Rob Levey: How to Forecast With 95% Accuracy

Posted on Jul 15, 2021

About Rob

Rob Levey, VP of Revenue Operations at Monotype, joined Gideon Thomas for a discussion of revenue forecasting. Rob, a native Zimbabwean, has been leading Revenue Operations for large companies before it was even a term. Learn how Rob forecasts sales with accuracy and how that impacts the whole company. 

Rob traveled around the world with his job and is now located in the US. He’s been in sales ops most of the time and has progressed to what is now called Revenue Operations, which is about collaboration with sales, marketing, and customer success. Most recently, he is the VP of RevOps at Monotype, the world leader in fonts. Having moved into the world of designers and creatives and marketing and fonts, he learned that there's a big business to be made in fonts. The challenge was that the company was growing and looking to reinvent themselves in a SaaS kind of model and looking for ops expertise, particularly with after-sale service of customer success. 

Forecasting in Revenue Operations

  • Monotype has several business models or functions that co-exist, for example, the self-service model where people transact online through the website to purchase fonts. And, also customers that have direct relationships with sales or account managers. There was a coming together of all of their revenue streams as Rob took on the RevOps role.
  • Monotype has been around for 15+ years, and the business originally sold embedded fonts in printers. So, they made massive deals with some of the bigger printer companies, from 10, 15 years ago, to OEM deals with automotive manufacturers with royalties on every car sold. For example, Tesla has an electronic panel that uses specific fonts. There are also traditional brands and enterprises, where companies are growing their brand. They want simplicity and consistency in the way they use their fonts and promote themselves through brand, and they use Monotype for that.
  • In addition, there is an online business that's growing, where people pick out fonts online for a couple of thousand dollars. But, the growth engine really is around enterprise. When Rob joined Monotype and spoke to the CFO, the CRO, who's my boss, and the CEO, he said, "What do you want? What's the most important thing for you?" The answer was predictability. "We need our forecasting to be accurate so that we can understand the predictability of our business and look forward and be able to make pivots, make changes ahead of time, rather than be stamping out forest fires."
  • Sales leaders tend to look at the deals and go top-down, most important deals down. Rob’s rule of thumb for revenue forecasting is about being able to forecast with confidence in the early stages of the revenue cycle. He explains his 10-day and 10-week rule of thumb.
    • Revenue intelligence and sales intelligence tools have made forecasting a lot easier, but there's still a lot of focus on the per deal aspect and that's bottoms up. Rob has moved towards looking at stages in the sales pipeline, but it comes down to the top deals for the most part. The iterative process of how your deal's progressing along the pipeline through the quarter leads to a forecast that you get towards the end of the quarter, it becomes more and more predictable.
    • But at the beginning of the quarter, when you may not have your pipeline fully flushed and depending on the velocity of those deals, you may not even have some deals in the pipeline yet that will close in the quarter. So, the earlier you can get to forecasting accuracy in the quarter, the better. Rob coined day 10, week 10 forecasting, which is the beginning of the quarter is not day one. 
    • At the beginning of the quarter, let the sales force refresh their pipeline, deals that may have slipped or closed, and give them an opportunity to interact with the customer, and have a look at the early pipeline. And then, by day 10 have a cut-off.
    • Everybody on the sales team, everybody in the company, the CFO, the CEO, and the CRO are all part and parcel of the forecast and buy into it, and put a line in the sand on day 10.
    • This model works equally well for SMB deals versus enterprise deals because you're looking at a snapshot of the pipeline at that day 10. Then, hopefully, your forecast stays pretty consistent unless major things change, until week 10 which is the end of month two, if you're looking at a quarterly forecast and not monthly. Then, you've got three weeks to go, where you do that final scrub and say, "Get everything out of the pipeline that isn't going to close or doesn't have a hope in hell, and just focus on those deals that do." And that gives you two points in time where you can really benchmark yourself for accuracy.
  • Revenue tools help, but at the end of the day, garbage in, garbage out. You've got to get your sales force absolutely embedded, believing and understanding the why of the forecast so that they keep the hygiene up-to-date. Because if you've got deals sitting there that have no chance of closing, that haven't moved along in the stages, that have the wrong expected close dates, or that the reps are just fudging, keeping their sales pipeline up to look good, that doesn't serve anybody. Reps need to understand that this isn't a system or an exercise that's going to beat them up for not having a good forecast.
  • Rob recommends that the forecast shouldn't be related to the budget, what's the budgeted number this quarter, and does your focus line up with it? It should be an assessment of, what's the real state of play down to the rep level? His goal is to show them that if they’re struggling or haven't got enough pipeline, or if they need additional help from marketing or product development, or if they're very good at generating pipeline, but struggling more to close the pipeline, it’s a red flag. This system helps sales reps put up their hand and say, "I need help." Building trust is absolutely pivotal.
  • This approach enables sales leaders to dissect the pipeline at an aggregate level, not on a deal-by-deal basis, and say, "This rep is really struggling with pipeline creation. Does a tremendous job at converting the deals that they have, but she struggles on that side of pipeline creation." Versus another rep who may struggle at the conversion and really closing the deal at the negotiation stage. The accuracy of how a deal's moving through the funnel is essential to show them how to self-improve and get coaching. So, that's where the benefit is, and it doesn't happen in a quarter, it starts to impact over three, six, 12, 15 months.

