The Bottom-Up Planning Imperative: Lessons from the Front Lines

If your company is on a calendar year fiscal year or close to it, you’re already in the depths of annual planning. While the finance team will run strong models with top-down planning, it’s critical that marketing, sales, and partner teams build detailed bottom-up models as well to validate the strategies, budgets, and goals. There’s lots of gritty detail work you might not have time (or want) to do - but it’s one of the only ways to know if you actually can hit the top-down calculations.

When I was a junior leader, I would receive a budget and plan and “just have to do the best I could with what I had.” As I progressed in leadership, I saw how critical it was to get ahead of the planning process so that, as a C-Suite, you could collaborate on a plan you could all actually make based on current trends and realities.

As a marketing leader, you often have to get very deep into your own model to demonstrate exactly what is and isn’t possible. The CEO and CFO won’t adjust plans if you “feel” that it is too hard, but they might adjust based on sound calculations.

Schedule

You can’t start with the bottom-up planning first, of course. The C-Suite needs to be thoughtful about the major levers for the business and big changes. What products, regions, audiences, or use cases will the company add to drive growth? What fundraising or investor milestones do you need to show? Where have you seen traction in your strategy this year, and what needs to change? There are many blogs I could write here, but let’s assume the leadership team has made great progress on the strategy for next year and has created an initial financial plan. Your next step is to have a strategy session for your team to discuss how you will bring the corporate strategy to life. THEN, you will get into bottom-up planning — the brass tax.

Types of Bottom-Up Plans

In order to model out how you will achieve that high-level financial plan and how to best activate the growth levers, it’s helpful to have a detailed bottom-up model, where you map out specific activities, assumptions, conversion rates, and resources. In order to get to this type of planning, you often need to detail your results from THIS year to understand the volume, conversion rates, and ROI trends and averages. Getting your data trustworthy before planning is critical.

There are several different versions of bottom-up plans you could create, and you might end up creating a few to correlate around a number. I have seen versions of all of these at different companies with different contexts.

• Bottom-up by channel - The marketing team may create a bottom-up plan by channel, looking at channels like organic, direct, SEM, referral, affiliate, cost-per-click, etc. Conversion rates are unique to each channel, and trending growth in each channel can populate the expected pipeline and revenue for the next year. Does your current organic traffic trend and cost of acquisition get you close to the financial plan numbers?
• Bottom-up by product - Often, the finance team will do a bottom-up forecast of the growth expected for each product or product line, adding up to the total.
• Bottom-up by partner/sales region - Sales teams will often do a bottom-up calculation based on the number of reps, the productivity, and the quota of the reps. However, others might forecast based on the growth of specific customers, regions, or segments to get to the plan totals. If partner-sourced deals are significant in your model, you might forecast the growth rates expected for different partners.
• Bottom-up by campaign - Some marketing teams look at their bottom-up as the sum of different campaigns and strategies that use multiple channels or promote many different products. In this model, you might be able to forecast from registrations to MQLs to product leads or sales-sourced leads to revenue.

While the incredible detail needed to build some of these bottom-up plans feels punishing, they become the basis for the activity structure and reporting the following year - if you get the plan right in great detail, you just need to execute the plan vs. building it out as you go.

Where do we learn how to plan?

Some of MY bottom-up plans have been hacked together in different spreadsheets based on the specifics of the business and our approach to metrics and tracking - not necessarily a “best practice.” I recently came across Uptempo’s Blueprint for Marketing Planning and was impressed by how comprehensive it was as a structured outline for planning. Uptempo sells enterprise software for planning and metrics tracking - so they should have great content like this. I loved the way they wove together so many of the steps for an effective process, including allocation models and how planning transitions into execution tracking.

They also have a webinar series coming up that promises real templates and workbooks for planning. Perhaps I’ll blog some takeaways, but you might find it helpful as well:

• OCT 17 - Plan on a Page: Getting Everyone on Board with Your Annual Plan
• OCT 31 - From Plan to Performance: Campaign Strategy to Hit Your Goals
• NOV 14 - Proving Your Plan’s Impact: What Your Stakeholders Need to Know

With such tight budgets in this challenging economy, there’s more scrutiny than ever on our budgets and plans. Hack-job planning might not make the cut this year.

