February 15th, 2013

A Few Simple Questions and Practical Ideas to Exterminate Sales Forecasting Gremlins

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.

About The Author: Dario Priolo

As Chief Strategy Officer, Dario Priolo is responsible for driving Richardson’s market, product, and corporate strategy and planning — sharing critical insights with clients to help them win in today’s changing market place. Dario gathers intelligence and market and customer knowledge to: drive Richardson’s innovation; ensure that Richardson offers the best and most relevant solutions for clients that exceed client satisfaction; and raise awareness of Richardson’s extensive capabilities with sales and business leaders.

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4 Responses to “A Few Simple Questions and Practical Ideas to Exterminate Sales Forecasting Gremlins”

  1. February 15, 2013 at 10:24 am, Matt Guido said:

    Great insight, couldn’t agree more Dario. Companies need to do more with their process, analytics, and leading indicators of deal quality that go far beyond sales stage and subjective “verifiable outcomes” from reps/sales managers.


  2. Mike Kunkle

    February 15, 2013 at 10:40 am, Mike Kunkle said:

    Great thoughts! It’s always puzzled me why companies toss out a number that is some air-chosen percentage higher than last year, and work backward to allocate out territory or rep goals. And then, later, sit around a conference table and wonder why their forecast accuracy is 46%. Hmm.

    There are so many things wrong with that approach, that I (almost) don’t know where to begin.

    The only thing I’ve seen yield great forecasts, is this:
    * Start with account reviews, to forecast what additional sales are realistic within current accounts. To do this, I’d recommend a logical assessment process of account/opportunity factors, not just a wet thumb held up the wind or a guesstimate provided by overly-enthusiastic reps.
    * Review the current opportunity pipeline for a realistic assessment of what will close and when. (Hard to do without your process mapping suggestion in place… )
    * Get out the statistical Magic 8-Ball for an assessment of the hottest prospects and do some probability analysis based on likeness to current accounts. This is where the metrics and predictive analysis of lead indicators pays big dividends.
    * Roll-up this analysis by Territory and Rep and total it.

    What? Goals won’t be uniform across reps or territories? Nope. But they will be based on a far better analysis framework than a 16% growth estimate that was picked in a board room and rolled down. 😉

    Curious to hear what others have to say on this.


  3. February 16, 2013 at 9:42 am, John Cousineau said:

    Dario: tough topic, thoughtfully framed. IMO degrading forecast quality is a natural by-product of the increasing uncertainties / complexities of sales situations. Requires that we re-think efforts to foretell future results. Much to be gained from applying Taleb’s ideas on ‘AntiFragility’ : focus less on making unpredictable circumstances predictable, and more on buffering them from big mistakes [such as ‘big deals unexpectedly lost’]. Put another way, when you’re dealing with situations fraught with uncertainty, you’re far better off modifying your exposure than honing your calculations. Trust this adds some value. – John


  4. February 16, 2013 at 3:14 pm, Tim Ohai said:

    I think there’s a fundamental flaw in most forecasting methodologies that is producing such horrible results. The flaw is this: most methods base the forecast off of activity, not relevance. In other words, without the extra push into what the sales rep is discovering in actual conversations, any predictions are unreliable. Sadly, I can usually rip apart a forecast with just a handful of questions designed to explore what the customer interactions are based on. It’s too bad more sales leaders don’t do the same. So much wasted effort in the name of genuinely good intentions.
    Here’s my extra commentary on this topic: http://www.facebook.com/permalink.php?story_fbid=480589318666960&id=163465787045983&notif_t=like


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