I stumbled on to a nice blog( Will Price ) which gives an insight in to the way in which sales and revenue model needs to be designed to use and pitch to the investors.

Sales Forecasting:
In this model, future bookings are NOT a function of market share, size, and penetration rates ($500m market x .005 penetration, or $2.5m) but rather of how many mature sales reps are in the company and the expected sales rep quota and productivity.

First Model Bookings
Bookings = mature reps x quota per rep x productivity
Bookings = purchase orders
Mature reps = the number of reps with sufficient market and product experience to be effective (typically six months with the company)
Quota = bookings quota per year (typically $1-2m per rep in a start-up, and $2+m per rep in a mature company)
Productivity = percent of total quota achieved, on average, by the sales force
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Then Assume Bookings Mix and Revenue Recognition Policy**
To get to revenue, we then need to assume 1) a revenue recognition policy and 2) a bookings mix across license, maintenance, and professional services. This mix is typically 70% license, 15% maintenance, and 15% professional services.

Wrt revenue recognition, license revenue is recognized at the time of sale, while maintenance and professional services revenues are recognized pro-rata over the course of the year/project.

Sales Management:

Top leaders must constantly evaluate where an opportunity is relative to the key sales milestones and if sales reps are realistically categorizing various opportunities.

Sample Pipeline by Sales Stage

  • Prospect New (10% probability - telemarketing lead or tradeshow follow-up)

  • Prospect Engaged (20% probability - webex, phone contact, early requirements discovery)

  • Technical Evaluation (30% probability - demo/presentation completed, NDA executed)

  • Budget Qualification (40% probability - major discovery requirements phase)

  • Proposal Submitted (50% probability - confirm budget, test commitment)

  • Technically Selected (60% probability - building ROI analysis with customer)

  • Contract Negotiations (70% probability - reviewing proposals, technically selected)

  • Getting Final Signatures (80% probability - selected, budget confirmed)

  • In Purchasing (90% probability - waiting for fax to ring!)

  • Closed (100% - purchase order in house!)

When forecasting revenue, try to match each sales engagement against the milestones/stages listed above