Accurate Sales Forecasting—An Oxymoron?
Sixty Percent of Forecasted Deals Do Not Close.
Not surprisingly, this CSO Insights data also shows that one in four companies are unhappy with their ability to accurately forecast sales.
That means a lot of revenue is left on the table — a huge opportunity I know I’m not prepared to miss.
CSO’s 2018 Sales Operations Optimization Study says “forecast accuracy remains an oxymoron, even though having accurate sales forecast results in operational efficiencies throughout an organization.”
Sales forecasting is the primary vehicle executives use to manage the expectations of anyone with a stake in the company, including board members, investors, and industry analysts.
Admittedly, it is near impossible to predict the future, but more effective and accurate ways to forecast expected revenue than what I see many sales managers doing today.
Confusion contributes to poor sales forecasting, especially between making your number and making your forecast. It’s a significant difference that can impact staffing, margins, even shareholder value.
As an example, one of my sales reps had an annual quota of $1 million. He needed to sell one deal each quarter worth $250,000. His pipeline contained four deals averaging $300,000 each with a probability of closing at 60 percent.
According to this forecast, he’s on target not only to make the quarter but also to secure his year’s quota. After all, if he hits the 60 percent projection, he’ll book $720,000 (60 percent of four deals at $300,000).
But what does 60 percent mean? Without structure, consistency or ongoing modeling, it simply means it’s better than 50/50 and more cautious than forecasting 90 percent.
As a CEO or sales leader, this conundrum resonates with you. Salespeople want to be optimistic. They prefer to project greater success. However, I learned 60 percent is pessimistic for this sales rep. He always over projected and underperformed.
Add to this, those sales reps who were “sandbaggers”, always under projecting and over delivering. How can you do an accurate forecast?
The CSO study examines the problem through the lens of barriers to accurate forecasting.
The chart below answers the question, “what is preventing our organization from improving our close rate and achieving more accurate forecasts?
Here are the main reasons (or excuses) for poor sales forecasting. Do you recognize your situation here?
Barriers to Accurate Sales Forecasting
As I look at the study and reflect on my own situation, I adopted few solutions covered in the chart. However, one issue is not mentioned as a possible root cause of the sales rep example.
The first thing I did was to step back and evaluate my company’s sales process, our systems, our people and strategy. Using OMG’s sales evaluation tool I knew I could get to the bottom line.
Here’s what I found: First, my reps feared telling the truth about current opportunities. Most salespeople do not have enough quality opportunities in their sales pipeline. And they continue to drag poor quality, unqualified opportunities along, including them in forecasts to avoid being hounded by their managers for an insufficient volume of qualified prospects.
Second, I adopted a formal sales process, with a common language, that was repeatable and enabled us to strategize all opportunities.
With this step, we used a “scorecard” to look at past successes against which to measure.
This insight gave our managers the tool needed to discuss opportunities and understand where they were in the sales process.
Real Reason for Poor Forecasting
Finally, we discovered in the OMG sales evaluation (not discussed in the study) one of the main causes for poor forecasting, which led to failure to close business, sat squarely on the shoulders of the salesperson. And the whole pipeline process stalled or disappeared because he or she did not possess solid sales skills and sales DNA.
By example, the sales evaluation identified certain weaknesses inherent in some salespeople, like not being comfortable talking about money or needing approval from prospects, that were causing deals to stall in the pipeline. They were allergic to the two-letter word “No.” And were chasing deals which died long ago.
The salesperson I mentioned earlier developed extensive experience with a competitor. He sported a great image, earned many professional designations, and exhibited an outgoing, friendly personality.
However, upon testing through OMG, his sales DNA pointed to his issues with hunting for new business, closing pending business, and asking for money over a certain dollar amount.
If you met him, you would not think that was the case. So, not amount of sales forecasting with this rep could ever be accurate.
Yes, there are certain data you need to accurately sales forecast such as:
- Sales rep metrics: the historical win rate
- Stages in pipeline: opportunity stages unique to your business
- Sales cycle: time it takes to close and win opportunities
But data only goes so far.
My takeaway message today:
Do not waste time frustrated over missed forecasts until you establish with certainty the sales credibility (or fears) of the person doing the forecasting.
See you on the upside,Bill
For more information, go to www.pleinairestrategies.com
Or call William L. MacDonald in San Diego at PleinAire Strategies LLC at 760.340.4277 or 213.598.4700