Bottom-up Forecasting in B2B Sales Companies: A Comprehensive Guide

What is bottom-up forecasting?

Watch a short summary here:

A short definition

Bottom-up forecasting is a forecasting method that starts from the individual contributor level (e.g. Account Executives, Sales Reps) and works its way up toward the top of the organization (CRO, CSO, CFO, CEO). With this approach, it’s critical to break the organization’s total sales goals into smaller individual target units and then to do a forecast for each of these units. These individual forecasts are then vetted and combined by the leadership team.

How is it different from Top-Down Forecasting?

In top-down forecasting, one looks at the broader market dynamics with an emphasis on the competitive landscape to forecast the market share and subsequently, the revenue a company can potentially achieve. In addition, the top-down approach is based on the sales capacity, meaning it looks at the total number of reps, their quota, and their quota attainment. 

Advanced organizations also include factors such as historical performance, marketing & sales budgets, and capacities in production and facilitation.

The key difference between the two is that with bottoms-up forecasting, the individual sales reps get a voice in the forecasting process.

More often than not, top-down forecasts are also heavily influenced by board meetings. This often leads to situations where the company’s leadership team presents a final number, but the board challenges them to go higher. Which in turn can lead to a less accurate forecast and a lose-lose situation for all.

Is Top-Down Forecasting outdated?

No. There is a time for top-down forecasting and there is a time for bottom-up forecasting. If a company is relatively young, possibly not fully at product-market fit or in a high growth stage, then doing bottom-up forecasting is sometimes just not possible or sensible. In these situations, making forecasts that follow a top-down approach is still better than doing no forecasting at all.

It’s also true, that most modern sales organizations use hybrid models that factor in a multitude of variables to achieve the highest possible accuracy. 

However, if the company is somewhat mature, then a strict top-down approach is unlikely to achieve accurate results and may cause budget issues that will affect the entire company. The main reason why top-down forecasts are still applied is that a) there is a high urgency without time to implement a top-down approach, and b) the organization lacks the metrics and data to pursue a bottom-up approach.

Advantages and summary of the bottoms-up approach:

• Bottom-up forecasting is a process where reps or managers submit a forecast call for a specific time frame (every week, month, or quarter, depending on the sales cycle)
• Since these forecasts are based on the actual opportunities in the pipeline, bottoms-up forecasting is a practical and grounded approach, meaning if done well, it keeps the company safe from delusions around its position in the market
• The historic and present sales are factored in through the lens of the sales reps
• To achieve high accuracy, the forecast submissions of sales reps need to be vetted closely by their managers
• A bottoms-up approach requires the entire sales team to have a clear understanding of the most important deal and company KPIs
• With this method, companies are enabled to forecast more easily on different market segments (e.g. geos, products, industries, account sizes, …)
• The outcome and accuracy heavily depend on data timeliness and data quality

Why is forecasting accuracy important?

Forecast accuracy lies in the hands of the sales leader. This is true for both short- and long-term forecasts. Without accurate forecasting, it’s impossible to make key decisions around spending such as hiring new reps, increasing the marketing budget, or investing in tools and technology.

If a sales leader consistently misses forecasts, then it is likely that the company will look for a new leader who can achieve higher accuracy. In the world of business, being able to make predictions that can be trusted is an extremely valuable asset and skill that only a few have mastered.

How to implement bottom-up forecasting?

‍

The following is a step-by-step guide to achieving highly accurate forecasting with the bottoms-up approach:

Step 1: Set up regular forecasting meetings

Make sure to create a culture of continuous and regular forecasting. The best way to do this is to set up a weekly forecasting meeting e.g. every Thursday or Friday afternoon. This can be accompanied by a monthly roll-up meeting with the leadership team and rounded up by a quarterly business review with the entire sales team.

Weekly:

• Forecasting meeting on Thursday/Friday by sales team

Monthly:

• Monthly forecasting roll-up

Quarterly:

• Business review with all sales teams
• Can also be used for sharing learnings across teams and managers

Step 2: Establish deal KPIs & processes

Establish a clear set of accessible and tangible KPIs and fields. Accessible, in the sense that everyone can calculate them. Tangible, in the sense that everyone can understand them. These KPIs are not about the forecast itself (such as Net Annual Revenue, Annual Recurring Revenue, Monthly Recurring Revenue, Net Expansion, etc.). Instead, these KPIs are all about judging and evaluating deals in the rep pipeline.

Here are a few examples to get started:

• Time in Stage
• Email Reply Rate
• Email Velocity
• Champion exists
• Economic Buyer exists
• Next Steps Defined
• The next Steps date has been set
• Decision-Making Process Defined
• …

These KPIs can directly be connected to a sales methodology like e.g. MEDDIC. They are powerful but easy to understand. And every rep can be in charge of them simply by working their deals well.

Please note, that these KPIs may look very different for a field rep than they would for an Enterprise Account Executive. Each team needs to find and tune the KPIs that work best for them.

Step 3: Collect data

Once all the meetings have been set up, and the KPIs have been explained, it’s time to collect the data. Ideally, you have a tool in place that automates data collection as much as possible.

