The Path to More Predictable Sales Forecasts

Sales forecasts are one of the primary vehicles executives use to manage the expectations of company stakeholders including board members, investors, industry and Wall Street analysts, employees and customers.

Forecasts are also a future indicator of funds available to invest in major growth initiatives. As the old saying goes, “it takes money to make money.” If the organization is looking at a downward trend, they may choose not to invest in new opportunities to grow the business and may even scale back on existing projects.

Unfortunately, as important as sales forecasts are to the organization, many still struggle to produce predictable forecasts on which to base their major decisions. According to the CSO Insights 2018 Sales Performance Report (coming soon), the win rate for forecast deals continues to stagnate at an average of 47.3% for the second year in a row.

Though improving win rates is important, in this post, we’re going to zero in on what the 2018 Sales Operations Optimization Study has to say about how organizational leaders can achieve the kind of predictability they need to manage the business.

Why Are Forecasts Always So Inaccurate?

There are plenty of reasons for inaccurate forecasts, but it’s interesting to see that the respondents to the study first laid the problem squarely at the feet of salespeople and sales managers.

Salespeople – Almost half (47.0%) of all respondents to the study told us their “salespeople are too subjective about close possibilities.” But is this any surprise given the reality of their working environment?

Salespeople are told they must maintain a sufficient volume of qualified opportunities in their pipeline. (4X quota is an often-quoted ratio.) Knowing they can’t meet that standard, they continue to drag deals that have gone cold into their forecast month after month.

Explaining to a manager why extenuating circumstances (turnover in the customer’s organization, short-term budget constraints, etc.) caused a deal to bleed over into next month can be a lot easier than explaining why the pipeline isn’t as full as it should be. Furthermore, so long as the pipeline is sufficiently full, the salesperson is able to deflect some of the blame for missed quotas. (Their manager set the 4X ratio.) At the very least, they can get management off their back until the end of the next sales period.

Time is always an issue, too. Salespeople need to be selling in order to make forecasts. Time spent creating and discussing forecasts is time NOT spent in front of a prospect or customer. If they can submit a forecast that meets plan and justify it with a seemingly full pipeline, they can get back out in the field where they can impact results.

Sales managers – Another 37.9% of respondents said, “sales managers do not investigate their salespeople’s commits well enough.” Sales managers know how the game is played. – after all, the majority of them were once salespeople. Perhaps it’s a case of “don’t tell me what I don’t want to know.” Sales managers need to report their findings up the chain of command, and a pipeline or forecast that sits below optimal levels can make things just as uncomfortable for sales management as for the quota-carrying salesperson.

Plus, sales managers would rather have their salespeople out selling than sitting in their office doing administrative tasks. Funnel reviews take time, too, and so long as the salesperson has a pipeline that appears to support forecast, better to let them get back out in the field where they can close the business.

Sales Operations Must Take on a Larger Role

Lest we forget, forecasting is one of sales operations’ primary responsibilities. In our 2018 study, 32.7% said they were “regularly involved”, 30.8% reported “heavy involvement” and 16% reported a “leadership role” in forecasting. That leaves only one in five organizations with minimal or no involvement.

Respondents to our study then named four specific problem areas for which sales operations is at least somewhat responsible. These problem areas included: backward-looking reporting (36.3%), inaccurate information (32.3%), technology limitations (24.6%) and not enough historical data (24.3%).

Each of these challenges are either directly related to technology or at least resolvable with the right technologies. In our study, more than three-quarters (75.2%) of respondents to our 2018 study said that sales operations was at least regularly involved in sales tool management. Unfortunately, only 20.1% said they played a leadership role.

The overlap between sales operations’ involvement in forecasting and in technology present a prime opportunity for sales operations to take on higher levels of responsibility in identifying and implementing technologies that supplement improved forecasting methodologies. Sales leaders who want to increase forecast predictability should seek to engage sales operations and empower them to take on a leadership role in this area.

Furthermore, the right technologies implemented well and used correctly can also resolve the issues faced by salespeople and their managers. Well-defined forecast processes supported by technology decrease the time salespeople must spend crafting a subjective forecast, giving them more time to make that forecast a reality. Forecasts backed up by accurate, current data help salespeople and sales managers make the most of one-on-one funnel reviews by letting them focus on specific opportunities and ways to close the business instead of going through each opportunity in an attempt to simply validate the forecast.

An Accurate Diagnosis

Finding a cure for forecast failures requires an accurate diagnosis. Hopefully, the results of our 2018 Sales Operations Optimization Study shed some light on the challenges of forecast accuracy and, perhaps, helped you examine your own challenges from a different angle. For more insights, you can download a summary of the report here.

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