A Few Gotchas to Avoid on Bottom-Up Plans

Getting the format of your bottom-up plan is critical and unique to your categories, goals, and business. But even if you get to a format you love, there are a few major issues I’ve encountered that you should watch for:

1. Tempted to Keep Simplifying - You may still be tempted to blend different categories in your bottom-up model, simplifying for clarity but eliminating some critical detail. At one company, we had B2B and B2C revenue streams, with different levels of packages in each (Individual/Team/SMB/Enterprise). Plus, we had regions layered on top. Plus, we really ran the business based on monthly performance, not quarterly, so we wanted to account for monthly seasonality. At every step, someone on my team would ask if we really needed to model at the level of detail we were at. It was getting so complicated and hard. But we really needed it to navigate many different variables changing at once - and to see seasonal and recency trends that significantly affected the following year. It was a ton of up-front work, but in the end, it really paid off.
2. Thinking Budget Planning Completes Bottom-Up Planning - A few weeks ago, I wrote about the value of looking at Cost of Acquisition (CAC) Ratios as one critical strategy for planning marketing budgets. I LOVE THIS STRATEGY! However, it’s not sufficient alone to build a viable revenue and pipeline goal model. There are two main reasons:

Organic may be more important than paid: For many high-growth companies, the organic trends are more important than the paid advertising budget because organic represents a higher % of the overall pipeline build. For instance, when Atlassian was in hypergrowth, 75-85% of our pipeline came through different organic inbound channels - meaning only 15-25% of the leads came through paid tactics. If we doubled or even tripled our paid budget - but ran into big trouble organically, we would still be behind. A bottom-up plan needs to look at the different marketing channels and their trends separately. Looking at budgets that favor paid might hide changes in relative value and momentum of paid:organic.

Conversion rates differ greatly - The conversion rates for organic leads can often be double or even triple the rates for some paid channels. Blending conversion rates is imprecise because it doesn’t account for changing ratios of the channels to one another - inaccurate assumptions on models can have really significant effects and should be carefully scrutinized.

Then You Throw in the Magic

I once worked with a CEO on a financial plan (between Christmas and New Year's), trying to figure out how we could make up for the big gap between the top-down and bottom-up budgets. We still had a 10-15% gap between our models when he said, “What if we add in something lucky we don’t know about yet?” As a constant worrier, this was not a model I had considered. I had only added in some buffers to imagine something UNlucky. He provided examples of a few things that had happened over the last few years that had given a massive, unexpected bump to results. So, we modeled something lucky in the first half of the year and the second half of the year. It made me very, very nervous, but it was an explicit assumption between the two of us. Would you believe it worked that year?! A competitor had a major issue, and we ended up with a huge influx, helping us meet the “lucky bump” plan. I’m still not sure this is a “best practice,” especially in a tough market, but it was an interesting approach to filling the gap.

Building Buffers

In a high-functioning company in a good market, another planning best practice is to create different buffers to give yourself space to meet or exceed expectations. For instance, companies may run a buffer of anywhere from 5-15% of their stated board or street goal vs. their inside goal. For example, if your investor committed company goal is $200M this year, your internal goal may be $220M. This helps you push your team to reach their maximum potential but still gives you space to be on target, even if they can’t get all the way there. I’ve run into some trouble before where buffers are too big or too far from reality. If the team thinks it’s completely unattainable or knows they can miss without missing the “real numbers,” you lose a culture of discipline around the stated goal.

Why Do We Get Experience AFTER We Need it?

Unless you’ve worked for a really well-run big company (and maybe then only as a Chief of Staff), you may never have been taught how to plan effectively. It’s a skill most of us learn on the job - and one we might only master AFTER we’ve made some mistakes. It comes once a year and is a high-stakes, tight-deadline project.

Further, building annual plans is part science and part art. Have you selected the right strategy? Have you based calculations on the right current trend? Do you have enough people, budget, and programs to reach new heights? There are many tough questions and no “right” answers. So, we must keep optimizing our processes and learning from one another. And here we are at that time of year again - sometimes, the journey is as important as the destination.

What other gotchas have you found in annual planning? Do share!

Carilu Dietrich is a former CMO, most notably the head of marketing that took Atlassian public. She currently advises CEOs and CMOs of high-growth tech companies. Carilu helps leaders operationalize the chaos of scale, see around corners, and improve marketing and company performance.