Planning for Growth Requires Bridging the Gap Between Revenue Operations and Finance

‍‍The following thought leadership piece ran in CFO.com on June 11, 2024.

‍Takeaways

• Revenue Operations (Rev Ops) and Finance should collaborate closely during planning, ideally through a unified process. Finance manages the top line, while Rev Ops handles the breakdown for the go-to-market (GTM) organization.
• Finance needs to understand the behaviors and motivations driving sales to effectively communicate the plan to the sales team.
• Rev Ops should understand Finance's constraints to accurately break down the plan components.

The success of your company hinges on how you plan and execute your go-to-market strategies. But often, these plans hit roadblocks. One big issue? Finance and Rev Ops not working together effectively. They're both crucial, but they often run separate planning processes, causing problems. By getting them on the same page, businesses can avoid the below pitfalls and make their go-to-market efforts a lot smoother.
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Planning toward different goals
Aligning on a goal may appear simple, but it often presents challenges for teams, many of which are not uncovered until the plan is implemented and the year begins. There have been instances where the finance team focuses on cash flow targets, the sales team on revenue goals, and the marketing team on lead volumes. Although these objectives are interconnected, the lack of unified targets across the teams can lead to considerable disruption and make it challenging for the company to hit their core targets.
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Recommendation: While it’s not always feasible to set identical targets across all departments within a business, it is crucial for the planning team to understand how their respective metrics impact everyone and to establish some common goals to align incentives. For instance, if the marketing department has targets related to both lead generation and revenue, the sales team focuses on revenue and operational efficiency, and the finance team can track all these metrics to gauge overall performance, the company is better positioned to achieve its overarching goals.

Also, it's important to tailor compensation plans for the go-to-market team in ways that support the company's overall objectives. In practice this means that if the finance department and investors prioritize billings and the company aims to encourage multi-year contracts with upfront payments, the compensation structure should be designed to avoid incentivizing sales representatives to focus solely on maximizing annual recurring revenue from one-year contracts. This alignment helps ensure that the team’s efforts contribute directly to the company’s strategic priorities.

Planning in silos
Finance and Rev Ops often run parallel planning processes, leading to overlapping work. Despite good intentions, the lack of intentional integration results in collaboration primarily through ad hoc or weekly meetings for information exchange.

Recommendation: To improve this, the planning process should be integrated between the two teams. Assuming all GTM operations are within Rev Ops, the team most familiar with the specifics should own relevant parts of the process. While Finance handles top-line numbers, breaking down targets to granular levels should be owned by Rev Ops.

Finance must understand the drivers behind GTM success or failure. Simply providing numbers without considering resources and nuances of the sales funnel is inadequate. Partnering with Rev Ops to assess feasibility before setting targets is essential.

Similarly, Rev Ops needs to understand the rationale behind targets. Blindly dismissing numbers as unachievable without understanding the context is counterproductive. But aligning targets with financial commitments to stakeholders provides clarity and motivation for the sales team.

Understanding the core drivers of the plan facilitates negotiation between teams. If the target is bottom-line cash flow, discussions can revolve around reallocating resources for lower top-line targets. This could involve cutting back on certain areas to maintain bottom-line numbers while adjusting top-line goals.

Confusion often arises when Finance provides headcount targets instead of budgets to Rev Ops/Sales leadership. Clarifying that Rev Ops has a budget of $1 million to allocate as needed, rather than being restricted to a specific number of headcounts, is crucial. This prevents situations where different roles are treated similarly despite significant differences in compensation.
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Working from outdated and static data
Significant time is often wasted during the planning cycle just to reconcile historical data and resolve discrepancies in metrics reported by different organizations within a company. If one team retrieves their data just a day before a major deal is finalized or falls through, Finance and Revenue Operations may find themselves spending considerable time trying to understand why their plans for the upcoming year are based on divergent baseline numbers.

Even with a well-defined data strategy, there remains a disconnect in planning regarding the lead time required versus the clarity about how the quarter or year will conclude. A deviation as small as 2-3% in year-end results can substantially impact the planning for the following year. This ongoing need to actualize and adjust figures represents a significant drain on resources, complicating most planning processes and diverting attention from strategic decision-making.

Recommendation: This issue has been a persistent challenge throughout many years of building plans for companies, but modern tools are now available that enable planning teams to begin addressing this problem effectively. These tools allow teams to clearly define the data used in the planning process and seamlessly update the plan as data evolves towards the end of the current year.

Even if such tools are not currently at your disposal, there are practical steps you can take to mitigate the issue. A fundamental step is to spend time at the start of the planning process to define metrics consistently across teams and agree on the data sets to be used by everyone involved. Implementing simple measures like setting date and time stamps on data refreshes can also help reduce discrepancies.

Additionally, it's often sensible to establish thresholds for when adjustments to the forward-looking plan are necessary. For example, a 10% change in the forecast four months before year-end might not require a complete overhaul of the next year's plan, whereas the same change just four days before year-end likely would. Setting reasonable thresholds at various milestones, based on a deep understanding of your business, can help minimize unnecessary revisions in the forward-looking plan.

Conclusion
Better integrating Finance and Rev Ops planning cycles won't eliminate unrealistic top-line targets, but it will build greater trust in the planning process across the organization and create better outcomes for your go-to-market team.