise our average deal size.
Generate More Opportunities
Starting early (as you’re all too aware by this point!) is the key here given that most channels take lead time and experimentation to get working and to scale well. Here are a few other points to keep in mind so you can make the most of your lead time and consider the right issues as you set your budget:
Define “Opportunity”
Be sure that marketing is evaluated based on creating conversations that lead to revenue rather than interactions that merely consume the sales team’s time.
This is a perennial issue that you can work on but never completely solve. Marketers often want to be evaluated based on creating marketing qualified leads (“MQLs”). These are very early stage leads that have done something indicating interest, but not enough to be forecasted as an opportunity - like a prospect who attends a webinar.
Marketing has a lot of control over how MQLs are defined, so (surprise surprise!) they’re very likely to hit whatever MQL goal you set. But MQLs don’t necessarily lead to revenue: That webinar attendee may not have the slightest interest in your product.
Measure marketing based on leads that have progressed a bit further but that are still early enough that marketing has control over creating them. Very early stage companies should measure qualified meetings: This is a scheduled call with someone who: (1) has the right role, (2) is at the right kind of company and, (3) shows up for the call.
As you get more advanced, you should measure sales accepted opportunities. These meet all of the criteria above, but also require that a sales rep talked to the lead and verified that they have a problem that you solve and that there aren’t any blockers to a purchase.
Generating More Opportunities
These are a few lessons I’ve learned about generating more opportunities:
Brand: Brand is critical: It helps you stand out as markets become crowded and buyers get saturated with outreach. It gets you onto a buyer’s shortlist without you having to lift a finger.
How do you create a great brand? You’re asking the wrong guy. But good brand marketing is worth investing in; don’t ignore it because it’s hard to measure.
Outbound: Teams spend a lot of time optimizing email copy and call scripts, but fundamentals matter more. Be sure you’re targeting the right prospects and that you have the most accurate contact data. Invest in great case studies: Social proof is worth more than a clever email. Hire at least one more SDR than your model says you need. SDRs have high attrition and failure rates.
Conferences and Events: Match your investment to the type of conference. Some conferences generate real sales opportunities. Others build brand awareness. Sending lots of senior AEs to a conference just to “show the flag” is a bad use of time.
If you’re hosting an event, splurge. Be sure that it’s something so nice that your buyers wouldn’t normally do it for themselves. I once tried to be conservative on spending for a dinner we were hosting alongside a conference and ended up with hardly any attendees. Why? Other vendors spent big to host fancy dinners and everyone went to their events instead. Oops.
Increase Close Rate
There are three main ways to raise your close rate: refining your ideal customer profile, building a better and larger team, and building a better sales process.
Refine Your Ideal Customer Profile
Refining your ideal customer profile (ICP) is the most powerful thing you can do to raise your close rate. ICP companies are the ones that most intensely feel the problem you solve and most clearly need the differentiated aspects of your solution.
When marketing generates ICP leads and sales prioritizes ICP leads, selling is like walking down a hill. When your targeting is off, selling is like walking through quicksand.
Build a Better and Larger Team
Pairing the right leads with the right reps makes good things happen almost on their own.
The best short run move is to part ways with low performers. This raises the average talent level of the remaining team, meaning that leads will get worked by better sales reps and result in more revenue. This feels counterintuitive (shouldn’t more reps lead to more revenue?), but as long as your remaining team isn’t totally overwhelmed with leads, you’d rather have a good but busy rep work the lead than a low performer.
Take January to reflect on each rep’s past performance and future potential. Get reps you’re not sure about on PIPs by the end of the month.
In the medium term, of course, you have to generate more leads and hire enough excellent reps to work them. Building a better team comes down to timing, quantity, and quality.
We emphasized timing at the beginning of this article. Start hiring in Q4 of this year (or even earlier!) to build the team you need for closing revenue next year. Reps hired earlier have more productive months next year because they can start ramping up this year.
Quantity is key: Not every rep becomes productive, not all reps hit quota even after they’re done ramping up. Hire more quota capacity than you need to hit your goal. This excess is called coverage.
More established companies might have 20% coverage. Companies growing very quickly need more coverage because the biggest risk to attainment is that new reps never become productive and companies growing very quickly have a lot of new reps.
Getting quality reps requires setting priorities. Startup sales hiring is hard because you can’t have it all. You’d love to have reps with deep experience and loads of talent, but those reps can make more money with less risk somewhere else. You might get a few, but you can’t count on having a team full of them.
