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Christina Lee Marketing, Inc. 2020

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How to Build a Bottom-Up Funnel Forecasting Model


The bottom-up forecasting model is my favorite way to calculate what I need to produce for the company to hit revenue goals. This works with or without a starting budget and also sets the stage for what is needed vs. what is actually attainable.


Getting Started


You will need 2 things to start to build out your forecast model.


First, you need your revenue goals. I would suggest you ask for the total 'net new' (we will look at revenue acquired by current customers in another post). These may be in monthly, quarterly, or annual break-outs - this doesn't matter but just ensure all numbers bottom-up match this same time period.


Second, you need the AOS (average order size) or ARR (average recurring revenue) per customer. From here you can take Revenue / AOS/ARR = # Customers Needed


Defining Your Funnel Stages and Benchmarking


To go from here, you need to have your funnel stages defined. Does your flow look like Prospects -> MQL -> SAL -> SQO -> Customer? Or perhaps it looks like Prospect -> MQL -> SQO -> Customer? Regardless of your stages, we need to work up from this bottom number to get to what is needed at the top.


You can either 1) Look at your historical data to fill in conversion rates and calculate your numbers or 2) Use generic benchmark funnel conversion numbers.


For this exercise, I am going to use benchmark funnel conversion numbers for a B2B SaaS Tech Company.


The 3X Pipeline


A conversion from opp created to closed won customer should be around 45-50%. But I tend to advise companies to use a 3X pipeline goal to create a buffer and also have more opportunities to carry into the next sales period. Let's work this into our funnel calculator in the next section.


The Formula


Let's say we need $1,000,000 in Q1 and we have an AOS (average order size) of $25,000.


$1,000,000 / $25,000 = 40 Customers


Next, let's apply the 3X to get our pipeline goal.


40 Customers * 3X Pipeline Goal = 120 Opportunities Created (SQOs)


Let's keep going.


The benchmark data I'm using indicates a conversion from a SAL (sales accepted lead) to SQO (sales qualified opportunity) is around 50%.


120 Opportunities (SQOs) / .50 = 240 SALs


From MQL to SAL, we typically will see an additional layer of human intervention, such as a BDR or SDR team, that increases our conversion a bit to 60%.


240 SALs / .60 = 400 MQLs


Now let's assume a 9% conversion from Prospect to MQL to get our total number needed from programs to meet the revenue goal at the bottom.


400 MQLs / .09 = 4,500 Prospects


Recap


Are you using a bottom-up forecasting approach to track progress and illustrate what is needed and what is possible?

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