Many companies who have fought the forecasting battle have now raised the white flag of surrender. Granted, they didn’t effectively train or equip their army, but that matters not. They have seen losses mount in skirmish after skirmish and have resigned themselves to total defeat. However, much like designing and implementing a battle plan, sales forecasting requires a sound understanding of goals, strategy, planning and execution.
Having been responsible for a forecast or two I understand that the task can be quite challenging and fraught with risk (both real and imagined) for both the sales manager and the sales team. Let’s begin to tackle this challenge.
I will provide a set of best practices for sales forecasting. These are guiding principles and as such can be implemented in various ways. These are not meant to be exhaustive but they should serve as a foundation on the road to improving sales forecast accuracy.
Forecasting Best Practices
- Implement a process – without a sales process you have no common language to communicate. To effectively have a meaningful sales forecast it must be based on a consistent set of actions designed to reflect your customer’s buying cycle and your corresponding sales cycle. It must include objective and measurable criteria that everyone understands.
- Don’t forecast every deal – focus on opportunities that will materially impact the overall number. Depending on the nature of your business, it’s likely that a small number of deals will make up the lion’s share of your forecast over any given period. Focusing on the most important opportunities will allow you to avoid surprises and quickly address issues that may impact close dates.
- Know your data – knowing key metrics such as sales cycle length, conversion rates, pipeline velocity, etc. are critical to sales forecasting. If you don’t know the historical data about your conversion rates it can be difficult to put the forecast into its appropriate historical context. If you know that your typical conversion rate is 15%, you can make a better assessment as to if the 30% forecasted conversion rate (for this quarter) is likely.
- Decide on a forecasting philosophy – CRM tools make forecasting a bit simpler. All come with the ability to “weight” your forecast based on the sales stage. If you have a documented process along with clear exit criteria (i.e. steps or milestones completed) to move opportunities in the pipeline, you may choose to use this as your foundation. However, in my experience you can’t rely just on the weighted pipeline (see #2 above).
- Incentivize accurate forecasting – incentives work. If the sales team is rewarded for accuracy there is a greater likelihood that there will be an open and honest discussion that will lead to an increasingly accurate forecast. An environment that encourages honest changes to the forecast (even if negative) is one where the forecast begins and ends with transparency and with less fluidity throughout.
- Train on forecasting – most salespeople and sales managers alike have little to no training in forecasting. Forecasting needs to be a core skill that both salespeople and sales management (in different measures) develop. Investing in training on how to sales forecast will almost certainly pay dividends by ensuring that your company can accurately forecast.
Sales forecasting can be a dangerous business, but it doesn’t have to be. Follow some basic guidelines and you may not become a forecasting guru, but you will certainly not dread the process and may see accuracy improve as well.