Accurate Sales Forecasts are a primary measure of sales leadership
One of the great frustrations in sales management is presenting accurate sales forecasts to the executive only to find the numbers falling away and the report failing. Accurate sales forecasts assist companies in determining cash flow, operational requirements such as stock, labour, production, importing forecasts to name a few. It is a pivotal report and in today’s world, has to be as accurate as possible. You can never gain 100% consistently in the report due to customers changing timelines and priorities, but you can get them to over 80% which many CEOs would accept.
Here are seven reasons why reports are inaccurate and how you can fix it from a management perspective:
1. Poor CRM Adoption
Most companies that have forecasting problems have a CRM adoption problem. Salespeople enter opportunities when they are close to the finish line as they shy away from being hyper-scrutinised by having opportunities registered in the pipeline. They see now no value in the CRM as a sales and forecasting tool.
If the team sees no value in the CRM, then the wrong conversations are occurring, and the CRM is not customised correctly. The sales manager should be coaching each person to increase the quality of the opportunities and guide them through the sales process. The CRM should be triggering them to cover off on specific points that ensure the opportunities are sound at each step of the process too.
To achieve accurate sales forecasts, the CRM needs to be reviewed and customised to support current and specifically your buyer processes. The sales manager needs coaching on how to maximise the conversations around opportunities with the team.
2. Probability Factor Speculation
One of the greatest frustrations for any sales manager is the probability factor. The probability factor alone is one of the major contributors to pipeline failure and wildly inaccurate forecasts. A methodology developed by software companies but does little for business management. The probability of a deal is a perception of the individual at a point in time. Under pressure, the probability is higher to increase the value of the pipeline, and the overall value of the pipeline quickly gets out of control.
To achieve accurate sales forecasts, the best approach is to switch off the probability factor or have it as a fixed field on each step of the process. The percentage you need to be mindful of is the performance ratio statistics of a new opportunity to the proposal, proposal to close for each individual. This change will give you a more accurate pipeline and forecast.
3. Lack of Focus on Pipeline Velocity
The team is not focused on a steady flow of qualified leads coming into the pipeline each week and month. The important first appointments to start the process are not occurring, and the pipeline quickly becomes lumpy with highs and lows of revenue in the future.
To achieve accurate sales forecasts, the sales team must be working closely with the marketing team to ensure demand generation is happening with the right type of leads being pushed into the pipeline.
4. Depending on too few decisions
A common failing is that there simply isn’t enough in the system to take account of unpredictable factors. Companies are using the total sum of the pipeline as a measure against the forecasted number. The pipeline minimum value must be the forecasted number and ideally, two or three times greater, with the probability factor switched off.
The big deal syndrome where one sale will pull everyone over the line is a red flag warning that no-one is reviewing the pipeline. There must be numerous opportunities in play for a pipeline to be reliable each and every month.
To achieve accurate sales forecasts, the sales manager must be ensuring that future forecasts are more achievable through increasing the number of opportunities in any given period.
5. Sales Process Without Measurable Steps
For many companies, the salespeople are allowed to work with their own sales process. Something they have developed over the years as a habit in how they work with prospects and customers. It may have some merit, but most are mashes of things they have learned along the way if they even use a process at all. These salespeople are the most unreliable to have in a team and create the most chaos on a pipeline.
To achieve accurate sales forecasts, every company requires a sales process that everyone is required to adhere to. A process that is aligned with the customer buying patterns and is sufficiently gated with tangible actions to ensure each step taken is well covered. A sales process with measurable steps stops salespeople prematurely moving an opportunity deal to the next step in the sales process. The sales manager should be working through those actions with the salesperson to assist them to gain full coverage at each step of the process.
6. Management Methodology
Pipeline reviews with team members is a must on a weekly basis. Your robust scrutiny of the deals against agreed steps assists salespeople to stay focused. It also provides you with focused coaching opportunities to minimise the slippage in deals with points being overlooked or important questions not be asked of the buyer.
The following are areas of focus with ales team members that can impact accurate sales forecasts
Inadequate Opportunity Qualification Methodology – Without a qualification process, salespeople can make themselves — and their manager — believe that opportunities in the forecast are substantial. The qualification process must be a stringent set of questions that allow an opportunity to start moving through the pipeline. These questions are asked of everyone prospect, including where there are multiple decision-makers. The sales manager should be asking the salesperson to confirm those answers as part of moving the opportunity into the pipeline.
Over-estimating the prospect’s true position – Most salespeople have a natural bias to believe that the prospect is further advanced than they are in their buying decision process. A good sales manager needs to balance the optimism of your sales team by constructively challenging the sales person’s assumptions. They need to guide them to recognise what they do not know about the prospect or opportunity or what they may have naively assumed. The sales manager must guard against the salesperson telling you what they think you want to hear.
Over-estimating the prospect’s timeliness to act – There are limited situations in sales today where a genuine, compelling event exists that assists salespeople close deals. If you do find one, more often than not something will happen to make the event less critical as other priorities take over in the company. Salespeople become over-optimistic when they estimate the prospect’s timeliness to act as they do not consider that most higher-value decisions today require the consensus of a large group of key stakeholders. It is unlikely that a single powerful individual is going to force a decision without the informed consent of their colleagues.
Over-estimating your sponsor’s capability to drive the agenda – Another common reason why salespeople underestimate the time taken for opportunities to close is they overestimate the capability of their sponsor to drive the agenda internally with all the other key stakeholders. The sales manager must challenge the salesperson’s knowledge of how long, tortuous, political and sometimes downright ugly this process of engaging the other stakeholders can be within their organisation. Salespeople must also be challenged to discover if they are working with an overly optimistic and well-meaning sponsor. That can result in some seriously incorrect calculations about when an opportunity will close.
Mis-identifying or under-estimating the competitors – Having the best product or solution is not always the winning position. If competing solutions are regarded as sufficiently proficient by the customer, having the best product can become a minor consideration in comparison to a customer’s sensitivity to risk. One of the priorities in any decision-making is the risk factors. What if the solution does not work, will not deliver what is promised or causes multiple problems in other areas of the business. A company cannot rely on the superiority of your product or solution. The focus must be on getting the decision-making team to all agree that your business is the lowest risk option of all the alternatives available to them – and that includes the risks associated with doing nothing.
The bottom line to providing accurate sales forecasts
As the sales manager, you must be coaching the team for any forecast to be remotely accurate. The level of accuracy is the indicator of the degree of coaching and discipline to a set sales process that is occurring with your team. A sales manager requires a forensic mindset where they are constructively challenging the assumptions being made by their salespeople. A good sales manager must delve deep into the assumptions that underpin what they are being told and continually do reality checks to ensure everything is moving forward correctly.
Changing the culture around sales forecasts can be challenging, particularly when working closely with the teams. Sales Focus Advisory assists sales managers in designing the right CRM disciplines, education and cultural requirements to minimise the time required to shift to new methodologies delivering accurate sales forecasts.
We can work with you and your team to remedy the problem and increase accuracy. Please contact our office and schedule a call to discuss your particular situation.
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