Revenue ModelingThroughout my career, I have joined early-stage companies and have been charged with building the commercial organization and meeting the organization’s revenue objectives. In two very specific cases, the founders had built great products and closed several early customers. They believed they had identified the right revenue metrics. The companies did revenue modeling based on their founder’s early successes. But, both models contained the same critical flaw. They assumed that every account executive would sell at the same pace, price, closes per period, and sales cycle.

Selling as the Founder is Different

A founder, almost by definition, has a level of enthusiasm, product knowledge, and authority to make any concession necessary to get the early adopters signed. However, your average or even above-average account executive will likely not have the same abilities to engage as the founder.

In one of my examples, the founder closed four deals per month for a couple of months. He then based his revenue model assuming that the national sales team would do the same. In reality, across ~ 50 reps, the deals per month was closer to just two. As such, revenue fell short of costs, investors got cold feet, and the business failed.

In a second example, the founder believed that once the enterprise clients saw the demo, they would move to purchase. A couple of early adopters did, in fact, move quickly. In reality, what he forecast as a 60-day sales cycle, was closer to 12 months. Once again, the revenue modeling fell apart quickly.

Lesson Learned

Testing your revenue modeling is critically important. Look closely at the resulting quotas, estimated sales cycles, average sales price, and units closed per period. Base all modeling assumptions on what the sales team can actually deliver, not on what the founder accomplished as the evangelist. As the executive in charge of revenue, challenging assumptions to ensure they are realistic and reasonable is a key to business success.

photo by: Got Credit
Categories: Insight

Warren Dodge

Highly accomplished entrepreneur and senior executive with 30+ years of success in healthcare services, IT, software, pharmaceutical distribution, and group purchasing. He has a proven record of raising capital, developing products as well as sales and marketing strategies, negotiating strategic partnerships, and positioning companies for acquisition to ensure positive returns for shareholders.

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