So focus on finding talented reps and be as flexible as you can on their level of experience. This lets you find promising sales reps that bigger companies might miss. Make this happen by using a hiring process based on simulations to test for talent rather than one that focuses on prior experience.
Once you’ve got your new reps aboard, build an onboarding process that gives them the chance to practice solving the challenges that come up in a real sales process.
Building a Better Sales Process
Let’s be honest: Lots of startups sell by showing prospects the product and asking them if they want to buy it. That works for early adopters who see the promise in new technology but it doesn’t maximize your close rate with regular buyers who need to see the product’s value, not just what it does.
How do you build a better process without bending your company out of shape?
Create sales-ready messaging by defining the Problems you solve, the Solutions you offer, and the Impacts you deliver (P - S - I, hence P.S.I. Selling). Make these messages part of every conversation by starting calls with a set of Summary Slides that provide a quick overview of Problems, Solutions, and Impacts.
Train the team to uncover prospect needs with good discovery and set up a strong sales process with a thoughtful overview presentation. Next, build a demo that proves value rather than just showing the product.
Decide what other kinds of sales interactions need to be part of your sales process and create a deal guide that summarizes what those interactions are and how they help the prospect. For example, you might realize that customers need to hear in depth about how others have used your product before they’re ready to see a proposal. So create case study presentations for your sales team to meet that need.
When you have time, build out a full set of enablement resources like case studies, product FAQs, and proposals.
Raise Average Deal Size
There are three main ways to raise your average deal size: Sell more of your product to the kinds of customers you already sell to, raise prices, or sell to larger customers who naturally buy more.
Let’s look at each of these in turn.
Sell More of Your Product
Selling more of your product to the same kinds of customers means selling more seats, more product modules, or driving more usage (assuming that you charge for usage).
The product has to set this up by providing the value that would justify these larger purchases. Starting your planning process early lets you get these product initiatives in motion.
Next, the sales team then has to capitalize on the potential revenue by proving value and using strategic pricing.
Selling more of your product requires proving value in a different way. You can’t just show why the product is good in general, you have to show how it’s good for each of several user audiences and that it’s worth buying each additional product module.
Put another way: A prospect considering a large purchase usually isn’t just making a single up or down decision. They're making many smaller decisions that together add up to shape the purchase.
Your sales team has to be able to address each of these decisions. This requires executing an effective scoping process to spot opportunities to grow the deal and building proposals that address each component of the prospect’s decision. It also means creating sales resources that can easily be customized by the sales team so they address the specific questions the prospect is considering.
It’s usually also a good idea to help the team master effective sales writing: Larger deals often involve persuading wider sets of stakeholders, some of whom you seldom get a chance to speak with. Your writing has to make the case.
Selling more of your product may also require creating different pricing structures to make larger purchases attractive.
You probably have the intuition that volume pricing is helpful, but let’s unpack why. Larger purchases deliver more value than small ones, but they often deliver less additional value as they grow. That’s because small purchases address the company’s most important needs. When a customer makes a larger purchase, they often use the additional capacity to address less important needs that would otherwise have gone unmet.
Here’s an example: Let’s say a customer is deciding whether to buy 100 licenses or 200 licenses. If they buy 100 licenses, they’ll give them to a team that will use the product every day. If they buy 200 licenses, they’ll give the additional licenses to a team that will use the product from time to time but not every day.
The additional licenses are valuable, but not as valuable as the first set. If you try to charge the prospect twice as much for 200 licenses as for 100 licenses, they might not buy. That’s a waste: They could have gotten extra value and you could have made extra money.
Your goal in pricing is to make it a mutual win to make the larger purchase by making sure your proposal reflects the different value that the prospect is getting. That could mean a volume discount or it could mean a different structure like an enterprise-wide license that lets everyone at their company use the product for a set fee.
The prospect is also taking more of a risk by making a larger purchase up front instead of trying the product with a small test. That’s a decision that you want to incentivize with a better price.
New purchase structures sometimes provide different kinds of value. An enterprise-wide license is attractive partly because it’s simple to manage. The prospect doesn’t have to allocate seats to specific employees; everyone gets access.
Your sales team also has to be trained to negotiate larger deals effectively. Negotiating small deals is often simple: Do your best to resist discounts but realize that you may have to give your counterparty a win at the end of the deal to get it done.
Negotiating large deals requires thoughtfully understanding each side’s interests, designing appropriate pricing options, and knowing when to be flexible and when to stand firm.
Raise Your Prices
Price hikes only work if the revenue you gain from higher prices isn’t offset by losing deals that you would otherwise have won. That’s getting harder and harder as markets become more competitive.
