You can't choose the pace of change.
Some things tend to be where they are. And some others are not in your control. That's what makes strategic SaaS planning a challenging task. It needs to be flexible enough to handle short-term and long-term targets.
The way most SaaS companies go about planning today, which is to create a static annual plan that is limited to a fixed time frame, typically January through December of each year, is not well suited to achieving their targets.
And this rings true especially for SaaS companies that have a long sales cycle.
The perils of fixed annual plans
Take a SaaS company selling to the enterprise segment with a six-month sales cycle.
The plan for the next fiscal needs to be locked in by July of the previous year, and marketing needs to start the plan execution immediately. If not, the targets for the first two quarters are not under your control.
This is because the number of deals you would need to close in the first half of the fiscal year (January to June) needs to have been acquired as opportunities between July to December of the previous year. That is the pipeline for Q1 and Q2 needs to be already in place for your sales team to close them at the start of the year.
Given that planning exercises take 3 to 5 months to complete and usually start late in the latter half of the previous year, the targets for the first two quarters often fall short.
Thus, the immediate future doesn’t ever seem to be under your control with fixed annual plans. When you get into your first two board meetings with missed targets, it tends to shake up the confidence of your investors.
Also, if you think the longer-term targets (i.e., the second half of the fiscal year—Q3 & Q4) are still predictable and realizable given that the opportunity pipeline has been created, then you are mistaken. As with any business, the months farther out are impacted more by external factors such as volatile markets, competitive pressures and changing customer behaviors, and internal factors affecting business dynamics (say, unexpectedly high attrition).
And even if the fixed 12-month plan is revisited and the forecasts are refined over the course of the year, it still is done for that same year. Thus, when the next fiscal cycle starts, the cycle repeats with forecasts that are wildly off the mark.
So, how can SaaS businesses break this cycle?
By switching to a rolling 12-month plan.
What is a rolling 12-month plan?
A rolling plan is one that is amended at regular intervals—typically once a quarter—although this can be monthly or any other period.
The performance (actuals) from the recently ended quarter is reviewed, and adjustments are made to the plan, so the company stays responsive to market and business changes.
As a result, you always have a plan for the next 12 months at any point in time. You add another quarter to your plan every time you get done with a quarter. So you start with Q1 22 to Q4 22. And once you are done with Q1 22, your plan gets refined from Q2 22 to Q1 23.
Why is a rolling forecast a better fit for SaaS businesses that cater to enterprises?
- Rolling plans are agile: While fixed annual plans require a substantial time investment, taking between 3 to 5 months at most SaaS companies that sell to the mid-market and enterprise segments, a rolling 12-month plan never really reaches an end. It’s a live, continuous document that renews month-on-month for as long as you operate. You can adjust the plan to account for changes in the business with new revised targets and actively respond to the state of the market and your position within it.
- Rolling plans are less biased and more accurate: Since the rolling plan always takes into account the most recent performance data, the assumptions for business drivers (see base rates in planning) going into the plan are constantly optimized and up to date, making the forecasts more accurate and reliable. And companies that build accurate plans drive predictable revenue! Consequently, they avoid biased growth assumptions and remove the incentive for lowballing sales numbers, as often seen with fixed annual plans built from the bottom up.
- Rolling forecasts can influence strategy: Fixed forecasts don’t offer strategy but are simply a statement based on past findings. Rolling forecasts can help influence strategy because they are regularly updated with the latest data.
Why don’t more SaaS companies implement a 12-month rolling plan?
Creating a rolling plan isn’t an easy task. It requires a considerable and continuous time investment especially when your sales cycles are long.
For example, a fixed annual planning process is done once a year. You might revise and revisit the plan during the year. But it's still limited to that year and only for the remaining months, not for the next 12 months, which is the case with rolling plans. The rolling plan is revised at regular intervals (every quarter or month).
All your assumptions and tactics may need revision based on the latest data (actuals) from the last month or quarter.
With present-day challenges such as managing remote teams, reacting to competitive pressures and volatile market movements, SaaS leaders need to continuously and proactively seek to assess and adapt to business conditions. While this is solved by switching to rolling plans, it requires additional effort, time and alignment across the organization.
How to switch to a rolling 12-month plan and achieve your targets quarter after quarter
Changing your planning, budgeting and forecasting methodology might seem a daunting task at first for companies that have a long sales cycle. But, with the right software and processes, creating successful rolling plans and forecasts become possible.
Drivetrain helps you periodically align and adapt your strategic plans with your company objectives.
- Automated plan vs. actuals reporting in near real-time: Drivetrain provides anywhere, anytime access to your plans in a single place. It also automatically centralizes your business performance data (actuals) to view it against your plan numbers/targets in real-time. Thus, you can adapt your plans faster with access to up-to-date, drillable data and automated reporting.
- Faster collaboration: Drivetrain increases visibility into long-term business planning by breaking down silos and aligning teams on the definitions of various shared metrics and their measurement rules.
- Built-in forecasting modules: Identify bottlenecks with the root-cause analysis tool. It also helps understand which levers (or business drivers) can help you get back on track with the What-If scenario analysis tool.
Would you like to see how our purpose-built software for SaaS companies supports innovative approaches like rolling plans, continuous planning, scenario planning, zero-based budgeting, and more? Reach out to us at firstname.lastname@example.org for a free, no-obligation demo.