An accurate sales forecast lets you anticipate changes in revenue flow; helps keep costs in line with income; and, most importantly, highlights the things that demand action: everything from new opportunities to imminent deals and lurking issues.
But while sales people put an enormous amount of time into sales forecasting, most are still using some variation of the ‘finger-in-the-wind’ approach: according to Dealmaker 365, some 58% of companies report that fewer than 75% of sales close as forecast. That’s a big variance.
There are a lot of reasons that make forecasts fail to reflect reality. Our recent eBook on the subject, Sales Forecasting Comes of Age, talks all about best-practice forecasting – but we wanted to share here some of the most common mistakes we’ve come across.
Your feelings about the way sales are going are not necessarily the best indicator for what’s to come. Feelings – positive or negative – really just add up to guesswork rather than measurable data. When sales forecasts are based on hunches, opportunities are far less likely to close as predicted. Of course, no forecast is 100 % accurate, but a prediction based on data and actual behaviours will always out-perform one based on emotional temperature.
Unless your business is completely new or you’ve just introduced a radically different product, your past performance is often the best indicator predictor of the future. You have valuable data from past years’ sales performance to help with your forecast: data about the time it takes to make a sale, or about conversion rates in your business. These are powerful indicators for what you can expect in a comparable forecast period.
If your forecast diverges wildly from your history, there needs to be a reason for it. Something significant has to have changed. Otherwise, history is too important a data source to ignore.
Buyers go through distinct stages as they move towards a purchase. It’s important to define these stages clearly and to identify the behaviours that signal transition from one stage to the next (e.g. taking a demo or getting a sales visit).
If you fail to define the milestones of the purchase journey, your sales people won’t be speaking the same language. And that inevitably distorts your forecast.
Inside every company that struggles with forecasting are desks and meeting tables covered in spreadsheets.
By their nature, spreadsheets will only ever reflect a snapshot in time – so by the time you consult them for your forecast, they’re out of date. And spreadsheets tend to proliferate, generating many versions of the truth, with different people working from different numbers.
In short, spreadsheets devour time, inhibit collaboration and often create fog instead of clarity. They keep your sales people from doing what they do best and waste their time filling cells and tweaking formulas. Give your sales team back that time and they can spend in generating new leads or closing more deals.
Whether you forecast annually, quarterly, or monthly, traditional forecasts are almost always out of date. A month-old static snapshot ignores changing circumstances or new information that could affect the forecast. Ideally, your forecast tool should be a real-time collaborative platform that shows the vital signs of your business: continually registering changes and adapting your forecast. So whenever you choose to hold a forecast meeting, you can tap into real-time information.
Let’s be honest: if you’re using complicated data sources and manual processes to align out-of date information and disjointed spreadsheets, not only will your forecasts be inaccurate, they’ll also become a terrible chore. And even if all the relevant data is there (somewhere), it will take a seriously well-trained eye to spot any issues that need flagging. Professional forecasting tools can help you make data more accessible and visual so the real story jumps out.
Unless the whole sales team and senior management buy in to the same metrics – the same ‘key performance indicators’ – you’ll all be measuring different things and coming up with different forecasts. Ensure you a have a KPI dashboard in place that keeps everybody aligned.
Decide on a small set of metrics and make sure everyone is tuned to them above all others. Without this, forecasting can be a subjective debate. With it, it’s a calculation.
So those are 7 of the mistakes we see all the time in our work with sales teams across many different markets.
Admittedly, avoiding all of them doesn’t guarantee 100 % accuracy. But avoiding these mistakes will help make sure your predictions are based on reality.
Get it right, and sales forecasting can be a hugely powerful contributor to your company’s success. Get it wrong and you could slam into some nasty surprises.
To drill down into what best-practice sales forecasting looks like, come and get the free eBook, Sales Forecasting Comes of Age.