How Moving Upmarket Affects Your Forecasts

As emerging tech services companies scale, they inevitably move upmarket, taking on larger, more strategic projects with bigger customers. This can mean more revenue (yay!) but also makes your financial forecasting a lot more complex. As a founder, your first step is to understand what changes moving upmarket brings. Then, read on to learn some key tactics to adjust your financial forecasts so you can manage the transition between markets.

Bigger Deals - But Not Always

One of the most immediate effects of moving upmarket is the increase in deal size. Larger deals often have a positive impact on your pipeline but introduce new forecasting challenges. It’s also easy to underestimate deal sizes, especially as you transition between markets, leading to unexpected strain on your resources. Variability in project sizes can also cause fluctuations in revenue projections, requiring adjustments in forecasting models.

Longer Time to Close

Larger deals typically take longer to close. With approvals that involve multiple stakeholders, including legal, procurement, and security teams, timelines can easily extend months upmarket. If your forecasting model is based on shorter deal cycles, these delays will throw off your revenue projections.

Adjusting Forecasting Models

To maintain accuracy in financial projections while moving upmarket, consider these key adjustments:

Account for Deal Variability

Factor in a range of deal sizes and close times rather than relying on historical averages. This ensures that outlier deals do not skew your overall projections and that forecasts remain grounded in a realistic range.

Monitor Pipeline Health

Monitor the status of deals in progress and account for potential delays. Tracking can help identify deals at risk of stagnation and develop contingency plans to address bottlenecks they may be facing.

Refine Lead Qualification

Prioritize deals based on expected close times, revenue impact, and client readiness. High-value deals should be carefully evaluated to determine whether they align with your resources and strategic objectives.

Improve Decision-making with Data

Use CRM systems and analytics tools to capture data in real-time regarding deals in progress. Use historical data and predictive analytics to further refine revenue projections and resource allocation.

Align Marketing and Finance Teams

Ensure continuous collaboration between Marketing and Finance teams to maintain up-to-date forecasts. Schedule regular meetings to reassess assumptions and adjust financial models based on new developments in the pipeline.

Plan Cash Flows

Longer deal cycles can impact cash flow, requiring more conservative financial planning. Consider implementing bridge financing or adjusting budget allocations to accommodate the unpredictability of bigger deals.

Wrapping Up

Moving upmarket is a natural part of your company’s progress towards maturity. It offers a host of tempting growth opportunities but also necessitates a shift in your approach to financial forecasting. By proactively adjusting forecasts, you can build more reliable projections and sustain long-term success for your emerging tech services company. 

A Gift for You 🎁

At Vixul, we spend a large part of our time reviewing the forecasts created by the founders of our portfolio companies. It is amazing for us to see our founders mature as executives and be able to answer questions they couldn't in the past. Unfortunately, most founders struggle with these issues until we point them in the right direction. We believe the lack of guidance on forecasting is a primary issue for early-stage tech services founders.

That's why we're working on an eBook with detailed instructions on how to set up forecasts for sales pipelines. This will help you plan your new year with better foresight. The book will be free for people on our mailing list when it is published, so please subscribe now to ensure you receive it.