The Purpose and Importance of a Bottom-Up Forecast in Annual Planning

A bottom-up forecast is essential for transforming the annual planning process from a purely financial exercise into a grounded, executable strategy. While top-down models, driven by macroeconomic data and company aspirations, are vital for setting ambitious targets and guiding overall direction, they can sometimes miss the nuances of daily operations and field execution. The bottom-up forecast, informed by operational metrics, bridges this gap and provides a practical layer of insights.

Revenue Operations (RevOps) plays a crucial role in extracting and interpreting this data, ensuring that the forecast reflects what teams can realistically accomplish. By aligning the bottom-up forecast with top-down expectations, organizations balance aspiration with practicality, creating a strategy that sets the stage for sustainable growth.

Building the Bottom-Up Forecast: Our Approach

At CaptivateIQ, the foundation of our bottom-up forecast is the capacity model, which provides a data-driven view of what each Go-to-Market (GTM) team member can achieve.

The Capacity Model

The capacity model is designed to determine the workload that each team member can handle. The key components of this model include:

1. Value-Added Time vs. Non-Value-Added Time
   Value-added time refers to the time spent directly contributing to customer acquisition, retention, or expansion. For example, McKinsey reports that sellers spend approximately 33% of their time on selling activities. In this example, selling activities are considered value-added time. By calculating total annual working hours (260 days x 8 hours/day) and applying the percentage of time spent on value-added activities, we derive a clearer understanding of capacity. In this case, a seller would have about 686 hours annually for selling activities. Conducting a time study and interviewing team members can provide more accurate insights tailored to your organization.
2. Understanding How Value-Added Time is Spent
   For sales teams, value-added activities are broken down into specific tasks such as meetings, calls, and emails. By analyzing historical CRM data, we track how these activities relate to opportunities. This same analysis can be applied across the GTM organization to understand the effort required to acquire, retain, or expand a customer.
3. Time Allocation for Activities
   Each activity has a time component. For example, an email might take 5-10 minutes, a call 30 minutes, and a meeting an hour. It’s important to include preparation and follow-up time, which typically adds 25-50% to the time spent on each activity.

4. Conversion Rates Through the Customer Journey
   As discussed in our Strategic Annual Planning: Getting Started article, “mapping your GTM data and metrics against the customer journey surfaces valuable insights. If you have yet to map this data, Winning by Design’s SaaS Data Model is a good starting point.” Once mapped, conversion rates can be calculated at each stage of the customer acquisition, renewal, or expansion process.
5. Capacity for Respective GTM Motions
   By combining conversion rates, the average number of value-added activities, and the time required for each activity, we can determine how much time is needed to acquire, retain, or expand an opportunity. Comparing this with the available value-added time for each team member provides a clear view of the number of opportunities they can handle in a given year.

This capacity model serves as the baseline for understanding the team’s current capabilities and forms the foundation of the bottom-up forecast for planning.

Adjusting Financial Plan Levers

Once the capacity model is established, the next step is adjusting the financial plan’s key levers in line with strategic goals for the upcoming fiscal year. For CaptivateIQ’s sales team, these levers include win rates, average deal size, the volume of qualified opportunities, and sales cycle time. We prioritize focusing on one key lever at a time to create clarity and ensure meaningful changes.

For example, if we plan to increase the volume of qualified pipeline in the next year, the capacity model will validate whether the team can handle the increased workload. This prevents overextending the team and maintains a realistic focus on execution.

Creating Forecast Scenarios

The final step in building the bottom-up forecast is aligning with finance and refining the forecast through a budgeting exercise. This often involves creating multiple forecast scenarios based on the current performance of the business:

• Worst Case: Assumes minimal improvements in high-performing areas and continued underperformance in weaker areas.
• Base Case: Assumes moderate improvements in high-performing areas, driven by strategic initiatives for the year.
• High Case: Assumes full realization of strategic initiatives, resulting in maximum impact on key levers.

These scenarios provide a range of potential outcomes, allowing for more informed decision making during the planning process.

Summary

Incorporating a bottom-up forecast into the annual planning process ensures that financial targets are both ambitious and grounded in operational reality. RevOps plays a critical role in developing this forecast, using key metrics and capacity models to create a realistic, data-driven view of what teams can achieve. By aligning these insights with the finance driven top-down perspective, organizations create a balanced, executable plan for the year ahead, one that is both aspirational and achievable.