What is run-rate business?
If this particular blog caught your eye, you’re probably already familiar with the concept of run-rate business. For those unfamiliar with the term, it applies to companies with sales models that realize the sale of goods and services over a period of time, rather than in a single transaction. A closed/won opportunity signals the start of a sales agreement, with revenue realized according to orders fulfilled. The opportunity portion encompasses the sales process; while the sales agreement encompasses the anticipated revenue agreed to materialize across the duration of the agreement.
Now that we’re familiar with the term, let’s see how and why forecasting run-rate business can be challenging.
Cloudy with a chance of risky forecasting
Run-rate business tends to result in new layers of complexity when it comes to forecasting and measuring revenue realization. To be accurate, forecasting needs to reflect which orders within a sales agreement have and have not been realized. Organizations with run-rate business models have typically solved this in a few creative ways.
- Creating an independent “run-rate opportunity” that excludes values from the sales pipeline
- Leaving the opportunity open for the duration of the sales agreement, with special stages created to exclude it from the forecast
- Managing run-rate business through reports from the data warehouse, visualized through a business intelligence tool
With run-rate business, forecasting should evaluate both future revenue over time for a given account, as well as the opportunities in pipeline for that account. However, things aren’t as simple as that. Not all future revenue can be considered “trustworthy,” with most organizations lending greater trust to forecasts of shorter horizons. Sales orders from previous years can lend credibility to longer horizon forecasting, but in light of COVID-19, other metrics may need to be leveraged in future predictions.
In the past, all these complex considerations previously necessitated manual and complicated workarounds like those listed above. Now, with Manufacturing Cloud, all of this can be managed intuitively within Salesforce.
Traction on Demand’s Run-Rate Opportunity Manager augments the base architecture of Manufacturing Cloud adding efficiency, forecast credibility and flexibility.
Efficiency, flexibility and credibility with Run-Rate Opportunity Manager
Traction on Demand’s Run-Rate Opportunity Manager enables organizations with a run-rate business model to account for a lot of variability in forecasting while driving efficiency in their processes through automation.
Leveraging Salesforce's native product scheduler with Account Forecast integration allows users to visualize pipeline and existing sales agreements within the same time horizon. Tying the values in the pipeline with the stage and win probability brings credibility to the forecasted line. Finance, sales leadership and sales operations can more easily evaluate the overall growth of an account.
When a run-rate opportunity is closed, it takes a lot of manual work for sales reps to manually create and build out sales agreement schedules. Run-Rate Opportunity Manager automatically converts opportunities to sales agreements, with forecasted schedules pulled from the opportunity into the agreement. This saves time without sacrificing oversight, as users are still able to adjust the sales agreement over time.
Forecasting is never an easy science, and many would argue it’s more of an art. It’s critical to incorporate the nuances of each account to ensure forecasting is accurate and establish trust between sales and finance. Manufacturing Cloud enables organizations to capture that nuance by defining forecast formulae that can be applied to multiple time periods.
Traction on Demand has increased this flexibility by allowing customers to define a judgement factor unique to each account that is applied to the forecast formula. The account judgement can be effective in scenarios where:
- A new customer, with no previous history to build “trust” in their forecasted revenue
- Customers from industries that are more volatile than others
- A customer that data suggests can be judged according to stockouts or surplus
- Shifts anticipated by market insights that will affect expected forecast
As pipeline forecast is calculated using the standard probability percentages by opportunity stage, there are many more customizable components that can be beneficial. This includes:
- Judgement to pipeline based on stage and probability to win
- Metrics to leverage for near and long-term horizon forecast formulae
- Judgement on accounts, applied on the account level
Check out the Run-Rate Opportunity Manager in action below:
Accelerating your run-rate business
Accurately forecasting with a run-rate business model is a complex and challenging task. With the new functionality delivered by Salesforce Manufacturing Cloud, you leverage intuitive systems to fully account for that complexity. Traction on Demand’s Run-Rate Opportunity Manager takes this a step further, delivering more efficiency and flexibility; ultimately accelerating your Manufacturing Cloud implementation.