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How To Build a Forecasting Process For Your SaaS Business

How To Build a Forecasting Process For Your SaaS Business


– Hi there.
I’m Dan Martell. Serial entrepreneur, investor
and creator of SaaS Academy and in this video I’m gonna
teach you how to build a simple forecasting projection system
for your startup that doesn’t require you to
buy NetSuite or SAP or deal with
tons of spreadsheets. And be sure to stay to the end
where I share with you how to get a copy of my
Weekly Sync agenda structure. It’s what I use every week with
my companies that I coach to help them scale and grow their
business and keep their whole team accountable and on track. (upbeat music) So when I was building
my company Flowtown one of the things that
I always struggled with, and maybe you
can relate to this is setting crazy,
ambitious goals. We read these books and they
say you gotta define a BHAG, a big, hairy audacious goal. So when we sit down with our
team and we’re planning and we’re like, “Alright,
we’re gonna 10X this year. “We’re gonna 20X. “We’re gonna crush it
in the next three months.” The challenge with that,
what I discovered really quickly is all of a sudden you
start teaching your team that it’s okay to lose. You set this crazy goal for the
next three months and then you fall short and
you have to go back. And look, it’s typically
real legit reasons that you don’t hit your numbers. The product wasn’t done on time. A key partner didn’t do the
distribution the way you thought they did or would or you didn’t
hire that key engineer who was supposed to build that,
you know, artificial intelligent machine
learning component that was going to change
the game for you. But what happens
is you make it okay. And the last thing you want to
do is get to a place with your team where they’re
okay missing their numbers. Or they stop believing
in some of these crazy, audacious goals you
set anyway and kind of, you know,
glad hand you and say, “Yes, that’s great, Dan.
I’m gonna accomplish that.” And then when you turn away
they’re essentially gonna do what they’re gonna do anyway. I want to teach you how I had
to learn this from my investors, sit down with
them and say, “Look, I feel bad because we
keep settin’ these goals “and we’re not hitting them.” And they gave me a different way
of thinking through the problem and built the solution that I’m
gonna share with you guys today that allowed Flowtown to go from
literally ramen profitable to over 50,000 customers
in an 18-month period. So yes, we grew really quick
but we also knew how to set our targets and our forecasts so
that we could hit them and build that moment and that’s what
I want to share with you today. Number one, historical data. One of the first things I do
when I’m coaching a client is ask them
whatever their goals is, “I want to 10X over
the next 12 months.” I just ask them if they’ve
ever done it before because historical behavior
is a great indication of future performance. So the first thing
we want to do is look at the three month rolling.
It’s called the R3. What kind of growth
have you accomplished in the last three months? What have you done in the
last six months? That’s R6. And then R12 is
the previous year. Now I’m not saying that
you can’t improve upon that. I just want to know
what the baseline is. So when you’re sitting down with
your team and you’re planning, you know, your year end, kind of
the next 12 months strategy work with them by
looking at the historical. Get them to pull that data
forward so that you can start making some assumptions on hey,
if we improve 20% quarter over quarter, what would those
numbers start to look like? So look at the historical. Number two, resources. As much as you want to grow,
you’re always gonna be limited by what I call the
management bandwidth. You have to work
through your people. Your people are an
extension of who you are and their ability to execute. So if you don’t have the
resources through people, through capital, maybe partners,
maybe intellectual property, you got to look at everything
you have so that you can understand how to properly
deploy the resources as you start thinking strategically
about growth or setting some projections for your business. Number three, got to the
end and then work backwards. If you’ve ever read the book “Seven Habits of Highly
Effective People” one of the habits is begin
with the end in mind. That’s the way
I think of forecasting and setting projections.
I want to go right to the end. Ideally three years is the
furthest I’m gonna plan out. Then I’m gonna work it one year
and I’m gonna start looking at what are the numbers that I want
to achieve in the next 12 months and break it down by quarter. If I want to hit that number,
what’s the milestones on each quarter that I need to hit to
make sure that we’re on pace. Number four, set targets. Once you know where you want
to go in the next 12 months, you’ve broken that down into
quarterly goals then your job is to start setting the
targets on a monthly basis. If you think about it, if you
start falling off pace every month then all of a sudden the
quarterly goal is totally gonna be out of the question
and that just keeps cascading. So what you do is you
set your monthly targets, then you add, and ideally you
have some kind of scorecard, spreadsheet, report that
you look at with your team. I have a scorecarding
process that I teach that you can search on my channel. And what we do is we set
the targets for the month, then the actuals,
where you’re at so far. If you’re two
weeks into the month, there’s only four weeks, then
you should be at about 50% of target and you
review it and measure it every week with your team. So every week you look at
the targets for the month, you set the number that you’ve
accomplished so far in the previous seven days, and measure
that every week and hopefully your actuals based on trend
is gonna allow you to hit your targets for the month and that’s
the focus you need with your team to make sure you actually
have a projection process and a way to set the
targets and hit them. Number five, review monthly. So there might be a
month where you come in and you’re off pace a little bit. And maybe it was a
strategic challenge. So you look at your numbers and
