The Groove of Revenue Health Forecasting

As a customer success leader, you’re always asking the key questions: 

• How can I deliver faster time-to-value?  
• Where is the customer experience broken? 
• How can I focus on retention goals while also finding growth opportunities?

For most of us, these are the big rocks. Mission critical, core to our nature, and time consuming. Getting in front of customers and managing the team takes everything we’ve got, and it’s hard work! Yet, too often, we find ourselves blindsided by one, simple question from our CEO/CFO/board: What’s the revenue forecast this quarter looking like?

"Well, uhh… let me get back to you on that later this week."

Focusing on (critical) customer needs often leaves very little time for the frequently neglected customer success operations functions. The key process that many leaders are missing here is the consistent rhythm of managing and forecasting revenue health. This includes account health scoring, forecasting retention and proactively managing revenue risk at the client portfolio level. 

Companies below $100MM in annual recurring revenue struggle with getting into a groove of proactively managing these processes. All too common is the phrase, “let’s see how the quarter closed out.” We hold our breath while the finance team pieces together the revenue retention story retrospectively. 

Sadly, we can’t do very much about what happened in the past. Here’s a simple way to break down this issue and get started with a proactive strategy. 

Revenue health forecasting: Where we struggle

The truth is that we struggle to accurately forecast revenue until we have a standard, systemized process.  Here are some of the issues at play:

• Highly complex account health scoring processes - we’ve all seen this monstrosity of a spreadsheet. 10/10 on thoughtfulness, 0/10 on adoption, consistency and accuracy. 
• Waiting for the silver-bullet system to automate the process - while there are many solutions we can use to automate, you need to have a solid process to go along with it. 
• Too much time spent doing updates - if teams feel that effort exceeds benefit, once again, 0/10 adoption. 
• Misaligned perception of account health - the account was recently scored green, but they churned upon renewal. What gives? You have egg on your face. 
• Inability to forecast revenue at risk - we only look at the numbers after the quarter ends, not well before it begins. 
• Cross-functional silos - why do account health scoring if cross-functional leaders don’t review and take proactive measures to help? 
• “Story versus reality” -  a common trap, thinking about revenue health in the context of your last interaction with the account, not on a macro-level view of the value they get from your product or service. 

Let’s get started. First, you need to implement a lightweight account health scoring methodology.

At first, make this simple. Put together an easy-to-deploy scoring method. If it feels squishy, you’re on the right path - you will evolve. Ensure easy buy-in from your teams, thinking about the key components to account health account:

• Stakeholder Engagement
• Support Metrics
• Product Adoption Metrics, Goals & Outcomes
• Product Satisfaction
• Hard ROI! 

Think about using a 0 (red), 1 (yellow) and 2  (green) score for each, and calculate the average. Set parameters on each score to define ranges - like a green is a score of 1.50 - 2.00, with yellow being 1.00 - 1.49. Use a weighted average, if you think that’s important. 

Over time, you can automate these key metrics to drive a score, but let’s not get ahead of  ourselves. Simply asking a CSM to score on these methods is enough to get started. Ensure them of one thing - it’s okay to be conservative! You won’t be dinged for professional skepticism, it only helps us manage revenue risk and calibrate our scoring over time. 

Lastly, a simple configuration of fields in Salesforce on the account object can help with reporting and dashboards. This should take under an hour to configure and easy to update. Again, start simple. Don’t let your sales ops team tell you they need to engage a vendor - just  add the fields and go. Bonus points if you create the formulas to calculate weighted average and produce a color-score. 

Now, let’s do something with that data. Review accounts up for renewal on a monthly basis, focusing on the “red” accounts. 

If you and your Salesforce instance are lucky enough to have contract renewal dates included, you’re set for success here. If you go the extra mile and actually auto-create renewal opportunities based on these dates, kudos to you! If you don’t have renewal dates on each account, please consider doing so at this point. You will never win if you don’t get ahead of renewals with a process driven by a date. And yes, I’m even talking about auto-renewals, and no, you can’t just hold your breath to see if the client auto-renews.

Create some simple reports and dashboards in Salesforce, or just use Excel to get what you need. Here’s how we recommend you break this down into a dashboard:

1. Total revenue base outlook - how are we doing across all customers? 
2. Financial year outlook - what’s this year shaping out to look like? 
3. 90 day (or quarterly) outlook - be sure to create a cut at all accounts up for renewal in the next quarter. 

From here,  you want to keep track of the red/yellow/green ratios in each CSM’s book of business and set target goals for improvement. Consider having a customer success operations resource lead bi-weekly meetings to go over account scoring. This can help discover patterns in healthy and unhealthy accounts, focusing on red and transitional (yellow) accounts.

Pro-tip: Red accounts should have documented project plans to move to yellow, and then eventually to green. Teams are notorious for lots of review, little action. Hold them to be accountable. Nobody wants to be publicly delinquent on the red to green plan in the retention council meeting.

Time to engage cross-functional leaders. Break-out your reasons for revenue risk - by percentage breakdown of risk reason, and by percentage of total revenue. Tell a story.

In this example (figure below), we have two simple graphs that are easy to create in Salesforce. 

First, $21M of revenue is up for renewal in the financial year with $1.5M at risk. That would put the book of business at a 7% churn rate with 93% gross retention. Not so bad, but the big question is: How accurate is our forecast? Comparing forecasted to actual is critical to refine the process over time. 

Secondly, lack of engaged executive sponsor or project sponsor is the primary reason for at-risk accounts.  Change in key stakeholders, or roles not properly defined during sales to services transitions can be blamed here. 

To get the attention of cross-functional leaders, you want to have a monthly retention council to review these metrics. Leaders should be prepared to ask questions related to the levers they own to help reverse trends. What are the underlying product risks? Are they enhancement related, competitive or are we missing the mark for certain customer segments? What’s going on in support - is it time to resolve, customer experience, or are we missing data?

Telling the right story here is critical and key to any highly performing customer success leader. This data, plus the retention council, are key to making customer success a cross-functional priority.   

Start making friends with finance. You need to be able to forecast by sales channel/product, and low/high guidance is preferred. 

Start getting into the groove of  running this process monthly. You’ll notice that you have a few new friends at work. Your CFO, their FP&A analyst and your controller. Do not fret. This is what you want. The leader that brings data and objectivity from the health of the customer base wins the partnership with the CFO (read: budget season will get a little easier). 

Over time, it’s helpful to start looking at revenue by sales channel and  product line, if you’re not already. Don’t fall into the trap of having a mix of customer segments, products and sales channels muddy the waters. The story gets diluted, leading the company to focus incorrectly. Also, high and low guidance is helpful - you’ll want this for your CEO during board meetings. Boards appreciate this view, and are used to agreeing to high and low guidance in planning, a form of constraints that can be put in place around what annual success looks like so “winning” is not 100% binary.

Teams love to debate this process. It’s healthy, let the discussions flow! 

It’s okay for your teams to question the process. It starts with a subjective lens, where you’re asking them to consider a set of criteria and score to the best of their ability. They’ll accuse it of being too squishy. Later, when you implement a platform like Gainsight or Medallia/Strikedeck, they’ll accuse the process of being too algorithmic. This is part art, part science.  

The truth? Just getting into the groove will help you get ahead of risk, create cross-functional strategy and bring more predictability to your revenue forecast! Surely, a win for all - predictability will help you run a more impactful customer game plan and achieve your growth goals.