Here's a scientific approach to building predictable revenue for your SaaS business
NOTE: This article was originally published in Avoma .
If you were to analyze the common attributes of SaaS businesses that failed, "higher churn" or "lack of a proper business model" will almost always rank among the top five reasons behind their downfall. These factors indicate a SaaS company's failure to build a predictable, scalable business.
You must have heard "predictable revenue" being tossed around in SaaS circles like some magic pill that can turn a scrappy startup into a thumping Unicorn. But is it realistic to predict revenue—something that depends on many things outside of your control? And if it is, how can you build predictable revenue?
The short answer is that it's entirely in your control to bring predictability to your?revenue operations . However, it's more nuanced than popping a magic pill and solving all your revenue problems.
Building a recurring revenue engine is the lifeblood of any SaaS business. And repeatable revenue comes when you can build predictable habits and processes.?
In that sense, revenue generation is exactly like science—an area of study that assumes a hypothesis and requires us to conduct experiments to test its validity.
In a science lab, mixing two hydrogen (H) atoms and one oxygen (O) atom always results in a water molecule. In the context of SaaS, building predictable routines and mixing them almost always lead to predictable revenue.
To answer the "how" part of the question—building a predictable revenue always comes down to creating repeatable systems, experimenting with them, and executing them in a controlled business environment.
In this post, we hypothesize that if "revenue predictability" is the outcome that you want to achieve—you will need to experiment with the following ideas and processes repeatedly.
TL;DR - how to build revenue predictability?
You are what you repeatedly do. Excellence, then, is not an act but a habit. It's about daily habits, not about the end goals. So, create a repeatable process for yourself that you can do every day without fail.?
Focus on actions you control rather than putting all the pressure on results that might not come.
Building predictable revenue - taking a scientific approach
A scientific experiment always needs five things to begin: observations, questions, hypotheses, methods, and results.
In our case:
Building a truly predictable revenue engine boils down to what processes you have and how much control you have over these processes. The more predictable your processes are—the better your chances to achieve revenue predictability. In addition, greater control over these processes ensures a high likelihood of success.
Let's look at all the methods that your SaaS businesses will need to achieve predictable revenue.
Step 1: Use ‘backcasting’ to benchmark a predictable revenue
As one of the fundamental principles in strategic business planning, backcasting is also a popular mental model for moonshot thinking. It is a concept that great minds like Elon Musk or the team at Google apply to their mindset to achieve goals that are assumed impossible to achieve.?
In simple terms, 'backcasting' is a planning method that clearly defines a desirable future (goal) and then works backward to identify policies and programs that will lead to achieving the desired goal.
If you zoom out and picture a SaaS company's growth, revenue is almost always its most important north star metric, which also predicts its long-term success. Sales and marketing are primarily functions that contribute to revenue.
You need to have a clear revenue goal to arrive at your GTM strategy and your sales and marketing plans. Define your revenue goals first and then work backward to hit that number. Once you answer "what" your bigger goal is and why it matters, it's much easier to figure out "how" to get there.
Backcasting helps you contextualize revenue predictability to your unique business environment. For instance, every company has varying degrees of conversion rate.?
You can't just pick an existing company's growth playbook and start executing its formula to achieve the same results that it did. Instead, refer back to your historical data and calculate the pipeline coverage you need to achieve your goals.?
When you have clarity about your end goal, you can line up your tactics to align with your revenue target. And that leads us to build predictable sales and marketing processes.
Step 2: Build predictable marketing and sales processes
Revenue is not a standalone metric that maps only to the sales function. It is as much attributable to the organic marketing campaigns you run, the processes around?account management ?and customer retention, or the kind of?sales coaching ?programs you invest in. Building predictability around long-enduring GTM processes often contributes directly to building a predictable revenue. Revenue is the income that a SaaS business generates—but only due to investing in long-term play with functions like marketing, sales, and customer success.
You can scientifically break down your revenue goal into a pipeline goal based on your understanding of conversion rates across the stages of your GTM cycle.
The number of prospects interacting with your sales team at any given point indicates the kind of revenue you are looking at in the next month, quarter, or year. Similarly, the number of deals sitting in your sales pipeline or their potential revenue booking size gives you a good idea about forecasting your sales revenue for the foreseeable future.??
In other words—predictable revenue happens only when you have a predictable pipeline.?
And having a predictable pipeline is a direct result of creating a predictable prospecting routine.?
Also, building a predictable pipeline becomes possible only when you have a well-defined ICP (ideal customer persona). The sharper your ICP is, the better success you will have in building a predictable prospecting routine (both inbound and outbound).?
Identifying your ICP and defining their needs and pain points will dictate your product messaging and help you create engaging content that works as an always-on prospecting channel.
Similarly, it gives you clarity on the channels to use for your outbound reach out.
So far, we have arrived at a couple of objectively verifiable inferences:
Predictable revenue comes from a predictable pipeline.
