As a CEO or VP of Sales, you are dependent on the predictive forecasting of Sales & Revenue to make informed commitments and decisions. Experience has shown you that the chances of those forecasts crystallizing to actual closed sales are spotty.
CEOs that we have spoken to, say that they could often have to work with less than 60% accuracy and it can vary wildly from quarter to quarter. It begs the question, “how can companies get close to 85 to 95% reliability in their sales & revenue forecasts with more predictable cycles?”
Sales and revenue forecasts are the most hotly debated topics within a company as it has major implications across the business. They impact the labor force, capital expenditure, investment plans and other aspects of running a business. Depending on the situation, missed or incorrect forecasts can result in people losing their jobs, share values collapsing and R&D budgets being put on hold. Improved predictability in forecasts can help businesses plan better and ward off competitive pressures more effectively.
In a recent study of sales forecasting capabilities, respondents stated that forecast results can vary between 30-80% of the actual figure presented in their reporting. This variation was attributed to various causes such as unpredictable market conditions, disruptive new technologies and the like. One never stopped to ask if the forecasts were being made with adequate information in the first place.
Ambition can trump reason when sales teams are reporting their forecasts with deals that scarcely have a chance of being closed making their way into the forecast. Some may be adding deals as they are under pressure to fill the pipeline.
The forecast has contextual input from other activities within the sales organization and outside. It is best to streamline these channels by applying a standardized Sales Process for Forecasting that is machine enabled and optimized. Using the right process complemented by modern tools can create a sea change in the predictability of Sales Forecasting. Forecasting accuracies of close to 85% is not unheard of.
We are often asked by non-salespeople “Can you get 100% accuracy on a sales forecast?” and the answer is, unfortunately, no. Forecasts are only as good as the information used to create it, both objective and subjective. It is not too different from weather forecasts where none can guarantee 100% accuracy. Getting to the high 80s can be done by using the right processes, the right tools, and the right information.
At ForecastEra, we believe in triangulating the forecasts using multiple lenses and that there are five key parameters that a sales organization should establish:
Manager Review Cadence: Clearly defined and consistently applied (monitored) sales reviews where Managers review deals and assess if required milestones have been met. Managers need to compare changes from the prior forecast and must understand exact reasons for changes in the forecast from prior commitments.
Past Forecast Accuracy Scores: Understanding the past trends of Forecast Accuracy by Sales Rep and applying the right management judge to forecasts becomes a crucial factor in arriving at the right forecasts.
Predictive Close Dates: Based on historical data, having the ability to predict close dates based on the characteristics of a deal, gives a huge advantage to managers and Sales leaders to question the validity of the committed close dates by Sales Reps.
Quota Achievement History: Quota achievement history for a Sales Rep is another good indicator to understand the ability of the Sales person to meet their forecasts
What-If Scenario Planning: Developing a range of outcomes from best to worse case scenario by applying different weights to the pipeline based on historical data can help Sales leaders arrive at a range of values for the forecast.
If you look closely, there’s a thread running through these five key elements: consistent application, clear definitions, modern technology, personal accountability and continuous feedback.
Getting there is not difficult but will need discipline, strong senior management support, change management and an open mind. It would be well worth it. That increase in forecast accuracy could make a world of difference.