Kellblog covers topics related to starting, managing, leading, and scaling enterprise software startups. My favorite topics include strategy, marketing, sales, SaaS metrics, and management. I also provide commentary on Silicon Valley, venture capital, and the business of software.
Just a quick post to share a slide deck I created for a session I did with the top S&M executives at a private equity group’s sales and marketing summit. We discussed some of my favorite topics, including:
After years of experience with and thinking about multi-year, prepaid SaaS deals, my mental jury is back in the box and the verdict is in: if you’re a startup that is within my assumption set below, don’t do them.
Before jumping in, let me first define precisely what I mean by multi-year, prepaid deals and second, detail the assumptions behind my logic in response to some Twitter conversations I’ve had this morning about this post.
What do I Mean by Multi-Year Prepaid Deals?
While there are many forms of “multi-year prepaid deals,” when I use the term I am thinking primarily of a three-year agreement that is fully prepaid. For example, if a customer’s ARR cost is 100 units for a one-year deal, you might approach them saying something akin to:
By default, our annual contracts have a 10% annual increase built in . If you sign and prepay a three-year agreement, i.e., pay me 300 units within 60 days, then I will lock you in at the 100 units per year price.
Some people didn’t know these kinds of deals were possible — they are. In my experience, particularly for high-consideration purchases (where the customer has completed a thorough evaluation and is quite sure the system will work), a fairly high percentage of buyers will engage in this conversation. (In a world where companies have a lot of cash, a 10% return is a lot better than bank interest.)
Multi-year prepaid deals can take other forms as well:
The duration can vary: I’ve seen anything from 2 to 7 years.
The contract duration and the prepaid duration can decouple: e.g., a five-year deal where the first three years are prepaid.
But, to make it simple, just think of a three-year fully prepaid deal as the canonical example.
What are My Underlying Assumptions?
As several readers pointed out, there are some very good reasons to do multi-year prepaid deals . Most of all, they’re a financial win/win for both vendor and customer: the customer earns a higher rate of return than bank interest and the vendor gets access to capital at a modest cost.
If you’re bootstrapping a company with your own money, have no intention to raise venture capital, and aren’t concerned about complicating an eventual exit to a private equity (PE) or strategic acquirer, then I’d say go ahead and do them if you want to and your customers are game.
However, if you are venture-backed, intend to raise one or more additional rounds before an exit, and anticipate selling to either a strategic or private equity acquirer, then I’d say you should make yourself quite familiar with the following list of disadvantages before building multi-year prepaid deals into your business model.
Why do I Recommend Avoiding Multi-Year Prepaid Deals?
In a phrase, it’s because they’re not the norm. If you want to raise money from (and eventually sell to) people who are used to SaaS businesses that look a certain way — unless you are specifically trying to disrupt the business model — then you should generally do things that certain way. Multi-year prepaid deals complicate numerous things and each of those complications will be seen not as endemic to the space, but as idiosyncratic to your company.
Here’s the list of reasons why you should watch out. Multi-year prepaid deals:
Are not the norm, so they raise eyebrows among investors and can backfire with customers .
Complexify SaaS metrics. SaaS businesses are hard enough to understand already. Multi-year deals make metrics calculation and interpretation even more complicated. For example, do you want to argue with investors that your CAC payback period is not 18 months, but one day? You can, but you’ll face a great risk of “dying right” in so doing. (And I have done so on more than one occasion ).
Amplify churn rates. An annual renewal rate  of 90% is equivalent to a three-year renewal rate of 72%. But do you want to argue that, say, 79% is better than 90%  or that you should take the Nth root of N-year renewal rates to properly compare them to one-year rates? You can, but real math is all too often seen as company spin, especially once eyebrows are already raised.
Turn your renewals rate into a renewals matrix. Technically speaking, if you’re doing a mix of one, two, and three-year deals, then your renewal rate isn’t a single rate at all, but a matrix. Do you want to explain that to investors?
Tee you up for price knock-off at sales time. Some buyers, particularly those in private equity (PE), will look at the relatively large long-term deferred revenue balance as “cashless revenue” and try to deduct the cost of it from an acquisition price . Moreover, if not discussed up front, someone might try to knock it off what you thought was a final number.
