Sales forecasting accuracy hit an all-time low of 46% in 2012. Just about every business and industry experiences peaks and valleys in their sales cycles, but, even with large investments in sales and marketing automation technology, the problem is getting worse and not better. Did you just throw good money after bad in hopes of achieving sales forecasting nirvana? What on earth is going on?
There are two consistent views about sales forecasting, both fraught with their own pain. Either sales forecasting is inaccurate and unreliable, or it is accurate and useful but time-consuming.
Possible causes for ineffectiveness and inefficiencies in sales forecasting:
- Companies have some basic issues that can’t be easily addressed, which impacts the process of forecasting.
- Companies are using arbitrary confidence factors that create more pain than successful results.
- Companies do not have a forecasting process in place and are not using their resources to ensure closing the sale.
The “basic issues” mentioned in the first bullet could be faulty processes, metrics, or behaviors. This segues into the second bullet regarding confidence. How honest are your sales reps when reporting probability and timing of sales? Do they inflate or overestimate the numbers so as to look good (or not as bad)? It’s understandable that this can happen from time to time, but are there serious repeat offenders?
Questions and ideas to consider that will resolve forecasting issues:
- Take a dispassionate view of forecasting within your company and business unit. What are the levels of reliability and accuracy?
- Does a forecasting process exist? How does the forecasting process work? Is it time-consuming, and does it and require many reports? Is it a burden for the sales managers? Is it worth the effort?
- How is confidence defined? Is the company using arbitrary factors that falsely report their closing rates?
- How does the company manage behavior around forecasting? How is the forecast completed on a timely basis? Do your sales reps operate in a culture of speaking the truth or saying what they think you want to hear?
- Does anyone put stock in the forecast and make business decisions from the data? Or, is it a delusional exercise of going through the motions?
Understanding what processes and guidelines are already in place will help you to improve forecasting. The basis for a strong forecasting system is instituting a concrete process.
What can you do to help improve sales forecasting?
- Process mapping. Does a forecasting process exist? Closely examine the steps for all involved. Make sure that there are no significant gaps, but also, try to weed out overcomplicated granular bits that don’t really factor into decisions.
- Evaluate current metrics. Identify leading indicators. What’s important to your business and related functions? What goals are you trying to achieve? Are they being tracked in the sales and delivery processes? How are sales reps and sales managers held accountable?
- Define predictive indicators, and track them individually to close on a “deal by deal basis.” This will help create reliable confidence factors and changes in sales cycle velocity. You can also help identify where sales reps get stuck in the sales process and how forecasting becomes inaccurate because they’ve spent too much time on a particular deal.
Even with our current technology, people still roll their eyes at local news meteorologists, who are seldom able to predict the weather with much certainty. You don’t have to suffer that same indignation. Without completely re-engineering a broken sales forecasting process, you can correct and improve fundamental issues within the process that will impact accuracy, reliability, efficiency, and confidence.