Sales forecasting is notoriously difficult, and often inaccurate. In general, only one in four deals closes as predicted. Statistically, that’s a worse success rate than flipping a coin, or choosing at random.
Business can seriously be impacted by it and the negative consequences are significant.
Incorrect sales forecasts impact a sales organization’s credibility, compromise future strategy and could even stand in the way of securing future funding from the organization.
But without definitive data to draw on, creating an accurate projection is more easily said than done.
Successful forecasting requires a thoughtful, calculated approach that minimizes the chances of misjudgment or accidental bias.
It’s a unique challenge, but with the right approach salespeople can create accurate forecasts give them confidence that they know what they need to do to make quota, and gives the company real guidance on the outlook for the business.
Here are five of the most successful sales influencers outlining their best advice for minimizing confusion, standardizing expectations, and establishing a solid foundation for the most accurate forecast possible.
1. Anthony Iannarino, International Speaker Author and Sales Leader
True accuracy only comes from understanding each opportunity. Sales managers need to review and test every opportunity to ensure that the prospects have really committed to change.
To improve the forecast, managers need to verify that process is being followed and buyers’ needs are being met, while keeping a sharp eye out for threats to the final conversion.
A simple way to eliminate unsecured leads? Delete any opportunity with a closing date of March 31st, June 30th, September 30, and December 31st. When salespeople use quarter end dates (or month end dates), it is an indication that the prospect hasn’t agreed on a date.
2. Geoffrey James, author of Business Without the Bullsh*t and How To Say It: B2B Selling
The most important thing to do when forecasting is to strip away the politics. Forecasting is innately self-interested. Salespeople being asked to accurately anticipate their performances are almost guaranteed to err on the side of optimism. It may seem like forecasts are inherently biased, but there are always ways of evening the field.
Here are three simple strategies:
1. Separate forecasts from quotas. There’s nothing wrong with having quotas on their own, when you’re trying to come up with a meaningful projections, tying quotas and compensation into the conversation makes things a lot more complicated.
2. Reward accuracy. While there’s no question that the sales team should be able deliver sales to make the company successful, the forecasting process needs to reflect realistic possibilities, not wishful thinking. Shooting the messenger isn’t effective. Having a “just the facts” attitude sets sales organizations ahead in the long run.
3. Limit the forecasting process to seasoned professionals. Having too many players involved brings in a slew of weird organizational baggage. Marketing, manufacturing, accounting and top management should react to the sales forecast, rather than drive it.
3. Matt Heinz, President and Founder of Heinz Marketing
The best way to ensure forecasting accuracy is to build it into your culture, making it part of people’s general expectations. Use consistent definitions (i.e. what is a good lead, what is a qualified opportunity, etc.). That’s what lets you trust the data you have. The entire sales & marketing team needs to understand these definitions, and sales management needs to enforce their usage on a regular basis.
Understand your sales cycle, paying careful attention to the length. By building in a typical (or even conservative) sales cycle length into your model, you’re making it easier to map expected sales to the week, month, quarter or year in which they’re likely to land. That, combined with an understanding of the market as a whole, will set your organization miles ahead.
Set clear processes and expectations for forecasting in place, so that reps know exactly what they should be weighing and considering.
Finally, reward accuracy and honesty. Create incentives for your reps to accurately forecast their expected sales. Foster an environment where honest changes to forecasts, even if the news isn’t good, is encouraged and rewarded.
4. David Meerman Scott, Sales Strategist, Keynote Speaker, and Bestselling Author of 10 Books Including the New Rules of Marketing & PR
The best forecasts are no forecasts. You ultimately need to just let salespeople do their jobs. Obsessing over sales forecasts and having sales managers focus on “managing” salespeople to forecasts is exactly the problem. It is why salespeople are less effective today. So the premise of your question misleads people to failure.
It’s not a sales cycle anymore—it’s a buying cycle, because now potential customers have near perfect information on the web.
A micro-management of salespeople and detailed obsession on forecasting via CRM and salesforce automation systems leads to failure because those systems were built and the algorithms developed in the old days of selling. As soon as you worry about forecasts you’ve lost.
Instead, focus on the buyers and their problems and let salespeople do their jobs without interfering and forcing them to enter ridiculous amounts of data into your CRM systems.
5. Donal Daly - CEO of The TAS Group, author of Amazon #1 Bestseller Account Planning in Salesforce
No business should ever rely on the "commit theory" of sales forecasting. Committing a deal will come in doesn’t make it so.
Yes, accountability is good, but the misguided use of commitment can completely undermine a good sales practice, alienating good salespeople and damaging customer relationships.
There are four things that sales managers can do to ensure that doesn’t happen:
1. Consider the team’s quota as well as the number of deals closed, in process, and projected. It’s an extremely intuitive step, but one that many organizations are missing. Past performance is one of the clearest indicators we have of future achievement.
2. Implement a standard sales process across for the entire team to follow based on customer-verifiable outcomes and specific evidence.
3. Build an early warning system to spot risks, highlight inactivity, deal slippage, or factors that might indicate that some of the key deals might be hard to win.
4. Determine where to focus. Not all deals are equal and unless priority is given to the ‘must win’ deals to make the forecast and the quarter, the risk is that all deals will slip. Each deal in the forecast should be categorized as a ‘must win now’, ‘must develop for next quarter’ or ‘qualify out’ – so that you are laser focused on the deals in your forecast.