Can reduce value for strategic acquirers. Under today’s rules, for reasons that I don’t entirely understand, deferred revenue seems to get written off (and thus never recognized) in a SaaS acquisition. So, ceteris paribus, an acquirer would greatly prefer non-prepaid TCV (which it will get to recognize over time) to deferred revenues (which it won’t) .
Can give pause to strategic acquirers. Anything that might cause the acquirer to need to start release pro forma financials has the potential to scare them off, particularly one with otherwise pristine financial statements. For example, having to explain why revenue from a recently acquired startup is shrinking year-over-year might do precisely that .
Can “inflate” revenues. Under ASC 606, multi-year, prepaid deals are seen as significant financing events, so — if I have this correct — revenue will exceed the cash received  from the customer as interest expense will be recorded and increase the amount of revenue. Some buyers, particularly PE ones, will see this as another form of cashless revenue and want to deflate your financials to account for it since they are not primarily concerned with GAAP financials, but are more cash-focused.
Will similarly inflate remaining performance obligation (RPO). SaaS companies are increasingly releasing a metric called RPO which I believe is supposed to be a more rigorous form of what one might call “remaining TCV (total contract value)” — i.e., whether prepaid or not, the value of remaining obligations undertaken in the company’s current set of contracts. If this is calculated on a GAAP basis, you’re going to have the same inflation issue as with revenues when multi-year, prepaid deals are involved. For example, I think a three-year 100-unit deal done with annual payments will show up as 200 units of RPO but the same deal done a prepaid basis will show up as 200-something (e.g., 210, 220) due to imputed interest.
Impede analysis of billings. If you want to go public or get acquired by a public company, financial analysts are going to focus on a metric called calculated billings  which is equal to revenue plus the change in deferred revenue for a given time period. For SaaS purist companies (i.e., those that do only annual contracts with one-year prepays), calculated billings is actually a pretty good measure of new sales. Multi-year prepays impede analysis of billings because deferred revenue ends up a mishmash of deals of varying lengths and is thus basically impossible to interpret . This could preclude an acquisition by a SaaS purist company .
More than anything, I think when you take these factors together, you can end up with complexity fatigue which ultimately takes you back to whether it’s a normal industry practice. If it were, people would just think, “that’s the complexity endemic in the space.” If it’s not, people think, “gosh, it’s just too darn hard to normalize this company to the ones in our portfolio  and my head hurts.”
Yes, there are a few very good reasons to do multi-year, prepaid deals , but overall, I’d say most investors and acquirers would prefer if you just raised a bit more capital and didn’t try to finance your growth using customer prepayments. In my experience, the norm in enterprise software is increasingly converging to three-year deals with annual payments which provide many of the advantages of multi-year deals without a lot of the added complexity .
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 While 10% is indeed high, it makes the math easier for the example (i.e., the three-year cost is 331 vs. 300). In reality, I think 5-6% is more reasonable, though it’s always easier to reduce something than increase it in a negotiation.
 Especially if your competition primes them by saying — “those guys are in financial trouble, they need cash, so they’re going to ask you for a multi-year, prepaid deal. Mark my words!”
 Think: “I know the formula you’re using says ’18 months’ but I’m holding an invoice (or, if you wait 30 days, check) in my hand for more than the customer acquisition cost.” Or, “remember from b-school that payback periods are supposed to measure risk, no return, and to do so by measuring how long your money is on the table.” Or, “the problem with your formula is you’re producing a continuous result in a world where you actually only collect modulo 12 months — isn’t that a problem for a would-be ‘payback’ metric?”
 Renewal rate = 1 – churn rate
 That is, that a 79% three-year rate is ergo better than a one-year 90% renewal rate.
 Arguing that while the buyer will get to recognize the deferred revenue over time that the cash has already been collected, and ergo that the purchase price should be reduced by the cost of delivering that revenue, i.e., (COGS %) * (long-term deferred revenue).