If you do decide to raise prices, be sure you have an explanation: What have you added to your product that makes it worth more money and why is it still worth buying over cheaper alternatives?
Give your in-flight deals the chance to keep the lower pricing they were quoted in the past as long as they close by a certain date. More generally, make it a practice to include expiration dates on all your proposals so you don’t get caught out by prospects wanting a price they were quoted a long time ago.
Beware of whiplash. If your price hike is substantial, you may pull forward a lot of deals that would otherwise have closed in later quarters. That will inflate your current revenue and deflate your future revenue.
If you’re not smart about this, you’ll think your business is on a whole new trajectory in the short term as those pulled-forward deals close and then wonder what on earth your sales team is doing wrong in the medium term as they have trouble hitting goals with pipelines that you emptied by pulling deals forward with the price increase.
Sell To Bigger Customers
Bigger companies naturally buy bigger deals… so why not start selling to them? This always sounds promising, but startups often underestimate how hard it is and how long it will take (if it works at all).
Selling to larger companies means building and executing a more developed sales process. Reps need to manage more stakeholders and more complex buying processes. You may be able to train your current team to do this, but you may also have to bring new folks in with more experience and a different mindset.
Moving up market often requires substantial product changes. Large companies care about different things: They prioritize security, governance, reporting, customization, and compliance features. They look for quantifiable ROI. They care less about simplicity, ease of use, and just plain helping someone get their job done.
A product that does well with small companies may not be very competitive with large ones.
So, by all means, explore this avenue, but don’t assume that your first quarter of selling up market will be a huge success!
Category 3: Current Customers - Renewal
This category is arguably the most important. SaaS businesses are only financially viable if customers renew year after year. Otherwise, you’re spending a bunch of money to acquire and onboard customers who churn before paying back that investment.
But renewals are getting harder to influence. Customer success (“CS”) teams have been cut as companies have become more budget conscious. You can’t lavish infinite attention across your entire customer base in an effort to maximize renewals. And the reality is that renewal success is heavily influenced by fundamental factors like whether your product delivers value, whether your current customers need the value you provide, and how hard it is to switch away from your product.
The goal is to have the CS team spend its time on the activities and accounts where it will have the highest return. That often means being sure that you’re getting the full benefit of your strengths as it relates to the fundamental factors we just identified.
The corollary of that is admitting that you can’t do everything that you’d like to do and giving your team the space to say “no” to low value activities that crowd out high value activities. That often means not commanding your team to expend outsized effort in a futile attempt to overcome situations where those fundamental factors aren’t present.
So how do we think about renewals? There’s an easy formula, but it doesn’t do that much to guide our action:
Current Revenue × Gross Renewal Rate = Renewal Revenue
Let’s look inside current revenue. If your company offers multiyear contracts, there are two kinds of current revenue: contracted renewals (customers under contract to continue for another year) and negotiated renewals (customers whose contract ends this year).
This means that your secret renewal weapon is to sign multiyear contracts. Try to get your team to propose these with all of your deals and consider what incentives you can offer to make them happen.
What factors predict whether negotiated renewals will renew? Here are four good ones:
Usage: Is the customer using the product? Rocket science, I know. But it requires resolving technical issues and promoting the product within their employee base.
Value: Is the customer getting value out of their usage? In other words, can you tie their usage to an important business objective?
Relationships: At a minimum, you want good ties to a champion who has influence over the renewal decision and is invested in the product’s success. Ideally, you also have a relationship with an economic buyer who owns the business objectives your product supports and the budget for the renewal.
Plan: This means figuring out who decides on the renewal and knowing when and how you’ll engage with the prospect’s decision making process.
With these factors in mind, we can start segmenting our customer base and thinking about how we want to address each segment. Customers vary in terms of their current annual contract value (ACV) and their odds of renewing. To keep things simple, we’ll focus on renewal odds.
This breaks down into three categories:
Will Renew: These customers have high product usage, a clear business case for the product, engaged champions, and a clear plan for getting the renewal approved.
Might Renew: These customers could have high usage, a clear business case, engaged champions, and a clear plan… but one or more of those factors is currently missing.
Won’t Renew: They aren’t a fit for your product or have issues that you can’t solve.
Let’s look at what we want to do relating to each of these categories:
Will Renew
The most important thing you can do to increase renewal rates is to get as many customers as possible into this bucket early in their lifecycle when it’s easiest to shape the direction of an account.
How?
First, be sure you’re selling the right things to the right customers. A tightly defined ICP and a matching sales process ensures that you close the customers who will naturally love your product.
