Sales Operations Best Practices in Tech Services
Striving to provide top line visibility is key in any industry. Within tech services, we would argue, it is more relevant given the talent-related nature of services being offered. We can review some easy tactics from revenue teams that enhance business visibility and predictability.
In simplistic terms, we can identify a couple of revenue streams in technology services: recurring revenue, typically described as contractual customer obligations that exceed an annual period; and re-occurring revenue, which typically means ongoing revenue from the same customer and same relationships, but which does not have a long-term contractual obligation. An example of the first one could be an SOW that defines the scope of work which lasts 2-3 years, and an example of the latter one can be a customer MSA that auto-renews every year, with quarterly SOWs that get renewed at the end of each quarter. In both cases, the customer relationship is multi-year.
As services companies strengthen their go-to-market teams (Account Executives, AEs; and Account Managers, AMs), new processes need to be put in place to help the rest of the organization gain business visibility and match customer demand with talent supply. Let’s define the top funnel as the sales and account management funnel, and the bottom funnel as the talent acquisition and recruiting funnel.
Top Funnel - CRM
Logging all opportunities in the CRM tool is important. Not only new customer (hunting) deals, but also existing customer opportunities can be there (farming). The value of an opportunity can be the TCV (total contract value) when this contract value is known, or it can be a best estimate of the length of the project and revenue that will be generated by the opportunity during that time frame. For example, if the services provider knows the deal is a 3-month cloud migration for $200,000, then when the deal is marked closed won, the booking would be logged for $200,000. Alternatively, if a similar project would run indefinitely and generate $20,000/month, and the average customer relationship is 18 months for this specific service provider, then the booking generated would be for $360,000. Recognized revenue may be different in each of these cases as the first one could have three moments in which an invoice is generated, one as the project is signed, another one potentially half-way through, and a third one at the end of the three months. While in the latter example, probably an invoice for $20,000 is sent to the customer on a monthly basis. We will not discuss here the creation of a bookings or billings accounting entry on the provider’s balance sheet if there is a true contractual obligation.
Guiding revenue teams to include all deals in the company’s CRM platform provides a strong level of visibility to other areas of the organization, which include finance (for budgeting purposes) or talent acquisition (for hiring reasons). Maintaining this data is key so that different parts of the organization can make informed decisions.
Bottom Funnel - Openings Priorities
As deals mature in a CRM system, it is common to move those through stages and increase the probability of closing the deal. As these opportunities move forward, decision-making processes can change throughout the organization. For example, if the services provider allocates talent to customers and projects, the higher the probability of a deal closing, the higher the priority of timely matching talent to that specific opportunity. As an example, once the opportunity is closed won (100% probability), the services provider can generate immediate revenue from that customer, therefore the openings linked to that opportunity should have the highest priority within the provider (the company is losing revenue by not staffing that project).
Budgeting - Finance
Finance groups are responsible for helping management make decisions within the organization. Creating and maintaining budgets and forecasts is one of the key responsibilities of finance. The finance team values being able to get data from sales systems to solidify forecasts. When the pipeline is kept full, and appropriate close dates and probabilities are maintained in the CRM system, finance has most of its work cut out for them. For example, the pipeline may include $10 million of unweighted opportunities with close dates during Q3 and Q4. Finance can get a weighted-opportunities report and find out that the revenue team has a weighted estimate of $2.5 million for Q3 and $3.0 million for Q4 in bookings. The finance team can apply some standard haircut to those numbers and then a revenue recognition schedule to arrive at appropriate revenue figures for Q3 and Q4 that it can later use for forecasting purposes. In this example, revenue forecast could potentially end up being $1.5 million for Q3 and $1.7 million for Q4 after the haircut and revenue recognition schedule.
In summary, it is clear how maintaining an up-to-date CRM system helps revenue teams, talent acquisition and staffing roles, and even admin and finance groups within a services provider.
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