 If the acquired company does a high percentage of multi-year, prepaid deals and you write off its deferred revenue, it will certainly reduce its apparent growth rate and possibly cause it to shrink on a year-over-year basis. What was “in the bag revenue” for the acquired company gets vaporized for the acquirer.
 Or our other subsidiaries, for a strategic acquirer.
 Known either as billings or calculated billings. I prefer the latter because it emphasizes that it’s not a metric that most companies publish, but one commonly derived by financial analysts.
 We are testing the limits of my accounting knowledge here, but I suppose if deferred revenue is split into current and long-term you might still be able to get a reasonable guestimate for new ARR sales by calculating billings based only on current, but I’m not sure that’s true and worry that the constant flow from long-term to current deferred revenue will impede that analysis.
 A purist SaaS company — and they do exist — would actually see two problems. First, potential year-over-year shrinkage due to the write-down discussed in footnote . Second, they’d face a dilemma in choosing between the risk associated with immediately transitioning the acquired company’s business to annual-only and the potential pollution of its otherwise pristine deferred revenue if they don’t.
 Minute 1:28 of the same video referenced in the prior link.
 Good reasons to do multi-year, prepaid deals include: (a) they are arguably a clever form of financing using customer money, (b) they tend to buy you a second chance if a customer fails in implementation (e.g., if you’ve failed 9 months into a one-year contract, odds are you won’t try again — with a three-year, prepay you might well), (c) they are usually a financing win/win for both vendor and customer as the discount offered exceeds the time value of money.
Happily, in the past several years startups are increasingly recognizing the value of strong sales enablement and sales productivity teams. So it’s no surprise that I hear a lot about high-growth companies building onboarding programs to enable successfully scaling their sales organizations and sustain their growth. What’s disappointing, however, is how little I hear about the hiring profiles of the people that we want to put into these programs.
Everyone loves to talk about onboarding, but everybody hates to talk about hiring profiles. It doesn’t make sense. It’s like talking about a machine — how it works and what it produces — without ever talking about what you feed into it. Obviously, when you step back and think about it, the success of any onboarding program is going to be a function of both the program and people you feed into it. So we are we so eager to talk about the former and so unwilling to talk about the latter?
Talking about the program is fairly easy. It’s a constructive exercise in building something that many folks have built before — so it’s about content structuring, best practice sharing, and the like. Talking about hiring profiles — i.e., the kind of people we want to feed into it — is harder because:
It’s constraining. “Well, an ideal new hire might look like X, but we’re not always going to find that. If that one profile was all I could hire, I could never build the sales team fast enough.”
It’s a matter of opinion. “Success around here comes in many shapes and sizes. There is not just one profile.”
It’s unscientific. “I can just tell who has the sales gene and who doesn’t. That’s the hardest thing to hire for. And I just know when they have it.”
It’s controversial. “Turns out none of my six first-line sales managers really agree on what it takes — e.g., we have an endless debate on whether domain-knowledge actually hurts or helps.”
It’s early days. “Frankly, we just don’t know what the key success criteria are, and we’re working off a pretty small sample.”
You have conflicting data. “Most of the ex-Oracle veterans we’ve hired have been fish out of water, but two of them did really well.”
There are invariably outliers. “Look at Joe, we’d never hire him today — he looks nothing like the proposed profile — but he’s one of our top people.”
That’s why most sales managers would probably prefer discussing revenue recognition rules to hiring profiles. “I’ll just hire great sales athletes and the rest will take care of itself.” But will it?
In fact, the nonsensicality of the fairly typical approach to building a startup sales force becomes most clear when viewed through the onboarding lens.
Imagine you’re the VP of sales enablement:
“Wait a minute. I suppose it’s OK if you want to let every sales manager hire to their own criteria because we’re small and don’t really know for sure what the formula is. But how am I supposed to build a training program that has a mix of people with completely different backgrounds:
Some have <5 years, some have 5-10 years, and some have 15+ years of enterprise sales experience?
Some know the domain cold and have sold in the category for years whereas others have never sold in our category before?
Some have experience selling platforms (which we do) but some have only sold applications?
Some are transactional closers, some are relationship builders, and some are challenger-type solution sellers?”