Second, get accounts on the path to success early. That starts with a good handoff from sales that gives the post-sale team the information they need to get the product launched, drive usage, and deliver value. This seems simple, but it’s common for CS teams to be in the dark about why a customer bought the product, particularly if the account has changed hands a few times.
At a minimum, sales should document in the CRM what business problem you’re solving for the customer, who the main point of contact is, and how you got funding for the original purchase.
If you have a substantial deal size ($30,000 or higher) consider a formal handoff document that captures key information about the account. These are often a source of stress: CS frequently creates a lengthy handoff document but sales decides that it’s too much paperwork and ignores it.
This is an outline for a post sale handoff document that strikes a reasonable balance between efficiency and effectiveness. You can also have an internal pre-launch synch to discuss the doc live so CS can ask questions.
Then have a formal kickoff call with the prospect where you review their goals and set a plan for getting implemented and driving good usage within the first 30-60 days. Customers that start well renew at higher rates. It’s very hard to drive usage late in an engagement if things never got off the ground and relationships have atrophied.
Once accounts are in this category, keep them there and be sure you engage them about the renewal at least three months ahead of time or whenever is appropriate given their budgeting cycle.
Might Renew
What about customers that have issues but could be successful?
The first step is to spot issues at least six months ahead of the renewal date. Issues take time to fix and you need a period of smooth running to build the record of success that justifies a renewal. This means having a way to monitor account health and a playbook for addressing problems.
Consider addressing issues like these in your playbook:
How should CS handle common technical problems that impede usage and what internal resources are available to help?
What are good ways to promote usage in the account?
How can we diagnose customer business problems so we can tie our product to resolving them?
What can we offer to persuade customer stakeholders to reengage with us, like meetings with your company’s execs, subject matter experts, fun events, or advisory board memberships?
The second step is to have a standard practice for how to make the case for a renewal. This starts with timing: You want to be aware of their internal budgeting timelines and align with those. At a minimum, you have a renewal conversation and share a renewal proposal 3 months ahead of the renewal date.
Good renewal proposals include elements like these:
Remind the prospect of the business problem they wanted to solve
Provide statistics on product usage
Tie that usage to solving the prospect’s business problem and estimate the business impact of the engagement
Share exciting news about the product’s upcoming roadmap
Lay out the commercial proposal for renewal
Include an action plan for completing the renewal, such as engaging additional stakeholders, getting final budget approval, and completing the contracting process
Won’t Renew
It’s easy to describe what you should do with customers in this bucket but much harder to actually do it.
You should let them go so you can spend more time on the customers that might (or might not!) renew; that’s where your time has the highest return.
Your responsibility as a business leader is, at a minimum, to have a strategy that’s internally consistent. You have to accept that decisions have tradeoffs. Having your team go left means they can’t go right.
We’re all running CS as leanly as we can these days; we have to accept the tradeoff that CS doesn’t have time to do things that make us feel better but that don’t actually drive results.
What customers belong in this bucket? Customers with technical problems that we never really solved, that are no longer fits for the product given the direction the roadmap has taken, or that have had budget changes that mean that they can’t possibly renew.
Letting customers go is painful. But if you can’t drop at least a few low ACV customers who have crippling issues, you’re not showing leadership.
Category 4: Current Customers - Expansion
Expansion is the most powerful of our four revenue buckets. If your book of business grows even without adding new customers, you have a very exciting business.
Some expansion is organic: Happy customers ask for more capacity. That (by definition) is not where your team spends most of its time.
Some expansion is based on price increases. If you feel you can justify it and it won’t create counteracting churn, you can raise prices on your install base. Just be sure you provide enough notice that customers can get authorization for the additional budget.
This section will focus on strategic expansion, which happens as a result of your intentional efforts to sell more capacity or more products into an account. This formula is a way to think about how much revenue you get from strategic expansion:
Number of Targeted Accounts × Conversion Rate × Deal Size = Expansion Revenue
Let’s look at each of these in turn:
Number of Targeted Accounts
You can increase your amount of expansion revenue by having tailored and thoughtful upsell conversations with more accounts.
This is different from a spray and pray approach in which your CS team shows up on every quarterly business review (QBR) with a long list of your latest products, describes everything on the list, and then asks the prospect if they want to buy something.
The spray and pray approach makes customers not want to attend their QBRs.
The tailored approach requires that you build a playbook to help your team spot opportunities to have thoughtful upsell conversations that customers will find worthwhile even if they don’t purchase more.
