Your sales forecast is the most important number in every company in any industry.
Yet, according to a Clari Labs survey in May of 2022 across 2,000+ organizations, so many businesses have trouble:
- Seeing and capturing revenue: 14.9% is lost annually to revenue leak
- Predicting revenue: 60% average forecast accuracy
Can’t see revenue.
Can’t control revenue.
Can’t predict revenue.
Note: Clari defines revenue as a sales metric. Think: “Booked Revenue” or “Sales Revenue.”
This is less than ideal and leads to missed opportunities, lost revenue, unfulfilled orders, unhappy customers, and so on.
These numbers add up quickly on a global scale. According to Boston Consulting Group (BCG), $2.1T in economic value is destroyed each year thanks to Revenue Leak—the loss of revenue due to breakdowns in the revenue process.
At Clari, we are helping customers minimize revenue leak and move from revenue accuracy (good) to revenue precision, the full capture of revenue—predictably and repeatedly.
And while we started by helping customers in the Tech industry, we observed a massive need to minimize revenue leak in more traditional industries like Healthcare & Life Sciences. Those observations were confirmed by BCG estimates, which revealed the Healthcare industry wastes $800 billion in sales and marketing efforts annually.
Our SVP of Marketing, Kyle Coleman, recently chatted with the Director of Revenue Operations at PerkinElmer (a leading MedTech & Life Sciences company), Keith Moore, to discuss maximizing resources with complete forecast visibility.
They covered revenue leak vs precision, how complete transparency has streamlined their forecasting process, and how improved forecasting accuracy has helped manage their supply chain and lower costs.
Here are some highlights of the conversation.
RevOps is the place to be
PerkinElmer is an organization that enables scientists, researchers, and clinicians to address their most critical challenges across science and healthcare.
As the Head of RevOps at PerkinElmer, Keith is responsible for revenue related to both software and hardware solutions. He believes there is a misnomer that RevOps is “all about tech.” It’s not. In fact, says Keith, the RevOps function is to “be the steward of human collaboration among various cross-functional teams responsible for revenue.”
RevOps’s role is also to oversee the “revenue governance process.”
Revenue governance is the ability to control the end-to-end revenue process. It’s about ensuring that every step in the process and every decision made is backed by accurate data and optimized to minimize friction.
Keith thinks of his team’s function as the “middle of a flywheel” occupied by Sales, Marketing, and Customer Success—all teams touching revenue. RevOps is the bearing, the grease, in the middle of a flywheel.
“The wheel keeps turning to assist customers,” says Keith. “RevOps helps the flywheel move faster, more efficiently, and more effectively. His team ensures the data they view (i.e., sales numbers) are the same for all—the single source of truth.
And we all know how vital the RevOps team is—the fastest growing job (Head of RevOps) in America.
Forecasting: Art and science
Being able to accurately (and precisely—more on that later) forecast is essential to the revenue process.
A huge part of RevOps is maximizing the accuracy of the sales forecast...streamlining the entire process, and ensuring all are operating in a standardized, governed manner.
And while forecasting was primarily an art (the human), it is now mainly becoming a science (technology, or Clari in this case).
Keith does not advocate for removing the humans (sales reps/leaders) entirely in the forecasting process. Far from it. He believes sales should be involved in the science (again, Clari) of the forecasting process.
“That’s when things really begin to take off,” says Keith.
If you don’t have this forecasting collaboration between humans and technology, one negative consequence is what happened to Keith and his team: product delays.
“We are trying to minimize warehouse inventory,” says Keith. “When product is sitting on shelves, we are losing money.” That has a huge (negative) downstream impact:
- Customer satisfaction (NPS) scores plummet
- Sales decrease
- Customers become more hesitant to buy again
When product is shipped late, that can also impact payment. The longer you delay delivery, the longer your cash cycle is >> you can’t collect interest on that money >> you don’t have as much cash to reinvest >> you spend money (and time) trying to collect. The compounding effects can be enormous.
While forecasting accuracy is critical, it’s not the only answer.
From forecasting accuracy to forecasting precision
Although often used interchangeably, sales forecasting accuracy and sales forecasting precision represent distinct aspects of sales predictions.
Simply stated, sales forecasting accuracy is how close you come to actually hitting your forecast.
Revenue precision is the operating standard that results in the full capture of revenue—predictably and repeatedly.
Said another way, you can be accurate but not precise (but if you are precise, you are definitely accurate).
Still here? Here’s an example:
Accurate: Your forecast calls for $100K this quarter. At the end of the quarter, your sales revenue is exactly $100K. Celebration time.
But not so fast. Nothing wrong with celebrating your accuracy, but what about precision? Did you close all of the deals you predicted? Or did the numbers just shake out to be $100K—some deals predicted to close did, while others did not. Some that were not predicted to close did and filled in the gap.
Precise: Your forecast calls for $100K this quarter. At the end of the quarter, your sales revenue is exactly $100K. Celebration time.
But this time you can really celebrate: Why?
Every single deal you predicted to close this quarter closed...for the exact amount you called in your forecast.
Yes, we know this level of precision is unlikely.
However, by viewing forecasting and revenue through a revenue precision lens, we are more likely to fully capture revenue while ensuring it’s predictable and repeatable.
Our CEO, Andy Byrne, once said, “Revenue precision is achieved when people, processes, and systems work seamlessly together. This means discovering their blind spots, consolidating their tools and processes, and ensuring constant collaboration between their teams.”
Clari is doing just this for Keith and the RevOps team at PerkinElmer: “Clari is helping us move from forecasting with accuracy to forecasting with precision”—closer to the “center of the target,” as Keith calls it.
The forecasting process at PerkinElmer is pretty standard. They forecast a number at the beginning of the month. If they hit it at the end, party time.
“But, per Keith, “we sometimes forget how we got there. Clari helps us understand if the number at the end is the ‘same’ as the number at the beginning (i.e., same deals). We were accurate (called the right number), but were we precise (shipped the forecasted product)?”
How Clari helps RevOps move closer to revenue precision
The machines are not taking over (yet?).
We see most Clari customers do something similar to what Keith did.
“We began by comparing the Clari model to what the rep told us. This meant double forecasting—human + Clari. Not ideal, but necessary to build confidence in the platform and provide it with enough data to learn.”
PerkinElmer used Clari to help forecast by leveraging not just past sales but specific sales rep behavior.
Today, PerkinElmer just uses Clari. The forecasting precision continues to improve because RevOps is holding reps accountable to deal-by-deal decisions. This, per Keith, ultimately drives a much better behavior (the intended one).
The more you use Clari, the more accurate and precise the forecasting becomes. Clari helps RevOps “trust the numbers.”
This level of sales forecasting precision means RevOps can begin to treat revenue like a process (the most essential business process) instead of just an outcome.
Many of our customers (Keith included) see much revenue tied up post-sale.
Days to win an order (or close a deal) begin to flatten, but once the handoff process starts (from sales to customer success or sales to actual shipment/delivery of the physical product), there is a chance of lost revenue.
With complete forecast accuracy, visibility, transparency, and precision, this process tightens up, and revenue leak decreases.