I understand that your company may have different sales roles (e.g., inside sales, enterprise sales)  and that you will have different hiring profiles per role. But you if you want to scale your sales force — and a big part of scaling is onboarding — then you’re going to need to recruit cohorts that are sufficiently homogeneous that you can actually build an effective training program. I’d argue there are many other great reasons to define and enforce hiring profiles , but the clearest and simplest one is: if you’re going to hire a completely heterogeneous group of sales folks, how in the heck are you going to train them?
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 Though I’d argue that many startups over-diversify these roles too early. Concretely put, if you have less than 25 quota-carrying reps, you should have no more than two roles.
 Which can include conscious, deliberate experiments outside them.
I had the pleasure of working with Elay Cohen during my circa year at Salesforce.com and I reviewed SalesHood, his first book, over four years ago. We were early and happy customers of the SalesHood application at Host Analytics. I’m basically a big fan of Elay’s and what he does. With the average enterprise SaaS startup spending somewhere between 40% to 80%+ of revenue on sales, doesn’t it make sense to carve off some portion of that money into a Sales Enablement team, to make sure the rest is well spent? It sure does to me.
I was pleased to hear that Elay had written a second book, Enablement Mastery, and even more pleased to be invited to the book launch in San Francisco several weeks back. Here’s a photo of Cloudwords CEO Michael Meinhardt and me at the event.
I have to say I simply love salesops and sales productivity people. They’re uniformly smart, positive, results-oriented, and — unlikely many salespeople — process-oriented. A big part of the value of working with SalesHood, for a savvy customer, is to tap into the network of amazing sales enablement professionals Elay has built and whose stories are profiled in Enablement Mastery.
I read the book after the event and liked it. I would call it a holistic primer on sales enablement which, since it’s a relatively new and somewhat misunderstood discipline, is greatly in need in the market.
Elay’s a great story-teller so the book is littered with stories and examples, from his own considerable experience building the impressive Salesforce.com sales productivity team, to the many stories of his friends and colleagues profiled in the book.
Some of the more interesting questions Elay examines in Enablement Mastery include:
Why sales enablement?
Where to plug it organizationally? (With pros and cons of several choices.)
What to do in your first 90 days in a new sales enablement role?
What to look for when hiring sales enablement professionals?
How to get organizational (and ideally strong CEO) buy-in to the sales enablement program?
How sales enablement can work best with marketing? (Hint: there is often tension here.)
What is a holistic process map for the sales enablement function?
How to measure the sales enablement function? (And it better be more than instructor ratings on the bootcamp.)
How to enable front-line managers to be accountable for their role enabling and developing their teams? (Elay wrote a whole chapter on this topic.)
What core deliverables need to be produced by the marketing and sales productivity teams?
Elay, never one to forget to celebrate achievement and facilitate peer-level knowledge sharing, also offers tips on how to runs sales kickoffs and quota clubs.
Overall, I’d highly recommend Enablement Mastery as a quick read that provides a great, practical overview of an important subject. If you’re going to scale your startup and your sales force, sales enablement is going to be an important part of the equation.
Most salespeople are familiar with so-called BANT qualification: does the prospect have Budget, Authority, Need, and Timeframe in order to make a purchase? While Solution Selling purists dislike BANT (arguing that it’s great way to find existing deals that have been already rigged for the competition), most sales organizations today use BANT, or some form of it, for lead qualification and scoring. Typically, in an enterprise SaaS company, a sales development rep (SDR) will not pass an opportunity to sales unless some form of BANT qualification has been performed.
The purpose of this post is to drill into how you should do price (i.e., budget) qualification, which I believe is far more subtle than it appears:
People can sometimes spend far more than they are spending (and/or imagine they can spend) once they realize the total cost of owning their current system and/or the total benefits of owning a superior one. Great salespeople, by the way, help them do precisely that.
SDRs barking average configuration prices or, worse yet, price list items (e.g., “enterprise edition has a base fee of $100K/year plus $2.5K per admin user/year”) can either scare away or anchor bias prospects to given price points.
For example, let’s say that your company sells a high-end planning/budgeting system (average cost $250K/year) and you find a prospect who is spending $50K/year for their existing planning/budgeting system, which isn’t delivering very good results.
