Are you tired of receiving wildly inaccurate sales forecast reports?
As CEO, you are reliant on the information presented in sales forecast reports to contribute to your overall cash flow decisions, and other business unit managers rely on them for operational and labour forecasting. However, many companies experience sales forecast reports as nothing more than hopes and dreams.
Therein lays the dilemma. There is always an element of risk with sales forecasts, but the role of the sales manager is at all times to mitigate risk where they can. This may assist CEOS in how you can reduce the risk. Most CEOs report to us that they could live with >80% reliability but cannot live with the 30-50-70% they often have to endure. But how do companies get >80% reliability in their sales forecasts?
Looking at sales forecasts from a sales organisation perspective, in a study of sales forecasting capability by Sales Focus International, survey respondents advised that deal, and sales forecasts can vary between 30-80% of the actual figure presented in their reporting. This variation was often considered to be a result of many things related to customers and it being the ‘black magic’ that goes with selling.
How do the sales forecast reports become so inaccurate?
Many sales forecasts are as ambitious as the salespeople filling them in with potential opportunities that contain, in reality, many sales deals that will not come to fruition. The enthusiasm of the salesperson outweighs the pragmatism required for sales process management and forecasting. Some may be adding deals as they are under pressure to fill the pipeline of their sales manager.
Sales managers feel confident when pipelines are full and measure this as a sign of productivity. A sense of interim comfort that all is going well for now. The sales manager’s level of enthusiasm and management discipline will play a part in whether deals stay in the pipeline or are set aside. They can be reluctant to let go of what could be potential deals without sufficient consideration of whether the potential is being managed correctly.
A common thread to inaccurate sales forecast reports is managing teams on the basis of autonomy. The greatest variations are seen as the management is arms-length from the team and has only a conceptual understanding of their performance capability.
This a real-life scenario most CEOs can relate to
We recently reviewed the sales forecast report (sometimes called a pipeline report) showing a healthy $42m of potential business for the coming 3-12 months; they were good numbers for their operation. The commentary applied to the larger forecasted deals seemed to have weight based on what was being represented. The problem for the CEO is that his confidence was dwindling with the continual receipt of sales forecasts that failed to come to fruition. In fact, the impact was now applying pressure on the overall profitability of the business. The justifications and rhetoric around the reports were falling on deaf ears at board meetings.
On questioning the sales manager how he had developed the sales forecast report, it was built around the CRM and following the out-of-the-box instructions on stages of sales. They have captured sales opportunities very early in their development using the typical CRM fields. The deal status was subjective as no systematic sales process was being applied to opportunities, and values were placed against deals far too early in the process. These factors were corroding the reliability of the sales forecast report. It was more like a dream sheet than a fact-based pragmatic report. It was, however, typical of many reports and processes that we see.
Solving the problem
Sales Focus Advisory provided recommendations for the installation of our proprietary methods of pipeline management, and the company made those changes. We coached the sales manager and team on how to report deals and installed a revised management methodology for the sales team. The accuracy steadily increased to >75% and continues to improve. The CEO is gaining the transparency he requires with forecast accuracy that can be managed.
How accurate can you get a sales forecast report?
We are often asked by non-salespeople, “Can you really get 100% accuracy on a sales forecast?” and the answer is, unfortunately, No. The customer will always put in a variable that removes total reliability due to very unforeseen circumstances, but that does not diminish the accuracy levels lower than >80%. You can get to 90% accuracy and even higher depending on your industry.
Changing and embedding a new management style to improve reports
A common myth with sales forecasting that needs to be addressed first and foremost is that problem is a salesperson issue. This is not completely true, as they are the effect and not the cause. It is, in fact, the responsibility of the sales manager and how they manage their sales force that causes the reliability of sales forecasts. If the sales leader is not applying the right disciplines and methodologies to the management of the team, then naturally, the team will not deliver.
There are five critical foundations that your sales organisation must establish before you can expect to achieve anything approaching reliability in sales forecast accuracy. They are:
- A clearly defined, well-documented and consistently applied (monitored) sales process with explicit milestones between each of the stages
- The sales process only registers actual sales value against an opportunity within the sales pipeline report once it has reached a specific milestone
- The pipeline is reviewed and opportunities tested for their validity to stay in the pipeline at all stages
- A CRM system that is configured to capture, report and analyse the key facts and figures that affect sales forecast accuracy
- An environment in which salespeople see themselves as personally accountable for fully understanding their sales opportunities and for delivering accurate sales forecasts
Many companies will read this and say, we have all that, and they may have on some level. The real test is whether you have it established correctly and consistently, and if the sales forecast is not accurate, then it is fair to say the five points are not installed correctly or working in harmony with each other.
The fifth point of the environment or culture of the business will also play a major part in the accuracy of the sales forecast. There must be an environment of accountability both at the sales management level and team level. It is near impossible to have consistently accurate forecasts without an environment in which every salesperson/manager is held accountable for their contribution. To be accountable, they must have the right disciplines in place as set out above.
CEOs need to take the lead on improving the reporting discipline within the sales organisation to ensure accurate sales forecast reports.
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