TekStack contains all the leading indicators to predict your company’s future annual recurring revenue (ARR). The most important of these is the Opportunity.
Opportunities represent future bookings of subscription-based products (i.e., ARR), as well as one-time fees (i.e., hardware, license revenue products, and services fees). TekStack tracks all of it.
Your company establishes sales targets each quarter. You then compare this target to actual and to forecast sales. Providing an accurate forecast can be tricky in business-to-business (B2B) technology companies because the number of opportunities is relatively low, the values are relatively high, and the sales cycles are long and unpredictable. However, setting accurate expectations is just as important as hitting your targets. You are always better off sharing forecasts that are accurate so that the entire leadership team can plan for a realistic result and help you if the result is lower than your target.
This article will provide some guidance on how to get the most out of TekStack for forecasting.
- Create a Forecast View
- Work with Forecast Categories
- Use Forecast Categories in Weekly Funnel Reviews
- Communicate the Forecast Prediction to your CFO
- Take Snapshots using Excel Export
- Why We don’t Recommend using Probabilities
Starting with the All Opportunities view, create a personal ‘Forecast View.’ We would recommend the following columns.
Note: The data in the columns you set up may not be visible in the opportunity record, making your personalized list views that much more valuable.
Name: The name of the Opportunity, supplied by the seller who created the opportunity.
Account: The name of the account associated to the opportunity.
Type: New Customer, Existing Customer, or Renewal. This is automatically determined by TekStack based on the Account Customer Status. Renewal Opportunities are automatically created.
Close Date: Determined by the seller. Renewal opportunities are determined by the renewal date.
Forecast Category: Pipeline, Best Case, Committed, Omitted. When an Opportunity is Closed, we don’t update this field, Instead we use the Status and Status Reason fields. This allows us to see how deals were forecast—what forecast category were they in—when they were Closed Won or Lost. It improves accuracy. Learn more in the section, Work with Forecast Categories.
Recurring Amount (Base): This is the annual recurring revenue (ARR) value in base currency. Always forecast using Base money fields as they will account for exchange rates. You can also choose the monthly recurring revenue (MRR) (base) field. Note: The Base fields are not available on the record but are critical to accurate calculations. See them in your list views.
One Time Amount (Base): This is the combination of non-subscription-based products or services. You could also choose the Service Fees (base).
Owner: This is the seller who owns the opportunity.
Source: This is the source of the opportunity.
Status: Active or Inactive.
Status Reason: This more detailed field identifies Closed-Won, Lost, and all the different Closed-Lost reasons. And before your opportunity is won or lost, Status Reason tells you which stage the opportunity is in.
Age: This is the number of days from when the Opportunity was created.
Stage Duration: This is the number of days the opportunity has been in its current stage.
Last Activity Date: The last time an activity like a phone call, email, or appointment was associated to the opportunity.
Your Forecast View should look something like this.
Note: TekStack will total the money fields automatically.
We would also recommend the following filters.
Type: You may want to separate New Customer Opportunity Forecast from Existing Customer Opportunity Forecast; same with Renewal. If you are trying to forecast additional ARR, exclude Renewal Opportunities.
Close Date: This depends on if you want to forecast the month or the quarter. If using the quarter, select ‘This fiscal period.’ If using the month, select ‘This month.’
Status Reason: Include your Won deals and those at any stage you want to forecast. Or, just omit your Closed-Lost deals. The reason you’ll include won opportunities is that a forecast should include the opportunities you have already won plus the opportunities you are forecasting to win in this period.
Forecast Category: Exclude ‘Pipeline’ and ‘Omitted’ opportunities. Just focus on Best Case and Committed opportunities. See more guidance in the next section, Work with Forecast Categories.
Your filters should look something like this.
Now you have an Opportunity Forecast View you can work from. Save it as a new view. The reason TekStack does not ship this view as a System view is because of the variability in money fields and filters that each customer would need. But it’s easy to create this view and share it with others. See our Knowledge Article Discover and Create Views.
TekStack has the following Forecast Categories:
Pipeline: This is the default Forecast Category on all opportunities. Never include opportunities that are forecast as pipeline.
Best Case: This is the optimistic forecast prediction on an opportunity. When you mark an opportunity as ‘Best Case’ you are essentially saying that there is an outside chance we can close this deal in the fiscal or monthly period of the Close Date.
