Not having a plan in place before January 1 means starting the year behind, and it’s very difficult to catch up.

In a perfect world, SaaS companies enter the new year with a comprehensive, well-thought-out sales plan. Senior executives and the board of directors are aligned on a bookings plan, and ambitious sales teams are chomping at the bit to exceed their clearly defined quota in a targeted market.

Time and again, I’ve seen companies make three major mistakes in their sales planning that preclude this ideal state from becoming a reality.

First, they start too late, and as a result head into the new year without a finalized plan to guide their sales teams. Second, they establish sales goals from the top-down, and so the sales plan isn’t based on ground-level realities. Third, they do not have a thorough understanding of their strategy in each of their markets/territories, nor have they clearly defined the prospective accounts that fit their value proposition.

Avoiding the first mistake is straightforward: Start the sales planning cycle earlier. For most companies, and especially in SaaS businesses, the first quarter of the year is the most important. The more you sell in Q1, the better the full year will be because of the compounding effect of subscription models. Not having a plan in place before January 1 means starting the year behind, and it’s very difficult to catch up. Thus, we believe strategic planning should start in the late summer at the latest.

Correcting for the second and third errors, however, requires a multi-step approach to establish a solid foundation and build an effective sales plan from the bottom up.

Effective sales planning requires a strategic foundation.

Every sales planning cycle should start with a refresh on the company vision and go-to-market strategy. In the course of a single year, many scenarios could arise that impact them: new competitors emerge, current competitors evolve, and market conditions change. The company itself may have introduced new products, expanded into new geographies, or closed an acquisition, changing the equation. As a result, it’s worth taking a hard look at the current strategy to find out what worked, what didn’t, and what needs adjustment.

Alongside this review, early sales planning requires a solid understanding of the current market and a realistic sense of the potential addressable market within it. Remember, it may have changed since the last time you did this exercise, so it is worth reviewing annually. Start by scoping the full landscape of potential customers, and then determine: 1) Who is the best fit for your solution? and 2) What percentage of those prospects can you feasibly win in a year?

Too often, boards or executive teams will put forward a sales growth target that is based only on their desire to accelerate… but that plan has no foundational or strategic support.

This bottom-up exercise is crucial to determining what your sales targets should be for the next 12 months, as it is based in the context of both the company’s broader strategy and the current market itself. Too often, boards or executive teams will put forward a sales growth target that is based only on their desire to accelerate: They grew 30% one year, so they decide to aim for 40% the next. But that plan has no foundational or strategic support, and so it is more likely to go sideways.

Having a solid foundation, rooted in company strategy and accurate addressable market sizing, is absolutely critical in moving your sales plan forward.

Take a three-year view on growth.

I always encourage companies to use that groundwork to then create a three-year plan for how you expect to build toward the company’s longer-term goals. How much of that addressable market can you capture in three years?

Taking this slightly longer-term view requires buy-in across the organization, and so it forces a necessary debate among executives, the board, finance, marketing, product and sales to align objectives.

This plan should be reviewed and updated every year so that it’s always looking out three years.

Analyze historical performance by territory, vertical and strategy.

The third piece needed before moving forward with a sales plan is the historical performance in each part of your sales equation – new logos, expansion sales and renewals – as well as verticals and/or territories.

    • How did each perform over in the past year?
    • What did you learn over that time?
    • Are there any growth trends you can identify and use to inform your trajectory for the next year?

Having intimate knowledge of your performance in each territory or vertical is critical and should be informed by specific proof points, such as prior attainment, productivity and efficiency metrics like funnel conversion rates and win rates, and YoY growth. The only effective way to gather this information is by conducting quarterly business reviews for each territory or vertical. Looking back, that means you would have had at least four reviews for each territory during the prior year and by now gained a thorough understanding of each territory owner’s experiences, challenges and opportunities. If you didn’t do this throughout this year, it is a must-do for next year’s sales planning. That way, by next year’s sales planning cycle, you are more connected to the “field,” where their input is essential for future planning.

For nearly every industry, the pandemic has complicated this comparison process, and it more than likely has impacted the current year’s trajectory as well. As such, it’s important to blend sales trajectories from pre-COVID and post-COVID to strike a reasonable balance.

Importantly, a bookings plan and quota assignments are not the same thing, even though many companies treat them that way.

Design a bookings and resource plan rooted in your company strategy.

From these components — your business strategy and TAM review, your three-year go-to-market plan, and your historical performance — you can extrapolate a bookings plan and quota assignments for each of your sales strategies and begin evaluating whether you have enough capacity to take it on.

Importantly, a bookings plan and quota assignments are not the same thing, even though many companies treat them that way. A bookings plan reflects your budgeted volume of customer commitments and best estimate for what you expect to fulfill during a year, while also tying into expenses, CAC, CAC:LTV and other KPIs. Quota assignments are targets for the sales team, which must take into account that, on average in the entire SaaS universe, sales teams only perform at 70%-80% of their total assigned target. Hopefully your team is outperforming this benchmark.

Ensure you have the team, process and pipeline to achieve that plan.

Many companies are tempted to end the sales planning process at the creation of quota assignments. They hand off those targets to their sales teams with little more than a “Go get ‘em, tiger.” However, we encourage management teams to go a step further and to think about how they will realistically reach that quota with a methodical process. We encourage leaders to ask their teams questions such as:

    • What are the top 2-3 things that will change your trajectory?
    • What would have to become true in order for your pipeline to double?
    • What resources do you need in your specific territory that would amplify our strategic advantage?
    • Where in your territories’ funnel do you see the biggest bottlenecks and why?

Asking questions like these forces them to think about their sales team’s capabilities at a more granular level and to evaluate what is feasible on a per-resource basis.

Also essential to this step is a conversation about demand generation. Based on your conversion rates and close rates:

    • What sort of pipeline do you need to meet your quota?
    • How many leads does marketing need to generate?
    • How many self-generated leads do sales teams need to create through outbound outreach?
    • How much upselling can you expect from your existing client base?
    • Are there any other strategies that can be conceived and launched to improve pipeline like partnerships, channels or alliances?

With “The Capacity Model,” our companies can see what they have done historically, evaluate their current capacity, adjust for contingencies and calculate their future needs.

Practicing what we preach.

At LLR, we believe in this sales planning model to the core, so much that we have developed a tool to guide our portfolio companies through the process. We call it “The Capacity Model.” With it, our companies can see what they have done historically, evaluate their current capacity, adjust for contingencies and calculate their future needs. It is a comprehensive tool that allows for sales and marketing alignment, alignment of resources and resource planning.

Time and again, I’ve seen this model uncover key intelligence for company leaders by showing, in a very metric-driven format, what needs to happen and where in order to meet their revenue targets. In some cases, it even has provided wake-up calls on early assumptions and forced them to rethink their sales plan.

Here’s the bottom line.

Sales planning should be a carefully thought-out process that starts early, is fueled by strategy and is driven from the bottom-up. It should be congruent with your company’s longer-term growth strategy, market conditions and historical performance, and it should be based upon realistic expectations for the sales team.

This GrowthBit is featured in LLR’s 2022 Growth Guide, along with other exclusive insights from our portfolio company leaders and Value Creation Team. Download the eBook here.