One of the Most Frequent Errors in Sales Planning and Forecasting

This post is by Tomasz Tunguz from Tomasz Tunguz

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    One of the most consistent errors made in sales projections and planning is mismatching the ramp time to the sales cycle. What does this mean? If my startup has a 9 months sales cycle and the VP of Sales projects a six month ramp time, my startup is committing this error.
How should one expect a new account executive to start delivering bookings in their first quarter if the typical sales cycle is longer than the ramp period? One argument is that the territory is warm. Leads have been nurtured in that territory for a while. The account executive starts with business that has made some progress in their customer lifecycle journey. Alternatively, a head of sales may be interviewing for salespeople who have a book of business already. If that’s the case, one could the AE’s sales cycles should be shorter than the norm because they have relationships. There be other examples of rationalizations for a more aggressive ramp than a typical sales cycle. But as a business begins to scale, this assumption is one that often triggers a sales target miss of a quarter. There are downstream effects too. Many AEs may may miss their first quarter, suggesting that there’s a bigger problem in the organization. For example, lead quality, sales training, funnel conversion rates. And things can spiral from theer. Many management teams feel a pressure to project a sales cycle faster than historicals. On one hand, shorter sales cycles are more attractive to investors. I’ve written about why it’s a competitive advantage. Let’s throw away outliers in the data set, one might say. But that can lead to this mismatch error. Better to be more conservative. Look at the data. Newer AEs may need longer ramp periods (which of course costs more in burn), but may yield better quota attainment later on. The greater the contract value, the greater the likelihood of longer sales processes typical of enterprises, the greater the chances of this phenomenon. If your startup has missed a quarter, be sure to look at AE quota attainment by quarter and compare it to sales cycles. You may find that there is a mismatch between your sales cycles and your ramp time.

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