The first way to do this is to carry forward conversations from the sales process. Many deals leave some potential needs unaddressed. Perhaps the customer wanted to try a small engagement first. Perhaps budget for a larger engagement wasn’t available at the time.
Sales should document these unaddressed needs in the handoff document and your team should revisit these again after the sale.
The second way to do this is to spot opportunities based on the customer’s usage. This is often simple (hint: high usage customers might need to buy more). But you may see other patterns reflecting that a customer is bumping up against their purchased capacity or might need something else that you offer.
The third way is to run mini-sales campaigns into your install base. You might release a new product or spot a new problem that your product can help customers solve. Develop a hypothesis about what types of customers have a relevant need, discovery questions that your team could ask on a QBR to confirm that a specific customer has the need, and materials that your team could use to pitch that specific product or to that specific need.
With that foundation in place, it’s logical to float the idea of a larger purchase.
Conversion Rate
Closing more upsell opportunities comes down to making attractive offers and executing conversations well.
The best way to make an attractive offer is to carry the conversation forward from the sale by including a time-limited upsell option in the contract. This is worth doing when the customer was interested in making a large purchase but had to make a smaller one, either for budget reasons or because they wanted to validate the product before going all in.
In these situations, you might write the contract to include an option to purchase more at a good price that’s attached to a reasonable expiration date (ideally later in the same fiscal year). Highlight this at the time the original contract signs so that all involved treat the first few months of the contract as a chance to vet out whether the larger engagement makes sense and so that all involved understand the urgency in making a decision.
Your team can then key off of this expiring option to set up an upsell conversation and the customer will see a clear reason to be engaged.
To execute upsell conversations well, you first have to decide who is going to execute them. It usually makes sense to have sales lead these as they’re used to having commercial conversations. If you have CS take the lead, be sure you train them.
If sales takes the lead, be sure that the two teams coordinate. Upsell conversations often happen as part of a QBR that’s organized by CS and CS usually speaks first during the call – often about matters not directly related to the upsell proposal.
That means that you need to establish where sales comes into the conversation as a general matter and be sure that the two teams have a synch to prep before each call. It’s also essential that CS requests that the right people on the customer side participate in the QBR.
Here’s the way that a combined QBR/upsell conversation might unfold and who would lead each portion of the conversation:
Agenda - CS
Orientation: Current purchase scope and business objectives - CS
Results so far: Usage and business outcomes - CS
Discovery for upsell: Confirm the needs that support the upsell - Sales
Upsell pitch and proposal: Say why the upsell meets those needs and what it costs - Sales
Next steps: Discuss how to evaluate the upsell and who else should be part of the conversation, assuming it’s of interest - Sales
Deal Size
Much of the advice about scoping and pricing models that applies to new business applies to upsells as well. But it’s worth thinking about how upsell pricing might differ from the pricing on an initial purchase.
You might need to create different discounting guidance for upsells than you have for initial purchases, particularly if the upsell is small in relation to the initial purchase.
Consider the following simplified pricing table for initial purchases:
100 to 250 licenses: $1,000/license
251 to 500 licenses: $900/license
501 to 1000 licenses: $700/license
Let’s say a prospect makes an initial purchase of 450 licenses at $900/license for a total of $360,000. Now let’s say they purchase another 100 licenses, for a total of 550. 550 licenses is in the $700/license discount tier for initial purchases.
Do they: (a) pay the lower $700/license price for their additional 100 licenses, (b) pay the lower $700/license price for all 550 licenses, or (c) pay the original $900/license price for all 550 licenses?
My recommendation is (c). One of the reasons that we offer discounts is to incentivize prospects to commit to a larger purchase up front. That commitment involves some level of risk on their part; in exchange we offer them a better price so we’re both happy.
Prospects that grow into a larger discount tier with multiple purchases didn’t make the same commitment and therefore shouldn’t get the same price. That takes option (b), which gives them the lower price for all their licenses, off the table. Option (a), which gives them a lower price on their additional purchase, is likely to be complex to administer and therefore not worth offering.
Everything is different if the prospect makes a major purchase in their upsell. If a customer started with 100 licenses and wants to move to 1,000 licenses, that’s a big commitment on their part that you want to incentivize. In that case, consider giving them the $700/license price (or something similar) on all their licenses.
Conclusion
Revenue planning is one of the toughest things that startups do. It involves trying to align an uncertain future with your goals for your business. You have to believe in your company’s potential without falling prey to magical thinking. And you have to make clear plans while acknowledging that you can’t predict everything that will happen.
If you avoid the pitfalls this article lays out and think clearly about your plans using the framework we’ve discussed, you’re well on your way to a successful future.
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