Committed: This is the conservative forecast prediction. You only mark opportunities that have a verbal commitment and are close to completing contracts. Typically, you only want to include Won opportunities and Committed opportunities when you are communicating a forecast to your Chief Financial Officer (CFO).
Omitted: This forecast category is reserved for opportunities you do not want to have included in your forecast. Typically, you’ll exclude any out-sized opportunities from your forecast unless they are committed. If an opportunity dwarfs other opportunities in size, it can create a lot of variability in the forecast accuracy.
Use Forecast Categories in Weekly Funnel Reviews
- Start with your new Forecast View. Open each opportunity and review the following:
Close Date: Is the date in the past, or set to a realistic date? Look for opportunities closing on December 31st for example. Challenge the seller on the actual close date. Is it an estimate, or something the buyer has confirmed?
Amount fields: Are the amounts manually entered by the seller or have they been calculated by TekStack from products and services that have been added?
Stage: What stage is the opportunity at? How long has it been at this stage? Often sellers will not push the stage forward. You can check the velocity tab to show the dates the opportunity moved, and how many days it was at each stage.
Age: On the velocity tab you’ll see the age of the deal (in Days). Often deals go bad if they are old or lack activity. It’s best to close these deals as Lost. When you close a deal as Lost, the associated account moves to a ‘Re-Prospect’ status so it’s easy to re-open an opportunity when there is actual sales activity, and the buyer is engaged.
How long was the opportunity in Discover stage? You may have renamed the first opportunity stage, but the question is, how long was the opportunity in this stage? Statistically, the quicker an opportunity moves out of the first stage, the higher the win rate. In Velocity tab, you can configure a conditional colour format. Green is good, red is bad. You decide the threshold.
How many times has the primary contact emailed you in the past month? Another important indicator, how engaged is the buyer? If the buyer is not engaged with the seller, the opportunity is not likely to close.
Timeline: This will show you all activities related to this opportunity?
Opportunity completeness: Has the seller provided business impact information, identified stakeholders, or competitors? These are key factors that indicate how well a seller understands the opportunity.
- After reviewing this information, decide if the opportunity should move from Pipeline to Best Case, Committed, or Omitted.
- Return to the Forecast view and move on to the next Opportunity.
Communicate the Forecast Prediction to your CFO
When you have reviewed your opportunities, you are ready to communicate the forecast to the rest of the organization. Your CFO (or other executive team members like the Chief Executive Officer [CEO]) will use this information to determine if the plan is on track, or if your organization needs to make additional budget decisions based on the forecast (e.g., hire additional staff, or hold off on staff hires).
As an organization, you need to decide which number you want to communicate. TekStack tracks several different money fields:
- ARR – this is the incremental ARR bookings (essentially adding to your contracted ARR total).
- One-time fees – This includes non-subscription-based amounts, e.g., hardware, license, and/or services.
- Services fees – specific to services products.
- Total Amount – this includes ARR for multi year subscription plus any one-time fees.
Whichever number you are looking to forecast, communicate two different forecasts:
Conservative Forecast – this is your lower range forecast and should include ‘Won’ plus ‘Committed’ opportunities.
Stretch Forecast – this is your optimistic ‘shoot for the stars’ forecast. This should include ‘Won,’ ‘Committed,’ and ‘Best Case’ opportunities.
Take snapshots using Excel Export
Each month it’s a good idea to take a snapshot of your forecast. The easiest way to do this is to export the forecast view to Excel and save a version of it in a forecast folder. This way you can see how your forecast predictions change over the course of time.
Why We don’t Recommend using Probabilities
In B2B technology, probabilities are always inaccurate. Over an infinite time horizon with an infinite number of opportunities, the concepts of Net Present Value (Probability x Dollar Amount) can be accurate. However, in B2B technology environments, we are dealing with include:
- Limited time frames, such as the quarter or the month.
- Few opportunities.
- Values that are seldom accurate, often not known until well into the qualification period.
Therefore, the result is that Probability x Opportunity Value is always inaccurate.
In addition, most sellers don’t update the probability values, or they use subjective opinions. If they do take the time to update the probability, it’s possible they are just guessing. You never win 75% of a deal, you win 100% or 0% and probability will always inflate your forecast value. The only way 75% becomes accurate is if, out of 20 opportunities, you win 15 of 20, which you will never do--win rates are usually in the 25-50% range.
If you are adamant that you want to use probabilities, you can ask TekStack to customize your Opportunity functionality to include it.