Supernova Award Category

Data to Decisions

The Problem

A real challenge for a high-growth company like CallidusCloud is to have adequate capacity to achieve targeted growth and deliver on our margin goals while ensuring we have the services capacity to fulfill orders. And it’s critical we meet the top and bottom line numbers we communicate to the Street. This requires a firm grasp on the implications for hiring sales reps. Making hiring decisions was based on high-level assumptions. We were at risk of over hiring, hiring at the wrong time or not providing sufficient training or leads for new hires.

Anticipating our services team’s needs is also challenging. Services’ workload is primarily driven by sales.  We need sufficient resources to cover the sales pipeline and backlog but also maintain margins. To accurately predict demand and understand the impact of various business decisions at any point in time, we performed multiple iterations to forecast consulting expense in compliance with target margin on services’ revenue.

The Solution

We built a model that fully integrates our planning system, the Adaptive Suite, NetSuite, Salesforce.com, and our own CallidusCloud Territory and Quota solution. The model supports the ability to run unlimited what-if scenarios and works off current and integrated data.  We can easily run new models as assumptions change.  

The model determines the optimal number of sales reps based on the effective quota capacity given productivity and attainment assumptions and determines the optimal number and timing of new hires. We can update this at any time as business conditions change.  For our services’ needs and service margin, the model allows us to assume a replacement cycle for leavers and then determines the precise consulting expense necessary to achieve margin by quarter, once our new headcount planning is agreed. Previously this required many iterations to derive the optimal margin, headcount and outside resource balance. 

The results

We utilize technology and data to hire just in time (like “just-in-time inventory”). We employ a quantitative methodology that Sales, HR, and Finance rely on to create and manage new hire plans and determine realistic quotas. And we can plan for the requisite sales support needed to provide adequate leads, train new hires and close deals as new sales personnel onboard. As our model is built to calculate the expected capacity of each sales rep, we can assess their performance based on actual and expected bookings.

For Services, as we change the sales organization’s model and increase or adjust the bookings, we can evaluate the delivery side, including the decision to hire more and/or deploy external resources. We can highlight to management, in advance, the necessary increases in consulting headcount to achieve service margin goals.

This integrated approach to sales and services planning helps us identify the resources required to meet the top and bottom line numbers we're communicating to the Street. We now have a way to ensure we have the adequate capacity to achieve targeted growth. And we can achieve our margin goals while ensuring we have the services capacity to fulfill orders.

We can dynamically understand the financial impacts of our decisions on a day-to-day basis and continually update our outlook and plans accordingly and communicate the impacts to management relative to plans committed to the board and outside analysts.

Metrics

We’ve improved our forecasting from 3–4% of total expense to 1–2% variation and significantly improved our ability to forecast outer quarters. We can maintain precision even as time periods extend and that helps managers control and monitor costs by setting targets, measuring results.  This helps FP&A to suggest course corrections. Revenue forecasting has seen similar improvements over time from 2% to 1% variance.

When planning for new headcount, especially in sales and support we must anticipate 12-24 months in advance.  For example, sales reps hired in mid-2018 will not be fully productive until 2019. In such a high-growth environment (double recurring revenue in just three years) the possibility of under-hiring just 10 sales reps could translate to an opportunity cost of $6-8M of annual contract value.  Conversely the cost of over-hiring 10 reps sooner than needed or not providing those new hires adequate support could mean unproductive expense of $2-4M.  And since we don't know they are not productive until 12 months later, the lost opportunity cost of roughly $100,000 to $500,000 a year per rep is very difficult to recover. Finally, to replace unproductive reps, it takes another 6 to 12 months for them to be fully productive.

We have better quality control with our new hires. Since we are planning now for 2018 and 2019 we have the lead time to make better hiring decisions.

The Technology

The Adaptive Suite. NetSuite ERP. Salesforce.com and CallidusCloud Territory and Quota.

We specifically chose a cloud-based planning solution to integrate with our cloud-based CRM, HR, ERP, and our own CallidusCloud Territory and Quota solution. This allows us to dynamically understand the financial impacts of the decisions that we're making on a day-to-day basis with real-time data.

Disruptive Factor

Before we lacked the modeling to evaluate attainment or productivity or to fully understand the impact of capacity. Now when we discuss our plans with the CFO the first question is, “Is this the number of sales reps we need to achieve our targets?” On a recent earnings call, our CEO mentioned the importance of productivity as it pertains to achieving our top-line growth. This realization has led to more dedicated training resources for the sales organization.

We can now go to the manager with an outlook updated that morning with the decisions they just made and show the financial impact relative to such things as our board plan or analyst expectations in time for them to do something about it.

In management reviews we now spend most of the time talking about our plans, different scenarios to achieve our goals, and how to maximize our growth and business within our cost constraints. Before, we spent most of time talking about past results.

Today we’re already talking about hiring reps for the purpose of achieving our 2018 and 2019 goals. Before, only the sales team was aware this early that we needed to hire reps. Now, we can quantify many quarters in advance, and get agreement amongst all parties as to how many sales reps we need to hire and when.  And everyone trusts the numbers because they represent an integrated view, with real-time data.  A true collaborative effort by Finance, Sales, HR and Marketing is now possible.

Shining Moment

The predictability of our model, enabled by the capabilities of the Adaptive Suite combined with internal processes, has helped lead to a doubling of our stock price in less than 3 years. Our use of more sophisticated models, more data and better processes to predict our business with more precision supports this. These results were acknowledged on our Q1 2017 Earnings call when an analyst remarked to our CFO on recent improvements in the predictability of our business model.