What Must Be In Place To Forecast Accurately?

February 16, 2009

Honestly, this will be a simple post.  I am putting it up simply because of the number of times I get asked about it and the frustration it can cause.  If you want more depth on this issue, you will have to reach out to me.  This issue is a complicated one, but some things just have to be in place to even begin the discussion.

Forecasting, as an issue, creates a great deal of frustration in the lives of owners and sales leaders. And with good reason.  Depending on your business model, an inaccurate forecast can cause you to hire too soon or too many, order unneeded raw materials, or form an unnecessary partnership with a vendor.  I stated all of these  things as I typically see them, with optimism on the part of the owner or sales leader.  Failure to accurately forecast deals that do hit can lead to the opposite.  This can cause the organization to fail to make key hires or not adequately prepare our vendors so they can be successful.  Forecasting too far under or over the actual can create organizational blips.

Finally, I am not suggesting that forecasts should be perfect.  They won’t be.  However, they need to be accurate enough for the owner or leadership team to make necessary business decisions.

Good historic data – Most of you are saying to yourself that you are already in trouble.  Maybe so, but many of you could do post-mortem of the last 100 quotes.   This would give you a great jumping-off point.  Work back to determine as much as you can about them, but it is important that you do this in the context of the definitions we will discuss in point #2.  If you have it, GREAT.  Well-measured past data can help your forecasting accuracy a great deal.

I told you this would be a simple post, so I am not going to discuss the sales cycle here, but it is a relevant point.  Just know that the length of time between the initial contact with a typical customer and their first order (sales cycle) will impact the sales leader’s ability to forecast.  Long sales cycles also make post-mortem more difficult if the data wasn’t already being measured.  Long sales cycles allow time for factors like the economy, market shifts, new products, staff changes (on the prospect’s side, as well as yours), etc., to skew the data further.

Clear definitions in a sales process – If everyone on your sales team doesn’t agree on the meaning of terms like suspect, prospect, qualified prospect, closeable prospect, etc., accurate forecasting can become a pipe dream.  To further complicate the matter, most of your sales people aren’t selling from a defined sales process either.  As an example, do you as a company (or the sales person) have the same amount of knowledge for each qualified prospect who has a proposal with pricing in their hands today?  If not, add that into the soup for an accurate forecast.

Sales leaders need to get two things clearly defined:  1) the definitions that we use to categorize our prospect and 2) the sales process that the team is using to move the prospects through the sales funnel.  Owners don’t like this, because it is hard work, but it is the only path to consistently good forecasting.

Sales people who can conduct good sales interviews - First, your sales people have to be successful enough in the area of bonding and rapport to allow the prospects to be honest – more honest then they are with most salespeople.  Secondly, your sales person has to be willing to ask tough questions.  Some of your sales people have blind spots around this, and they are hard to erase.  But they have a big impact on that sales person’s ability to accurately assess what happened in the call.  This is likely an entirely different post, but I want you to understand the impact of your sales people on your forecast, regardless of the other structures you put in place.

Bottom line of forecasting is that getting it right makes all the internal stakeholders much happier.  It is our job as sales leaders to set up systems that allow the sales team to look like they know what they are doing.  Your team’s credibility inside the organization can be very important.  Don’t allow forecasting to become your barrier to that success.

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Posted in Accountability, Sales Force Automation