It’s inflexible and doesn’t allow the VP of Finance to make the reports the CFO repeatedly requests.
It’s arcane and requires highly paid consultants to come several weeks/quarter in order to make changes and performance maintenance on the basic setup.
It’s slow, so users are frustrated trying to load their budgets, and instead mail them to Finance via spreadsheets, asking Finance to do the loads, creating a significant amount of incremental work for the finance team.
How are we supposed to price qualify this opportunity? Ask the prospect:
How much they want to spend? Answer: as little as possible.
How much budget they have? Answer: $50K.
How much they are paying for the existing system? Answer: $50K.
As an SDR, are you supposed to pass this ostensibly $50K opportunity to a salesrep who normally does $250K deals ? If you’re smart, you know they have the money — those consultants in problem 2 might run $100K/year, they probably have to hire an extra analyst or two to solve problem 3 at $80K/year each, and problem 1 — which is career threatening for the VP of Finance — is, as Mastercard likes to say, “priceless.”
What’s more, what do you say if the prospect tries to price qualify you?
You know, we don’t have a lot of money for this project so I need to know the typical price of your system?
What do you say then? $50K and jeopardize the deal downstream when the salesrep proposes $250K? $250K and possibly scare them off at the start — even though you know the total cost of their existing system might be bigger than that today?
I’ve always liked Tiffany’s as a reference point for this. As you may know, most Tiffany’s stores are divided in two. On one side — typically the smaller, more crowded one — you can buy jewelry from $200 to $2,000. Then there’s the other side, where the security guard hangs out, that’s bigger and less crowded, and where the jewelry costs from $10K to $200K+.
The thing I find funny about Tiffany’s is that somehow, magically, most people seem to figure out what side they belong on. And when they don’t, the staff don’t ask you how much money you have — they tell you broad price ranges on each side of the store.
The keywords, in an enterprise software context, being “broad” and “ranges.” So, in our scenario, I think the best initial answer to the pricing question is:
That’s a hard question to answer at this point. Each customer and every situation is different. Our systems scale across a broad range of needs and, as a result, prices typically range from $50K on the low end to $500K+ on the high-end. Based upon what I know about your situation, I’d recommend that you have a conversation with one of our account managers so we can better understand your challenges, our ability to meet them, and establish a clearer price point for so doing.
Your goal is to neither scare them off nor anchor bias them to a lower price (“sure we can do that for $50K”) that later results in disappointment or, worse yet, a feeling your company can’t be trusted.
Finally, the great part about the Tiffany analogy is that most enterprise software companies actually do have both sides of the store — corporate sales and enterprise sales, often each selling different and appropriately priced editions of the software. While few SaaS companies actually segment between the two based on deal size, they typically use other variables that are intended to act as direct proxies for it.
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 The answer in most SDR models would be “yes, just pass it” so the hard part isn’t the decision to pass it, but how to do so without anchor biasing the prospect to a $50K price. (“Whoa, the SDR told me you could do this for $50K; he asked how much budget I had and I told him precisely that.”)
December is when most SaaS startups are closing out the year, trying to finalize next year’s operating plan (hint: I know a software company that can help with that), starting to get a clear view on which salespeople are going to make their number, and thus beginning the process of figuring out who to invite to the annual “Quota Club” (a.k.a. President’s Club, Achiever’s Club, or Sales Club).
In this post, I’ll discuss why Quota Clubs are so controversial and how I learned to think about them after, frankly, way too much time spent in meetings discussing a topic that I view nearly as difficult as religion or politics.
Quota Club is always highly controversial:
It’s exclusionary. Consider this quote my friend Lance Walter heard years ago (I think at Siebel): “the last thing I want at Quota Club is to be lying on a chaise lounge by the pool, roll over, and see some effing marketing guy next to me.” Moreover, the sales personality tends not to blend well with other departments, so a well-intentioned attempt to send the top documentation writer on a trip with 30 sales people is as likely to be perceived as punishment as it is reward.
