Revenue Forecasting: 6 Numbers B2B Leaders Must Model

TL;DR

Six calculations turn a revenue target into a forecast your team can work against. The first three tell you what you can afford to do. The last three tell your sales team what to do Monday morning. 

• Your revenue number is an output. It comes from what you spend to acquire customers, what you spend to keep them, whether your book of business is growing or shrinking, and how efficient your motions are at creating opportunity. 
• Forecasting runs top-down and bottom-up. Start with your existing book of business, apply your historical expansion rate, validate it account by account, and calculate the difference your sales team has to close. 
• Pipeline coverage comes from three numbers: win rate, sales velocity, and average transaction size. Eight new accounts a year at a 50 percent win rate means four to six net new opportunities in pipeline every quarter. 
• Each motion gets measured on its own. A trade show and a paid search campaign can sit inside the same acceptable cost of growth while one of them produces four times the opportunities. 
• All six numbers cascade into one scorecard your business development team can read. 
• When you miss a number on the scorecard, that is a math problem, not a sales problem. Math problems can be solved. 

Why Knowing Your Cost of Growth Is Not Enough 

Knowing your cost to acquire a customer is $8,500 does not tell you how many new accounts you need this year. Knowing your book of business is contracting at 8 percent does not tell your business development rep what to chase. 

Those numbers inform you about what you can do. They do not tell your team what to do on Monday morning. 

So what do you need to do once you have the Cost of Growth figured out? 

Unfortunately, what usually happens instead is this.  

• There is a number from last year.  
• There is a desire to grow 15 or 20 percent.  
• Someone writes it on a whiteboard and calls it a plan.  
• The sales team then hopes the activity they are doing is good enough to hit it. 

That is hopecasting with a dry erase marker. 

A forecast is different.  

A forecast connects your existing book of business to your target, then breaks that target down into a number of accounts, a number of opportunities, and a number of leads.  

Every number in the chain comes from math your team can follow. 

The Six Calculations 

1. Cost of growth. What it costs to bring on new business, expressed as a percentage of the free cash flow your sales generate. 
2. Cost of retention. What it costs to hold onto the business you already have. 
3. Expansion or contraction ratio. Whether your existing accounts are growing or shrinking. 
4. The revenue bridge. Your existing book of business plus your expansion rate, converted into the number of new accounts you have to land this year. 
5. Pipeline coverage. How many net new opportunities you need in pipeline each quarter to produce those accounts. 
6. Per-motion efficiency. How many opportunities each of your motions produces, and what each one costs to run. 

The first three are covered in What Does It Cost You to Grow? Do the Math. If you have not calculated them yet, start there. Numbers four through six are built on top of them, and this article covers all three. 

How Many New Accounts Do You Need This Year? 

Forecasting runs in two directions at the same time. 

Top-down, you start with what you know is true. You have an existing book of business, and you have an expansion or contraction rate. Build forward from those to what is mathematically achievable. 

Bottom-up, you take your tier one and tier two accounts and build an account plan and a projection for each one. That validates the top-down number account by account. 

Going account by account has a second benefit. Building a plan for each account is account management, and account management produces expansion. You find the accounts buying one product line when they could buy three, or the ones due for a renewal conversation nobody has scheduled. You grow the book of business while you are validating the forecast. 

Say your book of business last year was $1 million and you lost no accounts. Your P&L shows you have expanded 10 percent a year historically, and nothing extraordinary is happening in the economy. 

• Step one. Project your existing book of business. A 10 percent expansion rate on $1 million puts you at $1.1 million with no change in what you are doing. 
• Step two. Calculate the difference to your target. If your goal is $1.5 million, your sales motion has to produce $400,000. 
• Step three. Add your tier three revenue. Tier one and tier two accounts are your strategic and growth accounts. Tier three accounts are transactional and dormant. They come and go, but there is generally a consistent amount of business there you can rely on, and there is work behind it. You answer the email replies. You give the quotes. Say tier three brings in another $100,000 every year. You are now at $1.2 million, and you need $300,000 in new business. 
• Step four. Convert the difference into a number of accounts. If your average annual account size is $50,000, then $400,000 divided by $50,000 is eight accounts. Divide the $400,000, not the $300,000. It is better to plan for the worst and hope for the best. Eight accounts at $50,000 give you $400,000 in potential when you need $300,000, and that margin gives you a strong chance of finishing the year at $1.5 million. 

One caution on timing. If your fiscal year runs with the calendar year, an account landed in January produces revenue across 11 months. The same account landed in September produces revenue across one quarter. Eight accounts is your starting point, and when you land them changes what they deliver this year. 

You now have a concrete number your revenue team can chase, built top-down with your expansion rate and validated bottom-up account by account. 

How Much Pipeline Do You Need to Land Those Accounts? 

Eight accounts tell you what to bring on. It does not tell you how. For that, you need your pipeline, which means you need a CRM with clean data in it. 

Three numbers come out of that pipeline. Those three legs are the stool you have for doing revenue forecasting. 

