Are you a founder who’s been asked by your board to pull together something called an “annual operating plan”?
Are you attempting to turn that theoretical hockey stick graph from your Series A pitch deck into a real plan of action?
Did you recently realize that “Budget” is not just a rental car company?
If you answered “yes” to any of these questions, you’re in the right place. Today we’ll cover what the annual planning process is, why it’s important, and some best practices for getting it (close) to right.
As annual planning season approaches for those of us on December year end schedules (T’s & P’s to all the try-hards on, like, February year ends, or whatever) Mostly metrics is launching a FIVE part series on the budgeting process.
Part I: The Kickoff (this post)
Who’s involved in annual planning?
Bottoms up vs tops Down forecasting
Guiding questions and guardrails
Part II: Building sales capacity
Modeling out rep ramp time
Pod ratios: Business Development Reps, System Engineers, and Sales Managers
Quota deployment and over assignment (shhhh!)
Part III: Designing a marketing budget
Modeling Pipeline Coverage and understanding the marketing funnel
Working with your CMO to develop a “GL pick list”
Programs vs People split
Part IV: Costing out the P&L
Modeling headcount as an input, and a driver
Forecasting non-people costs
Developing a mutually exclusive list of expense types
Part V: Bringing it all together
Modeling P&L by cost type vs P&L by department
Checking your outputs: CAC Payback, ARR per head, cash runway
Five year plan tie in
The guide comes from thousands of hours on the job, designing annual plans for multi billion dollar tech companies. And it’s strongly influenced by the hundreds of hours spent with my entrepreneur friends who are building their first budgets.
A quick reminder from Walter.
Why is Annual Planning a Thing?
Annual planning is a forcing function to get the org “in shape” for the company’s next chapter. I’m a big boxing fan, and they say the hardest part of any fight is the training camp leading up to it; the fight itself is really just the culmination of all your work.
Annual planning is similar in the sense that it serves as a “training camp” for the company to “get in shape” for next year. This when you study the competition, get all the stupid questions out, and develop a game plan.
Who’s Involved in Annual Planning?
When we think about company wide planning, it spans five major groups:
Product / R&D
Marketing & Community
Sales
Customer Success
and Customer Support
I tend to think of this as somewhat of a cycle that is iterative and repeats itself, with each function providing feedback to the loop
To start, we need a great product to sell
Then we market its value proposition to our customers and community
If they validate our product, we sell through our sales team
Post sale, they are passed to customer success so they get the most value from the product, which hopefully sets them up for an expansion opportunity
And lastly, we empower our customer support team to solve for any issues that pop up post implementation
Or, more broadly, you can break it into two sub groups:
The product side of the house
And the GTM side of the house
As for this planning exercise, as finance and strategy folks, we’re assuming you already have a great product to sell (can’t help you much there if you don’t, lol), and you just need to figure out how best to staff it, sell it, and support it.
Department heads
The cycle usually starts with the CEO and CFO (which you may be both of at this stage), who discuss high level revenue, productivity, and profitability targets to frame up the mission.
And then it extends to leaders from the Sales, Marketing, Customer Success, Product, Engineering, Finance and People Team.
And finally, it gets approved by your Board (which is probably why you are embarking on this annual planning process).
TL;DR:
Audiences:
CEO and CFO (starting point)
Department leaders (input)
Board (confirmation)
Targets:
Revenue: How much you make
Productivity: Your ratio of people to revenue
Profitability (or burn): How much you make, or lose
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