Lessons Learned in Four Decades of Sales Forecasting
To say that forecasting is the bane of existence of most sales people, managers and leaders is a bit of an understatement. In working with sales organizations worldwide, it seems as though more time is spent in forecast meetings than actually meeting with clients and prospects! For most sales reps, the choice between working on the forecast and getting a colonoscopy would lead to a trip to the proctologist. And yet, most organizations rely heavily on the “data” that is produced in forecasts to make decisions on everything from budgets to bonuses. I used quotes around the term data, because while the term is appropriate, many forecasts are in reality “wish-casts.” That is, the data is based on too much hope and blue sky about what may happen, and not enough empirical evidence to be accurate.
In the CSO Insights 2016 Sales Performance Optimization Study, respondents reported only 45.8% of forecasted opportunities closed, 30.7% were lost, and 23.5% were “no decision.” Losses to competition is one thing – but the alarming news is that your reps are wasting huge amounts of time on opportunities that will never close! This suggests a failure of the funnel management review process. An effective funnel management review process identifies and culls opportunities where customers are not making a decision before the opportunity reaches a forecast. Also, if the funnel management process is functioning properly, CSOs can expect that the percentage of wins within a forecast would be better than the odds of a coin toss!
Simply providing routine inspections of the numbers reported up the chain of command and making adjustments based on gut feel is not enough. As a sales leader, if you want to produce better sales forecasts, it is incumbent upon you to take a different approach, working to move from a subjective to an objective approach. To produce consistently good forecasts, sales leaders need to pay attention to the following principles:
Good forecasting is based on the clients’ requirements, not yours.
Accurate forecasting requires an understanding of your buyer’s behavior. If you want to learn how sellers ought to sell, learn how buyers buy, and if you want to have an accurate forecast, the same holds true. Too many forecasts are tied to the vendors’ time period requirements and do not taking into consideration what is compelling the buyer to execute the agreement. To assess where the client is in the buying process, you should develop a series of questions based on the following criteria:
- What is the prospects’ business issue we are addressing? What is negatively affecting their business and proving detrimental to their success? How long have they had this problem?
- What is their desired outcome or future state?
- How will the prospect define success – what is their measure for a successful implementation?
These upper three are “why the prospect buys”. It shows that your team truly understands their business and business obstacles to success.
- What is our solution and how does our solution solve their problem?
- How is our company / team / t’s and c’s / solution uniquely positioned to satisfy their business inhibitors?
- What is the reward (ROI) for the deployment of our solution and how will their business outcomes be positively impacted?
- What is the risk of NO DECISION? If the prospect does nothing, what are the potential risks to their business. If there is no risk, they will likely make no decision.
Good forecasting requires continual improvement. A forecast is a snapshot not a movie. At any given time you need to remember that, done well, forecasting represents a moment in time, and since the landscape is constantly changing, forecasts need to be continually refined. You may experience changes in your business or in the marketplace that indicate that an additional milestone should be added to your process. Or perhaps you find that over time, the values you placed on each of the stages in the pipeline need revision because you have more predictive data about closing rates.
Use these principles to help your sales organization to forecast more effectively and you will have created great value for your company and made your job much easier in the process.
To help you better identify closeable opportunities and produce more accurate forecasts, please download a complimentary copy of the Opportunity Assessment Checklist.
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