What Most Sales Forecasting Methodologies Are Missing
Most people start their day by grabbing the remote control, turning on the TV and checking that day’s weather report. "There's a fifty percent chance of rain today," says the weatherman. Fifty percent? In other words, it may rain today or it may not. This is not exactly what one would call information that empowers the day’s decision-making.
What if the weatherman on channel 2 says it would be "partly cloudy?" Yet, weatherman on channel 4 makes the call for "mostly sunny." These are two very similar situations forecasted differently be the weatherman. Forecasting is open to interpretation making it difficult for the recipient of the information to make heads or tails of it.
When it comes to sales forecasting, most sales leaders use a percentage ranking system to score the deals in the sales pipeline. However, there is often an element missing which puts the entire forecasting exercise in jeopardy.
Imagine you have ten sales people on your team. Each person has a deal in their sales pipeline forecasted at a fifty percent chance to close. What does fifty percent mean? Is the seller optimistic? Pessimistic? Are you to interpret that ranking as the seller having no idea whether or not the deal will happen? The missing element is a well-defined definition that corresponds with the percentage.
Without percentage definitions, each of the ten deals could be at totally different stages of the process even though each is reported as a fifty percent chance to close. In other words, the forecast data is completely meaningless if the percentages do not have a defined context.
To design an effective sales forecast methodology for your sales team:
1. Analyze your sales process and document each step.
2. Based on historical sales success, correlate a percentage (or a percentage range) for each process step.
3. Assign a clear definition for each step corresponding with that percentage.
4. Train your sellers on the methodology and hold them accountable for correct forecasting.
5. Be sure your CRM is configured to support your forecasting methodology.
How important is forecasting accuracy? Ask the product seller who can’t get an order through because there isn’t enough of the product on hand. Or, the services sales person who can’t get her deal done because there aren’t enough people to support the account. Or even the sales leader who was fired because the company over purchased product based on the reported forecast.
While it may cause chuckles when the weathermen are inconsistent, there is nothing funny about sales management executives who cannot accurately forecast sales.