1. Win rate. What percentage of the deals that enter your pipeline do you win? 
2. Sales velocity. How long does it take to win a deal from the day it enters the pipeline? 
3. Average transaction size. What does the first purchase bring in? In B2B, a lot of accounts do not sign up for their full account value on the first transaction. You land them, then you expand them. 

Say your win rate is 50 percent, and your sales velocity is 90 days, which is one quarter. 

• Eight accounts across four quarters is two to three wins per quarter. 
• At a 50 percent win rate, two to three wins require four to six net new opportunities in the pipeline. 

One annual target has become a quarterly requirement. Your sales team now knows two numbers instead of one. Close two to three per quarter and put four to six net new opportunities into the pipeline each quarter to feed those wins. 

Which of Your Motions Are Producing? 

The next question is how you get four to six interested businesses into the pipeline every quarter. 

The cost of growth calculation in part one put marketing, outbound sales, trade shows, and software into one total. The per-motion calculation pulls that total apart and looks at each motion on its own to see whether it produces enough net new interest to feed the model. 

Say you run two motions in the first quarter. 

• Two trade shows produce five leads each, for 10 leads. 
• Paid search produces 10 leads across the quarter. 

That gives you 20 marketing qualified leads for sales to qualify. Now apply the conversion rate underneath that volume. 

• Volume Metric: 20 marketing qualified leads 
• Conversion rate from lead to opportunity: 25 percent 
• Result: five opportunities 

Five falls inside the four to six you need, so the model works at the total level. 

Now look at where those five came from. Say four came from the trade shows and one came from paid search. Both motions sit inside a cost of growth you were comfortable with, and one of them is doing four times the work. The cost of growth on the paid search motion is high, and you can see it because you measured the motions separately instead of together. 

Run this across everything you do: trade shows, paid ads, outbound, customer events. Each one gets a volume number, a conversion rate, a cost, and an efficiency percentage. 

Sometimes a company has a mix of motions with an overall cost of growth that looks fine, and one tactic inside that mix carries a 300 percent cost of growth. Running the math per motion is what makes that tactic visible. Cut it, and move the money to the motions producing opportunities. 

What About the Book of Business You Already Have? 

Everything above describes an acquisition pipeline. You calculated how many new accounts you need, the motions that produce them, and the conversion math in between. 

Your $1.2 million of existing business needs the same discipline. Often that is a separate pipeline with separate motions and its own coverage math, run by account management. You do that work, so you have visibility into whether the $1.2 million is happening, rather than assuming it will. 

That is a bigger topic than one article can cover properly. The point is that both sides of the revenue factory get measured, not just the acquisition side. 

How to Put the Six Numbers on a Scorecard 

Your business development rep does not think in contraction rates or acquisition ratios. The model was never built for them. The scorecard is. 

Take the outputs of the six calculations and put them on one page, with a target for each period: 

• Marketing qualified leads required per month 
• Conversion rate from marketing qualified lead to opportunity 
• Net new opportunities required per quarter 
• Wins required per quarter 
• New accounts required per year 

Then mark each one: 

• Green means you are on the number. 
• Yellow means risk is developing. 
• Red means you are at risk of missing, and the team solves it today. 

Every target on that page traces back to the six calculations, the volume numbers, and the conversion rates. Everyone on the team understands where the number came from because they can follow the math. 

That is what changes the weekly conversation. When the team misses a number, it is a math problem, not a sales problem. 

If your marketing qualified lead volume is below target while your conversion rate is holding, the answer is not to try harder. The question becomes which motion has to produce more marketing qualified leads, and the team solves that specific problem. 

The same logic applies to improvement. You do not have to spend more to get more customers. Move your close rate from 25 percent to 50 percent, and you double the output of the pipeline you already have. That takes sales coaching and qualification discipline, and the model tells you what that investment is worth. 

Your Revenue Number Is an Output 

Here is what I want you to take from these two articles. 

Your revenue number is an output. It is the result of what you spend to acquire customers, what you spend to keep them, whether your existing book of business is growing or shrinking, how efficient your motions are at creating opportunity, and what your team does every day to feed the pipeline. 

A lot of traditional B2B companies manage from the prior year. They celebrate 8 percent growth on a territory that could produce three times as much. They acquire new accounts to replace ones that have gone dormant. They run a motion nobody has ever measured. 

You have a different option. 

1. Build the model. Work through all six calculations. 
2. Know your numbers. Put them where your team can see them. 
3. Run the system. Solve the math problem the scorecard shows you. 

Do that, and every miss becomes a specific problem with a specific fix. That is what a revenue factory looks like, and how sustainable growth is engineered. 

The Calculations Are Already Built 

All six calculations are built into Roadmap's Revenue Factory Toolkit. The formulas are done, so put your numbers in and see where you stand.

Benchmark Your Metrics 

The Go-To-Market Readiness Index scores you on the Metrics and Forecasting side of your business, and it asks the same questions this article does. Do you model your pipeline coverage? Do you measure the efficiency of each motion separately? Do you know how many accounts you have to land this year? You will see how you score against your peers, and you get a one-on-one review of the results. It is free, and it takes very little time.