It’s expensive. The bill can easily run in the hundreds of thousands of dollars for companies in the tens of millions of annual recurring revenue (ARR) and in the millions for those above that. That doesn’t help your customer acquisition cost (CAC) ratio.
Even the basics of qualification are somehow complicated. Now, on the face of it, you might that “making quota” would be sufficient to qualify for Quota Club, but in some people’s minds it’s not: “no, at this company we expect people to make quota, so Quota Club should only be for those at 120% of quota.” (The idea that maybe quotas are set too low doesn’t seem to occur to these people.) That’s not to mention minimum attainment rules required to avoid accidents with ramped quotas (e.g., a new rep who sells $400K on a $200K quota.) Or the intractable problem in decentralized organizations where Country A runs large numbers of junior reps at low quotas while Country B runs small numbers of senior reps at high quotas — so someone who sells $1.25M in Country A attends club while someone who sells $1.75M in Country B does not.
Invitations beyond quota-carrying reps (QCRs) are always controversial. Do consultants who hit their utilization target get invited? (No.) Do sales development reps (SDRs) who hit their opportunity goals? (No.) On what basis do sales consultants (SCs) get invited? (Depends on SC model.) Do CSMs who hit their renewals goals? (Maybe, depends on your customer success model and how much selling they do.) What about the executive staff? What about a regional VP or CRO when he/she didn’t make their number? Who presents the awards to their people? And this isn’t to mention companies that want to inclusionary and invite some hand-picked top performers from other departments.
Guest policies can be surprisingly tricky. Normally this is simple — each qualifier gets to invite a spouse or partner, with the implication that the company wants to reward the chosen guest for the sacrifices they made while the qualifier was working long hours on the big deal and doing extended travel. What if the guest is a friend as opposed to spouse or partner? (Well, that’s OK if not quite the intent.) But what if that friend is coworker? (Hum, less so.) What if that friend is another quota-carrying rep who failed to make their number? (Even harder.) Or, changing angles, what if their spouse is a sales rep at your top competitor? What if they run competitive intelligence at your top competitor?
Opinions diverge on family policy. Should qualifiers be encouraged to bring their children? How about Grandpa to watch them? Are these family members invited to any events or activities? Can their pay their own way on the snorkeling cruise if they want to? Is babysitting covered? Is the reward for spending too much time away from your family a mandatory vacation away from your family?
The business meeting can be a religious issue. Many sales VPs think Club should be a 100% reward — a complete vacation with no work. If so, the CFO will take an income tax withholding from each qualifier. Hence most companies have a business meeting that keeps Club a business affair — and off the W-2s of the attendees. Some sales VPs thus think: do the absolute minimum to stave off the tax man. More enlightened folks think: what a great opportunity to meet with our top performers to talk about the business.
People can’t even agree on the dress code. Should the awards dinner be California Casual, Summer Soiree, Creative Black Tie, Brooklyn Formal, or just a regular Black Tie Affair. (And where do they get these names?)
Picking the location is difficult. The Caribbean isn’t exotic for East Coasters and Hawaii isn’t exotic for West Coasters. Some people think Clubs should always have a beach location, some think European cities are more exotic. (By the way, try to find a reliably warm beach location in February or April.) Should you invest your money in flights to a relatively inexpensive place or get cheaper flights to a more popular and presumably expensive place? And this isn’t to mention any debates about hotel brands and their significance.
In-room gifts can jack up the price. Club planners seem to love to include special gifts each night. A welcome bottle of champagne the first night, a beach kit the second, a Tumi backpack the third, and a farewell mini-Margarita kit can quickly add up to $500 in extra cost per qualifier.
Planning is intrinsically difficult. It’s inherently hard to plan when you have 30 QCRs and you’re not sure if 10, 20, or 30 are going to qualify — this is particularly difficult when you plan sales-only Clubs because you have less to fudge in terms of non-QCR attendees. What do you do mid-year when you’ve planned for 20 and forecast that only 10 are going to make it? Devalue Club by dropping the qualification bar for some reps or (the same act seen through a diametrically opposed lens) preserve the incentive value of Club by making it a realistic goal for the reps who otherwise had no realistic hope?
Holy Cow, just making this list gets my blood pressure up. Are we sure we want to do this? My answer remains yes.