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Predictable pipeline comes from predictable and reliable prospecting.
Next, let’s look at building predictability specifically into outbound prospecting.
Step 3: Building predictability into outbound prospecting
Compared to inbound, you typically have more control over your outbound prospecting. While you don't have much control over the quality of the inbound signups or demo requests, you can certainly control whom you reach out to.?
You start with well-defined target account lists when it comes to outbound reach out.
You build your target account list based on a few fundamental questions such as:
(a) Why these accounts? Do we have a history of serving accounts of similar size, industry, and functions well?
(b) Why do we qualify to solve their pain? What's our specific story that's relevant to them?
Once the above questions are sorted, it's all about creating a process playbook and executing it.
Unlike inbound, where you can automate the lead generation process, outbound prospecting requires you to increase your prospecting throughput. It could either mean hiring additional SDRs to increase your team bandwidth, spreading your outbound activities across more channels, or identifying opportunities to enrich your lead pipeline.
Predictable prospecting involves assigning specific outbound sales processes to your sales development reps (SDRs), channels, leads, and demos. For instance, outbound prospecting often comes down to making the most out of your time in a day to reach out to x number of prospects.
And that boils down to making?x?number of calls, sending?x?number of emails, following up with?x?number of prospects, and booking?x?number of demos or?discovery calls ?every week.
It saves a lot of their time and energy if your SDRs can understand how each channel works and attribute revenue numbers or the pipeline they are driving from them.?
The best sales leaders know that predictable revenue comes down to building predictable habits. Therefore, they train their sales reps to build predictable routines.
Step 4: Train your GTM teams to build predictable habits
The entire philosophy behind building a predictable revenue model rests on top of your GTM teams' discipline and habits. Their daily routines and internal workflows are the alpha and omega of the predictable revenue cycle—it begins and ends with them.
Building a predictable revenue depends on how predictable (read: dependable) the individuals in your GTM teams are. If everyone in your GTM team—be it an SDR, an AE (account executive), or a CSM (customer success manager)—has defined habits and routines around how they will run their day-to-day business, they can contribute to building a predictable revenue.
In scientific terms, your GTM teams are like hydrogen and oxygen atoms. If the variables behave unpredictably, the result is different every time you run the experiment. But by nature, their consistent behavior generates a water molecule every time the two parts of hydrogen bond with one part of oxygen.
A predictable person is essentially a dependable person. But what does a predictable person mean? And how can someone learn to be a predictable person?
A predictable person knows how to build a predictable day—such as carrying out a list of specific things they do in a particular manner every day. Over time, these become repeatable processes that they can go over in a short amount of time without thinking twice.
Predictable people ruthlessly block specific times on their calendars to carry out a set of activities that they can repeat every day—or at regular time intervals.?
Let's take an example of an AE who carves out an hour every other day to research a prospect who has booked a demo session thoroughly. Or it could be a CSM who blocks 30 minutes every day to review all the customer interactions they had on that particular day and spends another 15 minutes planning their next day.
A predictable day results from building a set of predictable routines and habits. At a glance, being a predictable person and building predictable habits might sound boring. However, nobody wants to be predictable—like a droid specifically programmed to move on autopilot from one activity to another.
But as it turns out, having predictable habits is a superpower for efficiency. It helps us become consistent, decisive, and develop quick reflexes under specific circumstances.?
In professional setups—it's far more rewarding to be predictable than unpredictable because the people around us expect us to deliver predictable outcomes and no unpleasant surprises.
You are what you repeatedly do. Excellence, then, is not an act, but a habit.
- Will Durant, author & philosopher
Let's say you are an SDR who needs to book 30 qualified demos a month. And let's say your outreach to demo booking conversion rate is 10%.?
That means you need to reach out to 300 prospects in a month. And that boils down to reaching out to 75 prospects a week (including calls, social media, emails, etc.) And that, in turn, translates to 15 prospects a day.
To reach out to 15 prospects per day, you need to block a specific number of hours on your calendar. And to improve your odds of relevance and thereby conversion, you need to block at least a couple of hours for your research on those 15 prospects every day.
The lesson here is that if you don't block time for what's important on your calendar, it will never happen. Measurable efforts always lead to measurable outcomes—and their impact grows multifold when you do them in a predictable manner.
Building a predictable routine also applies to collaborative processes between two individuals or teams. For instance, every time an AE shares rich context about a customer account to their CSM counterpart during a sales-to-customer handoff process, it helps you create a consistent customer experience. The more predictable your customer handoff process is, the lesser the chances of customer churn because the whole process is optimized for a better customer experience.
Repetition trumps uncertainty
Like in a scientific experiment, building predictable revenue is all about taking the right variables, bonding them together in a petri dish, and waiting for it to turn green.
In essence, the science behind building a predictable revenue can be summarized in the following points:
If you can get these things in the proverbial business lab, getting to a predictable revenue is just a matter of when—not how.
NOTE: This article was originally published in Avoma .