A classic experiment to test for extrasensory perception (ESP) — or clairvoyance — is the use of Zener cards. The 25-card deck includes five of each symbol: a circle, a plus sign, three vertical wavy lines, a square, and a five-pointed star. In a test for ESP, the experimenter picks up a card at random and holds the blank side of the card up to the person being tested. The test taker is meant to use their ESP abilities to “see” which symbol is being held up and give their response to the experimenter to record. For a test of 25 questions with five possible answers, probability predicts that most people will get between three and seven correct answers by random guessing. Guessing all 25 correct answers has a chance of about 1 in 300 quadrillion.
While the Zener card test is interesting — and makes for fun movie scenes about card guessing and clairvoyant talents — it would not make sense as an approach to take for annual revenue planning efforts.
And yet, this is exactly what many B2B organizations do. Instead of putting all their information cards on the table for revenue planning, many company executives are opaque about the growth strategies, go-to-market approach, and route-to-market decisions that drive the corporate objectives and targets for the coming fiscal year. This ends up leading to a lot of guessing among the revenue functions of marketing, sales, channel, and customer engagement.
Let’s take a typical scenario. Annual planning is gearing up at a B2B organization. Deadlines are being announced, and the revenue function leaders are thinking ahead to what they want to accomplish in the coming fiscal year, as well as jostling for budget and headcount. They are told to start building their plans. At some point, they receive guidance from the executive team – usually in an iterative manner — that they need to factor into their plans. It could be something along the lines of “This year we want to grow by 20% and achieve $750 million in revenue.”
But this is just a single card in the information deck. Each revenue leader is free to interpret how their function will achieve this goal. Marketing decides to focus on bringing in more mid–market demand. Sales decides they need to take a disciplined focus on the top 1,000 accounts. The channel sets on a path to expand its partner network and go deep in industry expertise. And customer engagement looks at retention as the key to success. Because each function has had to play a guessing game about how to achieve the corporate goals, their plans are being set up to fail from the start due to the lack of alignment.
The situation gets more complicated as the revenue operations leaders and teams work backwards to create the revenue production plan for the year. More guessing occurs as teams attempt to model where revenue will come from for different segments and channels, as well as from each of the revenue functions. Assumptions are made about contribution to revenue, pipeline coverage and the budget required by the different revenue teams to hit the targets.
Fast forward to six months into the year, and you will see the result of all of the guessing. Marketing is frustrated that the mid-market leads they have worked hard to source are being ignored by sales. Sales is upset that marketing is not doing anything to help them penetrate the top 1,000 accounts. The channel team is irritated that the vertical industry partners they recruited lack demand. The customer team is trying to get help from the other functions to close on a huge renewal target. And everyone is concerned that the company is not hitting its pipeline and revenue targets.
The only way to make annual revenue planning work is to take the guesswork out of it. There are two important steps:
- Implement a structured, aligned annual revenue planning process. An effective revenue planning process provides transparency and accountability to all planning participants. It clearly identifies what input is needed to inform each step, from corporate strategy setting to revenue plan creation, as well as who needs to participate, what actions needs to be completed, and what outputs need to be provided. Each step serves as input to inform and drive alignment in the next planning step.
- Have revenue operations drive the process. It’s equally important to have defined annual revenue planning process ownership. Forrester strongly recommends that the organization’s revenue operations leaders drive and manage this process for annual planning.
For more on the importance of an aligned revenue planning process, check out this blog post, which provides another perspective on its role in annual planning.