Most startups, once you’re beyond $5M to $10M in ARR, should have some sort of Quota Club. Here is my advice on how to do it:
Define it as the CEO’s club. You can call it Quota Club or President’s Club, but make it clear to everyone that it’s the CEO’s event. It’s a big expense (with a huge opportunity to waste a lot of money on top) and it’s full of decisions that are both subjective and polarizing. Listen to what your current sales VP wants, but make those decisions yourself.
Start small. At MarkLogic our first Quota Club was something like 10-15 people for two nights at the Bellagio in Vegas.
Leave room to make it incrementally better each year. This is what I call Narva’s Rule, after my friend Josh Narva who came up with it. (By the way, had we better applied his rule, we’d have held the first MarkLogic Club at Caesar’s Palace, saving the Bellagio for the following year — but at least we got the two days part right, leaving room to later expand to three.) Don’t cover every bite or drink that goes in someone’s mouth in the early years: folks can get a breakfast croissant at Starbucks or a drink by pool on their own nickel. You don’t need a group breakfast and a pool party to cover it.
Be inclusive of other functions. This lets you recognize a few folks outside of non-quota-carrying sales each year. (It also makes planning a little easier.) Don’t be so inclusive that QCR/QCM attendance is less than 50%. But take all your qualifying QCRs and quota-carrying managers (QCMs). Add your selected SCs. Add your qualifying CSMs (according to whatever rules you establish). Then perhaps add a few folks — based on their helpfulness to sales — maybe from consulting, marketing, product, or salesops. Helpful e-staff are also good candidates and can benefit from the direct feedback they will get. Think: I’d rather run a bit less luxurious event and invite a few more folks from across the company than the converse.
Do it at a beach in April, alternating East and West coasts. Or, if you have a strong ski contingent, alternate between a ski resort in February and a beach in April. Beware the sales VP will gripe about too much first-quarter time in meetings with a January kickoff and February Club. But who says you can’t still ski in April?
Be family-friendly. Be clear that kids and family are welcome at the event (at the attendee’s cost) and at most, but not all, activities. If you have two dinners, make one a bring-the-clan affair and make the awards dinner spouse/guest only. Let family opt-in to an any easily inclusive activities like snorkel trips. Help folks find and/or pool babysitting.
Take the business meeting seriously. Run the meeting on the morning of day 2. I like doing attendee surveys in advance (e.g,. via SurveyMonkey) and then doing a detailed review of the results to drive discussion. This sets the tone that the event is for both fun and business and that the company isn’t going to miss the chance to have a great conversation with its top performers. Discussing business at Club isn’t a party foul. It’s part of why you have Club.
Stay aligned with event planner, particularly in the early days when you are trying to run a discount event as they will, by default, try to run a standard one. Skip the bells and whistles like custom event logos, fancy signage, custom beach bags and towels, in-room gifts, and all-meals coverage. Define what your program is going to be and deliver against that expectation. Then make it better next year.
Make and hold to a sensible budget. Know, top of mind, the total event cost and cost/attendee — and remember that cost/qualifier is about double the cost/attendee, since each qualifier invites a guest. As part of Narva’s Rule, increase that cost every year. Because I like to make things concrete, I think cost/attendee should range from $2.5K to $5.0K as a function of your typical salesperson’s on-target earnings (OTE) and your company’s lifecycle. This means the “prize value” of the Quota Club invitation is $5K to $10K, equivalent to a roughly 2-4% bonus against typical OTEs. On this sort of budget, you can offer a very nice, high-quality event, but you won’t be doing the truly unique, memorable, over-the-top stuff that some CROs like.
If you want to have an ultra-club do what we did at BusinessObjects. While during most of my tenure at BusinessObjects we ran in nice-but-not-crazy mode, towards the end of my tenure there was a movement to make Club truly exceptional and unique. That first led to discussions on how to trim down Club in order to increase the spend/qualifier, including potentially increasing the attainment bar from 100% to 125% and ending our inclusive philosophy. I’m glad we didn’t do that. Instead, we ended up creating an intimate ultra-club as a few days tacked on to the end of Quota Club. It provided some niche cachet when the attendees were whisked off onto their continuation trip. It allowed “the movement” to do some truly exceptional things for a small number of people. Most of all, I think we correctly figured out who the “right people” were — not the one-hit wonder reps who had one big year, but instead the consistent reps around which you truly build a company. I believe we set 5 years of consecutive Quota Club attainment as the criteria for an invitation to the ultra-club. I’d invest extra in those people any day of the week.