work yourself backwards and say, “What were the activities
that caused these numbers?” So every month I highly
recommend that you have a team meeting to look at the
strategy for the quarter and ask yourself, “Are we
focusing on the right things, “on the right initiatives
that actually gonna allow “us to hit our numbers?” See, the challenge with business
is when we do our planning we have a level of confidence
and understanding of impact and maybe some guesses around
how easy these strategies or projects are gonna be to
deploy but we really don’t know. So what I want you to do is give
yourself permission on a monthly basis with the team
look at your numbers so far. If you’re off pace ask yourself, “Are there things
we need to ramp up? “Are there projects we
need to table for later? “Do we need to double
down on something that might be “working really well
but we should really invest “more resources into it?” But don’t wait ’til the
end of the quarter to adjust, to realign your monthly goals
’cause if you fall off then you’re gonna have to make that
time up in month two and three to make sure you hit
your numbers for the quarter. Number six, iterate quarterly. So one of the things
that I believe in is that really it’s a 90 day sprint. If we think about performance,
this is personal or professional, we
want to focus on the next three
months in front of us. Yes, we want to have
goals for three years, one year and break it down per
quarter but at the end of the quarter when we look back at
all the progress we’ve made, we want to use that information to start planning
the next 90 days. And when we do that, I want you
to give yourself permission to take all of the projects
that you planned on doing… If you’re off pace,
those projects are on the table for being cut.
There’s no reason, and I see this all
the time with my clients. They’re moving forward on
strategies or actions that they know probably will not work
because the stuff that they’ve been working on have not
performed either so what you want to do through kind of a
forecasting and a target process is to teach your
team how to hit plan, how to be accurate,
how to set the projections and hit the target. And I think that on a quarterly
basis you need to give yourself permission to
reset the strategy. Maybe you’re way off in Q1,
you need to fix that for Q2. Readjust the projections
and then move forward. Now, I’m not giving you
permission to get off the hook for your goals if you set
them but I think that it doesn’t serve anybody to not talk about
the big challenges you might be facing if you’re missing your
numbers on a quarterly basis. Number seven, don’t
teach your team to lose. I mentioned this at the
beginning but I think it’s probably one of the
most important things that you can do. As a leader, your job is to work
through your people to coach them to success and to ensure
that they have the ability to forecast and be
consistent on hitting plan. That to me is the sign of a
mature management company. When I see somebody’s pro forma
or their estimates and then I look at their actuals and it
kinda goes like this and there’s no consistency in their numbers
or they continue to give me these lofty goals and
always come short about half, to me that’s not a great
sign of great leadership. That’s telling me that you have
been okay with setting goals and teaching your team
that it’s okay to lose. And when you get
into this spiral, if you think about some of the
great sports teams out there that have gone in these spirals
of losing streaks like it’s really tough to get out there
and build this champion mindset. Right? This team that
winning is the only option. Right? So if you set
these goals and one strategy, I learned this from
my buddy Todd Herman, is good, better, best. Think about it like
this is good if we hit this, you know maybe it’s 25% growth
for the year, that’s good. Best would be 50% growth or
better would be 50% growth and then best would be maybe 75% or 100% growth
over the next 12 months. It depends what
that would mean for you. What would be a stretch? But you still want to make
sure that you set a good that is aggressive for your team to grow
into but allows them to win. And then I always plan for best
so that when I’m talking about strategies I’m executing on a
strategy that’s gonna get us best and then if my team
gets good then they feel great about our progress. Because at the end of the day,
you are the person curating, hiring the people that
they’re gonna work with, funding the resources they’re
gonna need to execute and you want to make sure that they
don’t feel like you’re asking them to do the impossible
without giving them the resources and support they need. So I highly recommend that
you try to be accurate in your projections and allow
your team to hit them and win. You don’t want to
teach them to lose. So quick recap. Number one, use historical data. Number two,
review your resources. Number three, go to the
end and then work backwards. Number four, set targets,
measure weekly. Five, review your
monthly progress as a team. Six, iterate quarterly
strategies and tactics and seven, don’t teach
your team to lose. So as I mentioned at
the beginning of this video, I want to share with
you an exclusive resource called the Weekly Sync. It’s my agenda structure and it’s got a bunch
of details in it. You can click the link
below to download it but it’s how I manage my
team on a weekly basis. In there there’s a
line item for scorecard. That’s where you would
actually put your numbers, your projections, your targets
and measure your actuals on a monthly forecast basis and also
every week have your team lock those numbers in there.
It’s super powerful. One of my favorite things to do
is customer headlines so that we actually celebrate our customer
wins as a group so click the link below,
download your copy of that. If you liked this video I would
encourage you to share it with a friend that you care about
that might benefit from it. Click the like button and leave
a comment and let me know what part you feel you need to
add to your planning process. And as per usual, I want to
challenge you to live a bigger life and a bigger business
and I’ll see you next Monday. Good. (clears throat) (hums)

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