Forecast accuracy is a touchy subject at most companies and among most sales leaders.
Most sales professionals have the same attitude towards forecasting as a cat does towards a swim in the sea or a diner has towards a rat in his soup. Being held down to a commitment is a part of it. Spending valuable time in a CRM, or would-be, system that outwardly does not provide value to a salesperson’s bottom-line is the major anathema to salespeople. This is difficult argument to overcome because the manner in which CRM/spreadsheets/forecasting tools are (mis)used at companies leaves a lot of room for criticism of the kind. However, when done correctly systematic forecasting is useful not to mention mandatory.
The stock method of forecasting at companies is:
- Tally the total amount of forecast dollars available. This is typically done for the Quarter and, by extension, for the year, although a company like Salesforce, for example, forecasts monthly.
- Review which percentage of forecast dollars in similar previous timeframes ended up as sales wins. For example, if 25% of the forecast amount from previous year’s same quarter ended up being a completed transaction then the same ratio should be applied again. Note the opportunity to explore ways to improve the ratio.
- A thorough review should be applied on top of the above pattern to special deals in the pipeline. That is, if there is a particularly big deal in the pipeline or a especially large miss is occurring in the forecast timeframe then those have to be distinctly taken into account. These one-time ‘events’ need to be taken into consideration exceptionally as they are exceptional to the pattern. Sales managers need to have a bracket for what makes this deal ‘special’ within the context of the company’s average deal size.
Special ‘events’ or deals which need added consideration include:
- Special deals in the pipeline (as described above)
- Extraordinary misses in the pipeline (as described above)
- A special scrutiny of the Top 10 of the biggest deals being forecast
- A special scrutiny of the deals in pipe for the Top 10 biggest existing customers for the territory
- A special scrutiny of the deals in pipe for the Top 10 biggest customers by company size for the territory
- Deals which are considered won already although are not officially booked yet.
With the process outlined there are several undertakings that would complement the above and should be mandatory.
- Everyone needs to be trained on the system and shown how the calculations are rolled up. One should not assume everyone knows, or can figure out, how to use Excel/Google docs/CRM/methodology of choice. Speaking the same language is a must if the company is to work in lockstep. Define and explain your stages, nomenclature and its prerequisites and, if using a tool like Microsoft Dynamics, Salesforce.com, Sage CRM, Maximizer, etc., use the out-of-the-box templates and definitions as much as possible. Forecasts need to be a lot more science and a lot less art.
- Consistency wins. For the sake of credibility and not sending a message of pointlessness stick with the regimen and enforce it for the medium-term. It will become a matter of lost authority if the company asks for a work and time commitment with forecasting and does not follow through. The sales team needs to routinize the updating of the system.
- The process and time spent on the above need to be justified and explained. Having a clear sales forecast enables sales managers to report accurately and be accountable to the company, but also it must be a tool in identifying where and whom requires assistance. That is the personal aspect of forecast accuracy and it is very important. Forecasting is ultimately ironic if it does not help sellers sell to buyers and does not identify buying patterns and cycles. Please read that last sentence again. The macro picture is one of a company which knows, understands and addresses its pipeline and can make better decisions towards its own fiscal health, which helps everybody within the ship.
- Think about incentives to motivate the sales team to adopt and maintain the routine. How about 5% of the sales team’s variable depending on forecast thoroughness and maintenance?
- It also needs mentioning that companies should automate this process as much as possible. Given how it is a mostly inward looking process and is not adding direct value to customers liberating sales teams’ time to spend more time on customers is a bright idea.
And here is the most important thought in all of this to emphasize: the above must not come at the expense of team morale and a customer-focused sales process. Salespersons and sales managers cannot get lost focusing on the above at the expense what is more important: working with customers.
*Things That Need To Go Away: New Forecasting Process Or Tools That Are Here Today; Gone Tomorrow