Predictability in Revenue Forecasting

  • When the RevOps leader has a greater sense of clarity and predictability, the next step is looking at current in-quarter deals and looking at next quarter and the quarter after. Some deals aren’t in your pipeline on day 10, but you know are going to advance through the quarter and some of it will close. And, there are always pull-ins, deals that are sitting out there in the outer quarter that you pull in, or at that week 10 stage, you push them out because they're high risk, but you still look at them because you're still working them. And maybe five or 10% of those actually do come in during the quarter. Categorization of different buckets of class of deal, really helped Rob become more granular.
  • Rob shares that upsides shouldn't be seen as just a hedge of, well, I'm just going to hide that deal somewhere in the upside. For Monotype, there was a methodology of, there's some real upside here if we can convert a one-year deal to a three or a five-year term or sell additional features or distribution rights in terms of fonts. So, the reality of a general committed deal of say, 300- 400K in terms of TCV was very real. They needed a method to take that into account because it did play into the current quarter, but also as they built their pipeline over the next three, six months, they asked, “What impact are upside deals going to have and how can we influence that upside and make it happen as opposed to hoping it's going to happen?” It impacts his longer-term thinking based on the categorization of those deals.

The Benefits of Earlier and More Accurate Forecasting

  • One of the benefits of earlier and more accurate revenue forecasting is the ability then to calibrate margin expectations. If I'm not confident as a sales rep or a VP of sales, I'm leaving it down to the wire, I'm discounting left, right and center to close as much as possible because I'm not confident they're going to reach the target. In cases like this, the VP of Sales is probably going to have less control or care less about controlling the margin, which obviously is a downside for the company.
  • The upside of forecasting with confidence is that you can pay more attention to not only how much total revenue you made on close, but also what are the actual margin ratios or rates that you're going to make per deal. 
  • This is a real issue because we’ve created a buyer pattern where the buyer waits till the end of the quarter because as a seller, we've told them so many times, "We'll give you a discount if you close before the end of the quarter." Rob says if he could change that, he'd be famous, but it does help that predictability if you know there's going to be that spike at the end of the quarter. 
  • Trying to get the deal in earlier certainly helps. But it's difficult to really get ahold of discounting at the end of the quarter. The cardinal sin is not getting that deal at the end of the quarter and then still applying the discount when they close in the next quarter. At least be strict with the offer you're going to make.
  • In terms of the margin, Rob shares an anecdote that a former CFO at Mimecast said, "With your SaaS business and the predictability of the recurring revenue model, why is forecasting even important? Why am I putting all this effort in?" He had a pretty good handle on what next quarter's earnings would be, very early on in the quarter, because they had such a good machine of recurring revenue. And his answer was very simple and struck me. He said, "It's all OpEx-driven, Rob. We pay commissions and we apportion the commissions to the quarter, so it's real-time." And he said, "If you're having a great forecasting quarter, I know I'm going to be paying more commissions. So ironically, if we're having a bad quarter, I've got more money to play with for marketing, because I'm not going to be paying as much commissions over the next three months." The accuracy of the forecast was as much to do about the operating expenses (OpEx) in the company and the spend patterns as it was about getting the number right at a top line revenue perspective. It freed up money and it showed him where he could now actually help and look forward and start driving additional pipeline.

If you want Rob’s advice or just want to talk RevOps, he loves the subject. He posts frequently on LinkedIn and shares some of his stories, trials, and tribulations. He loves that there's so much energy in the space and so much enthusiasm around revenue operations. He firmly believes that it's the compass that drives the company's direction by giving you insights into the future as much as it can. So, be sure to follow Rob on LinkedIn.

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About the podcast

The RevAmp podcast derives from two words: Revenue + Amplification. This series has been produced specifically to give a voice to the sales and revenue operations professionals who have invaluable experiences to share. We have seen the scope for this role, as well as the recognition, expectations, and tools have rapidly changed over the last couple of years. The reality is that there are not enough high-quality resources for fellow professionals to use as a benchmark or learning curve. DealHub knows how important it is to be well resourced so we have put together this RevAmp podcast for your benefit.

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Topics: Process Building, Data & Analytics, Technology, Executive Alignment