If you’re a public company CFO, the quarterly game isn’t just about hitting your numbers; it’s about hitting them just right.
Too soft? You're sandbagging. Too hot? You just made next quarter unwinnable.
Welcome to the world of beat and raise, the five-dimensional chess game that’s equal parts math, narrative, and spirit animals.
It sounds simple on paper, like, OK just work backwards and discount whatever we think we can do by 5%. But it gets complicated because each quarter has a knock on effect on the next.
And also because of reality.
Every quarter you forecast is technically wrong. It’s just a matter of “how wrong.” And that variance needs to be dynamically incorporated into the model.
Today we’ll cover:
Where do Wall Street’s expectations come from?
Building a beat and raise model (WITH TEMPLATE)
The appropriate amount of “sand bagging”
Market comps for a “good” beat
How to manage market expectations
Where do Wall Street’s expectations come from?
For public companies, the expectations game starts with consensus estimates. These are built by equity research analysts combining official company guidance and earnings call tea leaves into an informed estimate on what they think you’ll print.
We recently had Hamza Foderwalla, former Executive Director at Morgan Stanley on the podcast to discuss how it works.
The midpoint of their collective revenue and earnings per share projections becomes “the bar.”
Sounds simple, right? But if you’re a company like Crowdstrike, who has like 32 analysts covering them, it takes a ton of data-wrangling to reconcile all the analyst models just to spit out a “median consensus” figure.
So how do you manage the forecast internally? You build a beat and raise model you can update on a quarterly basis as results are printed.
Building a Beat and Raise Model (TEMPLATE BELOW)
Template below
OK, let’s teach you how to build a beat and raise model. It’s helpful not only for public companies, *but also private companies* looking to mature their internal forecasting. In fact, at all the private companies I’ve worked at, we ran a simple beat and raise model internally, treating the board as the “street”. You can make a copy of this template and plug in your own numbers.
First we fill in what we aim to achieve internally. For the example here, the company wants to generate $25M in Q1, growing sequentially quarter over quarter to a total of just over $116M.
Then we go through a number of steps to discount our way backwards to what we’ll give as guidance to the street.
In this example, we want to beat the guidance we gave by 5% (yellow boxes), and raise the subsequent quarters by 3% (grey boxes) before starting the next period.
You can change the figures to whatever you think is the “right” range.
What you’ll notice playing out in the numbers, of course, is this requires you to beat future quarters by actually more than 5% because you’re raising each period. Quarters three and four get raised more than once.
So by incorporating these buffers, we realize we need to actually start by giving guidance at only $105.4M.
Read the dark green shaded boxes as what you actually achieved. At the moment it’s what you expect to achieve if you were to hit the number spot on. You can hardcode quarters in as the results print.
You should read the light green shaded boxes the delta between guidance and achievement.
And the light grey boxes in percentage terms measure our achievement to the internal plan we originally set.
OK, lastly you’ll want to do a sanity check on revenue growth.
Does the guidance you’re providing have enough “juice” to make the street happy? Often times with these models you’ll massage the figures to the right place, only to realize your annual growth target isn’t high enough in percentage terms. So you dust off your keyboard and refresh.
In our current example, we start by telling the street we’ll only grow by 20%. But by the end of the year, if things go as plan, we will have achieved 32% year on year growth. That’s the cumulative impact of beating and raising 5% and 3% respectively each quarter.
So, how much were you sandbagging?
In our example above, we were sandbagging by about 10% of total revenue. In percentage terms, the gap you need to feel safe becomes smaller as your base grows and your revenue slows.
A company doing $500M in revenue per year has to sandbag a larger % than a company doing $5 billion.
In addition, for private companies with more risk in their forecasts, they’ll want to add cushion for quota coverage, macro wiggle room, and making sure they hit the exec bonus structures. So that true delta between guidance and internal targets?
Could be 40–50%.
Market Reality Check
Now zoom out. Jamin Ball notes that pre-2021, companies could routinely beat by 3–4% and raise by 2%. But today?
The median beat is around 1.5%
The median raise is barely 0.3%
That game’s gotten harder. Guidance is tighter. Beats are slimmer. Investors are more skeptical.
I spoke to Howard Wilson about this phenomenon on the Run the Numbers Podcast (Apple | Spotify | YouTube). He compared the situation when they went public in 2019 and how it compares to the market he is giving guidance to today:
“When we went public that was in the mode, we were a company that was growing above 40% at that stage, and there were a lot of other players out in the market growing north of 30%. And the expectation on the street was that you would beat the top end of your guidance.
Now we're more in a mode where the expectation is that you are going to be in the range, right?
There isn't this expectation of beating the top end of your guidance. But back then, you had to almost factor in “How do I get the balance right of not guiding in a way that disappoints, but guiding in a way that still keeps people's expectations in the right area, but they don't get too enthusiastic and over enthusiastic around what they put into their models?” So that's the challenging part, and trying to establish what is that level.”
Like I said… it’s part art, part science, and part spirit animals.
How to manage market expectations
This is what savvy CFOs are doing behind the scenes… managing the optics of momentum while preserving flexibility. It’s a controlled leak of good news.
You’re not only managing the financial outcome, you're managing the expectations of your financial outcome. As Howard reflected:
“If you're thinking of changing your approach to guidance, you've got to tell them. It's like, ‘I'm taking a far more conservative to guidance here. My expectation is not to be above the range, to be in the range.’
Part of being a public company is this concept of “What's the whisper number?” The analysts have put their numbers out there, which are plain to see, and you can see what consensus is, but sometimes there's an expectation amongst the investor community that could be different.
“It’s the game inside the game: Analysts know you’re sandbagging—so you better still beat expectations, or the trust breaks.”
-Hamza Foderwalla
When you do show up with “better than expected” results, it checks the box that things are okay, and signals you’ve got momentum.
Anyone can build a model in November. But threading the needle every 90 days—between execution, investor expectations, and internal morale? That’s the real work.
“Beat and raise” is more than an earnings trick.
It’s the art of managing expectations, in spreadsheet form.
