Accurate sales forecasting is hard. Here are four steps BMC Software took to improve the accuracy of its sales forecasts.
This fall, for the first time, an FP&A project was among the three finalists for AFP’s prestigious Pinnacle Award, the annual award for excellence in treasury and finance. Pankaj Tamrakar, treasury manager, submitted on behalf of BMC Software in Houston, Texas.
The description of his project is below, but it is important to note the underlying factors that made it possible. The story of the effort reads like a well-stocked kitchen, where the ingredients are available and waiting to be put to use. You can look for these ingredients in your own cupboard to see if you too can bake up success in your organization:
- Cross-team communication: every week, the business unit president met with sales, marketing, product and finance.
- Skills at the point of action: Tamrakar has a background in IT and programming, and by nature is looking for ways to improve efficiency. He also had a ready set of data in the form of quarterly results.
- Iterations of success: Big ideas were built on smaller ones. Tamrakar had previously upgraded existing databases from Access to SQL, gaining familiarity with data and tools, and expanding his concept of what could be accomplished. Sales created a new metric, “New Bookings vs. Renewal Bookings.”
- Culture of inquiry: “It starts with a question, and everyone at the table has always been willing to answer,” Tamrakar said. “We have a culture of challenging the status quo and fostering innovation. No one ever shuts me down. My VP of FP&A is a very encouraging and supportive of new ways of analyzing data and getting business insight from it.”
©Copyright 2017 BMC Software, Inc
BMC Software (BMC) sells software licenses and post-contract maintenance and support for the software it sells. The maintenance is renewable on a periodic basis and is a recurring revenue stream that makes up a large portion of overall revenue. The company wanted to put increased focus on growing the business through sales of new license and maintenance contracts.
The company added a metric to measure this differentiation called “New Bookings (sales) vs. Renewal Bookings.” To make the best use of this data, the sales team needed to understand the relationship between new and renewal bookings and how they could leverage this information to increase the sales pipeline and revenue while improving forecast accuracy. Additionally, in a sales workshop, BMC noticed that sales was struggling with the identification of cross-sell opportunities, and BMC thought there should be a better way to do this. “That’s when we started building the bSMART tool,” Tamrakar said. “The biggest ‘aha!’ moment for us was coverage ratio insight that we got the from the historical close-rate analysis: Closing a deal with a net new customer needed a much larger sales pipeline than we ever thought. That was consistent across all the product lines. That’s where it made sense to implement the solution at the BMC level.”
The sales teams had to manually review the customers in their space to see which products customers did and did not own; bSMART achieved that in an automated fashion. Also, bSMART uses level of detail (LoD) functionality in Tableau to analyze which customers own a BMC product but not a complementary BMC product in a quick and visual way to highlight and quantify new sales opportunities. One of the most valuable and synergistic additions was the leveraging and inclusion of the Propensity to Buy model, an algorithm that uses historical sales data to identify which customers were most likely to buy. The result was a multifunction tool in a single screen. This tool helps to facilitate pipeline generation by using business intelligence, analytics, and automation to identify cross sell opportunities within existing BMC customers with a high likelihood of converting. “Existing customers are already aware of our brand, and we can leverage existing relationships with champions and executive buyers,” Tamrakar said.
Finance was partnering with the business and realized that by using analytics it could help the business draw insights into the new metric of new versus renew, and that’s where the ULTRA solution was born. ULTRA identifies the correlation between new and renewals sales pipeline and predicts how much of new business should come from existing customers versus net new customers in current or future quarters. Sales management can visually see how much of new pipeline is coming from existing customers versus net new customers and design strategy around Sales execution and sales force allocation.
The first insight was that acquiring new business from new customers required generating much a larger sales pipeline than new business from renewing customers. Sales could leverage this insight to allocate resources more efficiently by optimizing the sales coverage ratio for current and future quarters.
The second insight was that due to the high correlation between new bookings and renewal bookings, there was a large opportunity to leverage existing renewals to increase new sales in terms of additional capacity or cross sell. Sales and FP&A leveraged ULTRA for annual bookings plan creation and predicted how much of that plan should come from renewals attach vs. standalone new bookings. This insight in the plan helped sales manage sales productivity and sales headcount allocations very effectively and efficiently.
Success was not automatic, however. “The biggest setback/roadblock was adapting to this new way of looking at the business and change management as a result,” Tamrakar said. “The other product lines initially ignored or didn’t believe our analysis, but later when our forecast accuracy improved and leaders saw our financial performance improved and we won an operational innovation award from our CEO, it really highlighted the solution and other business leader also came on board.”
What makes it unique is that the tools were developed by finance employees who identified the opportunity for improvement and created an automated, home-grown solution using Tableau. “ULTRA and bSMART are excellent examples of how finance planning and analysis at BMC is applying predictive business analytics to support decision-making and improve business partnering resulting in increased revenue, operational efficiency, and cost savings,” Tamrakar said.
Showcase your expertise to thousands of treasury and finance professionals—apply now to lead an educational session at AFP 2019. Submissions will be accepted through January 18, 2019.