While most companies put real thought into how they present numbers in their post-quarter board decks and other management reports, one area in which you’ll find a lack of discipline is in how they present quarterly sales forecasts to the board.
They’re typically done as a quick update email to the board. They’ll usually mention the forecast number this quarter (but only usually) and only sometimes include the plan and almost never include the prior-sequential or year-over-year quarter. Sometimes, they’ll be long, rambling updates about deals with no quarterly number at all — only ARR per deal on an list of deals with no idea which permutations are likely to close. Sometimes, they’ll confuse “commit” (a forecast category status) with “booked QTD” — a major confusion as “commit” is only “done” in the eyes of an optimistic sales VP — I have little interest in the former (unless it’s part of a general, proven stage-weighted expected value) and a lot of interest in the latter (what actually has been sold thus far). They’ll often use terms like “forecast,” “commit,” “upside,” “worst case,” and “best case” without defining them (and questions about their definitions are too often met with blank stares or squishy replies).
In this post, I’ll discuss how to present these forecasts better. If you follow this advice, your board will love you. Well, they’ll love your communication at least. (They’ll only love you if the numbers you’re presenting are great to boot.)
The Driving Principles
I think CEOs write these hastily dashed-off forecast emails because they forget some basics. So always remember:
Your board members have day jobs. They’re not necessarily going to remember your plan number, let alone what you did last year or last quarter. So help them — provide this context. (And do the percent math for them.)
Your board members care about deals, but only at a summary level and only after they’ve been given the numbers. They typically care about deals for two reasons: because they might be able to help if they know an executive at the target company and because they like to see if the deals that close are the same ones management said were “key deals” all quarter.
Communication with your board members will be more effective if you have standard definitions for “forecast” or “best case.” I like to define “forecast” (at the VP of sales level) to be 90% confidence in beating and “best case” to mean 20% confidence in beating. This means you get to miss your forecast once every 2.5 years and you should beat your best case once every 5 quarters. See How to Train Your VP of Sales to Think About the Forecast for more.
After hearing a forecast the next question most board members will have is about pipeline coverage. Ergo, why not answer that up front and provide them with the current quarterly pipeline and a to-go coverage ratio to get to plan. To-go coverage = (current quarterly pipeline) / (new ARR bookings needed to get to plan).
How to Present a SaaS Company Quarterly Forecast
So, now that we’ve covered the logic behind this, let’s show you the spreadsheet that I’d embed or attach in a short email to the board about the current quarter forecast.
I’m Dave Kellogg, technology executive, investor, independent director, adviser, and blogger. I’m also a hiker, oenophile, and fly fisher.
From 2012 to 2018, I was CEO of cloud enterprise performance management vendor Host Analytics, where we quintupled ARR while halving customer acquisition costs in a highly competitive market, ultimately selling the company in a private equity transaction.
Previously, I was SVP/GM of Service Cloud at Salesforce and CEO at NoSQL database provider MarkLogic. Before that, I was CMO at Business Objects for nearly a decade as we grew from $30M to over $1B. I started my career in technical and product marketing positions at Ingres and Versant.
I love disruption, startups, and Silicon Valley and have had the pleasure of working in varied capacities with companies including ClearedIn, FloQast, GainSight, Lecida, MongoDB, Recorded Future, Tableau and TopOPPs. I currently sit on the boards of Alation (data catalogs) and Nuxeo (content management) and previously sat on the boards of agtech leader Granular (acquired by DuPont for $300M) and big data leader Aster Data (acquired by Teradata for $325M).
I periodically speak to strategy and entrepreneurship classes at the Haas School of Business (UC Berkeley) and Hautes Études Commerciales de Paris (HEC).