Most Sales Managers would agree that accurate sales forecasting is important. Why, then, do so few of them use sales forecasting to full effect? Why, year after year, do they lament poor revenue projections, wayward goals, and missed quotas? Why do they cling to baseless projections instead of using solid data and appropriate key performance indicators? The answers are easy to understand if you appreciate the importance of accurate sales forecasting, recognize sales forecasting trouble spots, and implement a few simple changes to your sales forecasting methods. Here’s what I mean:
Why Does More Accurate Sales Forecasting Matter?
Let’s start with the basics: Just what is sales forecasting? It is using available data, tools and indicators to predict sales activity – particularly closed sales – in a given time period, usually monthly, quarterly and annually. Pretty important information to have and utilize, right?
And yet, many sales organizations fail to recognize the importance of accurate sales forecasting, perhaps for two reasons: 1) They don’t fully understand the bottom-line importance of accurate sales forecasting to their organizations; and 2) they don’t know how to actually DO accurate sales forecasting.
Simply put, accurate sales forecasting makes it possible for sales organizations to more effectively:
- Plan staffing, marketing, and sales activities
- Budget for sales and marketing expenditures
- Improve sales processes and sales compensation plans to motivate better sales performance
- Upgrade infrastructure when appropriate
- Serve prospects and customers better via more appropriate territory alignment and client management
As to how a sales organization can improve sales forecasting, the first issue to overcome lies with the sales reps entrusted to provide accurate sales forecasts in the first place…
Sales Reps and Sales Forecasting
Regardless of their methodologies for sales forecasting, sales reps typically mean well. But, as is the case with their Sales Managers, they often don’t understand the impact of inaccurate forecasting. Nor do they fully appreciate and utilize the data and tools necessary to provide accurate forecasts of their sales performance. What our licensed sales consultants at Sales Xceleration often find is that sales reps typically fall into one of three types:
- The Optimist deserves credit for being a “glass-half-full, believe-it-and-you-can-achieve-it” kind of person. However, despite experience and knowing deep down that not every hot prospect will convert, they hold tight to a positive outlook that ends up inflating projections and falling short of closing projected sales.
- The Pessimist isn’t necessarily a “Gloomy Gus,” but might simply be a sandbagger – one who purposely, even if subconsciously, downplays sales conversion potential and then looks good if they exceed projected closings.
- The Realist is a rare breed who keeps things in perspective and sees a more accurate sales closing landscape. Whether it is because The Realist uses data and tools to monitor and predict conversion potential, or because they simply have a finely-honed sense of that potential, this sales rep can be counted on to provide reliable data.
How to Guarantee More Accurate Sales Forecasting
Unfortunately, the Sales Manager is likely to have more Optimists and Pessimists feeding them information and projections. Either way, trouble lurks. If the Sales Manager believes The Optimist, money may be budgeted that will not materialize. On the flipside, if the Sales Manager relies on input from The Pessimist, opportunities may be missed to effectively budget money from sales that will close even if not counted on due to sandbagging.
Of course, there is more to sales forecasting than just the input of sales reps. The wise Sales Manager improves the quality of sales forecasting in these ways:
- Pushing back against baseless sales rep projections that appear overly optimistic or pessimistic
- Using solid and reliable data from your CRM system when creating projections of future revenue potential. Data from the CRM can provide the Sales Manager with essential, insightful and powerful leading Key Performance Indicators.
- Making accurate sales forecasting a team priority where all team members are challenged to improve their sales projections and commit to achieving them. Sales forecasting accuracy could even become a part of a sales rep’s compensation structure.
- Aligning sales forecasting data with sales process activities and terminology.
- Focusing on Age of Opportunities in the sales pipeline. Spotlighting stalled opportunities can help resolve these forecasting nightmares, either through more aggressive follow-through or purging them from the pipeline.
- Focusing on conversion ratios by pipeline stage. Knowing the probability of closing a deal based on its status in the pipeline can give the Sales Manager a better sense of the accuracy of a sales rep’s forecast.
- Monitoring and following up on forecasts in mid-cycle to make necessary performance or process corrections.
The Bottom Line:
Accurate sales forecasting plays a critical role in effective sales management and company revenue growth. At its essence, accurate sales forecasting is both art and science. Unfortunately, too many sales organizations rely too much on the “art” side, using unsupported human input rather than the “science” side utilizing important available data. To learn more about how to implement more accurate sales forecasting in your organization, click here to connect with a Sales Xceleration Advisor in your area, or simply contact us today at 844.874.7253.
Want to learn more about sales consulting and sales strategy? Read about various sales topics in our sales consulting blog.
