"Your revenue forecast should be higher!" Here's how a finance leader can respond

"Your revenue forecast should be higher!"

If you're a B2B SaaS finance leader then simply reading those words must bring you a certain level of anxiety.

They often come from a CEO or the board, and how you respond will likely determine both your sanity over the next month and the accuracy of your forecast.

So, how should you respond?

😌 First, choose the right mindset

This is easier said than done, but you'll need to take a step back if you want this discussion to go well.

If you assume your CEO has the best of intentions, and that you both want the best possible forecast, then it's actually great that your CEO brought this up.

After all, there are two likely outcomes:

• Your forecast is right - Your CEO will sharpen your thinking because you'll have to defend your forecast. And, since the two of you went on this journey together, your CEO will be more bought into the forecast you built.

• Your forecast should be higher - Maybe the CEO has some data points or compelling beliefs that you haven’t considered. If so, it's great that you know about them so you can adjust your forecast to make it more accurate.

🤔 Why do they feel the way they do?

Now that your mind is in the right place, the next step is to understand why your CEO thinks the revenue forecast should be higher.

Sure, you might find out that they just want it higher because every CEO wants it higher. 🤪

But, maybe you'll find out that their desire is mostly driven by pressure from the board.

Or, maybe they have a point of view, or set of data points, that are different from your own.

Or, maybe they know a higher forecast isn't reasonable but they want to have it as a scenario to consider.

Whatever the case, knowing the answer will increase your chances of creating the best forecast.

🎯 List the drivers

Most leaders know that revenue won’t magically increase without lots of hard work and a well-thought-out strategy.

So take the time to list out the drivers of revenue for your business so you can have a clear-headed conversation about the levers you can pull to increase the forecast.

Here are some revenue drivers to consider:

• Number of sales reps
• Efficiency of sales reps
• Level of marketing investment
• Efficiency of marketing investment
• NRR by cohort
• Average Selling Price
  

Listing these out and talking through them is a great way to ground the conversation in reality.

If there isn’t a reasonable lever to pull then you know right away that it’s not worth aiming for the higher revenue number.

⚖️ Understand the tradeoffs

Let’s assume you’ve found some revenue drivers that can potentially get you to a higher forecast.

Now’s the time to outline the tradeoffs.

Oftentimes, the key trade-offs to consider are going to be:

• Impact on your months of runway (and thus when you need to fundraise)

• Impact on the hiring plan (this is related to runway but is worth calling out separately)

• Impacts on your efficiency metrics like CAC Payback and Rule of 40

🏗️ Build Option Sets

Now that you know your key revenue drivers and trade offs you can build out a few option sets to share with your CEO and/or the broader executive team.

Use everything you know to break down the key benefits, as well as the key risks for each scenario.

Here's an example option set to bring this to life.

Option 1: The original revenue forecast

Months of Runway:

• 24 months

Key Benefits:

• This is a plan we can be very confident in achieving.
• This plan will give us very efficient growth (which is especially important in today's market)
• Our CAC Payback will move from X to Y
• Our Rule of 40 will move from X to Y
• We won't have to fundraise again until xx/yy when the economy will likely be in better shape
  

Key Risks:

• We could potentially be leaving money on the table
• If our competitors choose to step on the gas in the next year then we could lose some market share

Option 2: Aim for a larger revenue of X

Months of Runway:

• Drops from 24 months to 14 months

Key Benefits:

• This would give us best-in-class growth and would lead to us capturing a larger share of the market
• We'd leave the recession with a more experienced team ready to tackle our next phase of growth

Key Risks:

• We'll need to fundraise at the end of 2023 and it looks like that will be a very difficult time to raise.
• If we can't raise, then we go out of business. We'll be betting the company on either hitting our plan or finding a way to raise money in a difficult environment.
• Our business will look less efficient over the next year because of the hiring we'll need to do. This will make it even more difficult to fundraise.
• Our CAC Payback will move from X to Y
• Our Rule of 40 will move from X to Y
• For this plan to be possible, we need to hire X people before Y date, and we need X% of them to fully ramp in their first 90 days. If those things aren't true, then we can't hit plan.
• We've never hired that many people before and we typically see X% of our hires fully ramp in their first 90 days.
  

We're sure your option sets will be more robust than these, but hopefully, these give you a good place to start.

🧠 Final thoughts

One of the benefits of approaching it this way is that it allows the team to debate options instead of people.

By writing these options down you'll add space between people and their beliefs so that you can objectively get to the best outcome.