Things that should be automated:

• Call logging
• Email logging
• Video call transcripts
• Calculations such as time-in-stage, reply rate, …
• Snapshots of current deals by forecast categories (pipeline, best case, most likely, commit, closed, omitted, …)

Things that should not be automated:

• Final forecast call

The final forecast call (per week and month) should not be entirely automated. Instead, let reps and managers make their estimates. Ideally, there is a system in place that shows the most important trends but allows reps to add their gut feeling to it.

Step 4: Roll up forecasts into a unified model

Once the weekly or monthly deadline has passed, the individual forecasts can be rolled up into a unified model. Ideally, a tool is available that allows taking ‘snapshots’ of the roll-ups so these can be compared for historical accuracy over time.

Make sure to break the roll-up into useful categories such as:

• Geo
• Product
• Team
• Industry / Vertical
• Company Size
• Net New Revenue
• Renewals Revenue

Once all reports are ready, share them with the executive team e.g. the CFO, and get their input on it. There may be other factors such as market dynamics, competitors, budget issues, or other variables that could impact the sales forecast.

What tools are needed to enable forecasting?

The easier it is for reps and managers to access, adjust, and report on their pipeline and KPIs, the more accurate the forecasts will become. Like water, most humans always choose the path of least resistance. Ideally, submitting forecast calls should only take a few seconds.

In theory, all forecasting could be done with Excel or Google Spreadsheets. It’s possible. But it’s also very painful. There’d be a lot of exporting and importing various CSV files, dealing with outdated files and data, keeping track of submission timestamps, and chasing stakeholders.

To avoid all these troubles, pick a tool that does this automatically. If Salesforce is the CRM of choice, then there are already some pretty neat forecasting capabilities included by default.

However, to have a fully automated submission process, flexible reporting, and better deal inspection, take a look at what Weflow has to offer. Salesforce does not support scheduled submission calls or a way to slice and dice the data as flexibly as needed.

What can managers do to improve forecast accuracy?

Frontline managers, directors, VPs, and the CRO need to be enabled to do the following:

1. Define and share common success metrics

• Make sure everyone understands what KPIs move a deal forward
• Define red flags just as much as success metrics
• The fastest and best way to achieve this is to apply sales methodologies such as MEDDIC to the sales process
• In addition, fields in the CRM can be made required based on triggers such as stage changes
• Repeat, repeat, repeat - on average it takes a person 7 repetitions until it’s clearly understood

2. Make reps accountable for pipeline hygiene

• It’s the job  of a sales rep to be responsible for their pipeline
• Fields need to be updated regularly
• Data needs to be correct and adjusted if needed
• There is no excuse for reps not doing this, it’s part of their job

3. Make reports accessible and KPIs tangible

• If reports are not available and shared, people will think that the data does not matter
• Often, people are afraid to share metrics because they make them vulnerable
• This is a cultural topic and needs to be addressed heads-on
• Without accessible reporting (at least within a team or department), how would everyone understand and value the power of data-driven decisions?

4. Ask a lot of questions

• It’s the manager's job to ask uncomfortable questions
• The pipeline and forecast submissions of sales reps need to be questioned
• Even high performers should not be allowed to withdraw from this process
• After all, they are the ones who can teach the middle-of-the-pack
• Asking the right questions is hard, but managers cannot give in to sandbagging and hidden deals that pop up 5 minutes before the quarter ends
• The data needs to be out there in the open, and reps need to share what they know
• In return, they should not get punished for sharing insights and information internally

5. Never skip forecasting meetings

• This cannot be said often enough: do not start skipping on forecast calls and meetings
• These need to be a regular thing
• Lead by example and rally the troops
• In-presence calls are extremely useful for other reps to share or learn implicit knowledge
• These meetings also allow managers to ask the right questions and drill into possible deal slippage and revenue leaks

‍Are there disadvantages to bottoms-up forecasting?

Yes, for sure. Like any methodology, there are disadvantages to bottom-up forecasting. However, what’s important is to understand the limitations and risks so that they can be mitigated effectively. No method or approach is perfect.

‍Make data-driven decisions the norm

The most important mitigation technique is to ensure that there is a strong common understanding of data-driven decision-making. Deal signals and sales KPIs need to be available and reps need to be educated on them.

Make forecasting a regular and repeatable process

The more data points are collected, and the more often the process has been exercised the process, the more accurate forecasts will become, and the faster the forecasting process will become.

Is bottoms-up a more timely approach?

In the beginning, it will take more time to do forecasting. However, there are many advantages like the regular questioning on deals, a closer eye on deal slippage and revenue leakage by managers, and more accountability from reps towards the deals in their pipeline.

Conclusion

• Being able to forecast with high accuracy is an important skill when becoming a successful leader in sales
• A bottoms-up approach is more likely to achieve high accuracy while also ensuring flexibility, visibility, and team engagement
• Make use of tools like Weflow to automate the forecasting process
• Make it easy for managers to ask the right questions during forecast calls by providing support and tools to do pipeline inspection
• Create a data-driven culture with clearly defined KPIs and transparent access to reports
• Make sure to get additional perspectives on the sales forecast by involving marketing, customer success as well as the finance team and CFO