Missing even a single sales forecast can be a painful experience for everyone involved in the process – from salesperson to manager to shareholder. So what are the keys to consistently accurate sales forecasting? The latest research from the Aberdeen Group offers some important indicators…
Earlier this year, the Aberdeen Group surveyed 304 companies in order to identify some of the common characteristics of the top-performing sales organisations. They identified dramatically different patterns of sales quota achievement, sales cycle length and customer retention rates between the Best-in-Class and the rest.
What’s Holding You Back? 5 Common Barriers
So what’s preventing the majority of sales organisations from emulating their Best-in-Class competition? Aberdeen identified the 5 most commonly cited barriers to effective sales forecasting:
- Insufficient / inadequate data on current deals
- Lack of personal accountability for sales forecasts
- Over-confidence or sand-bagging
- Failure to enforce consistent data entry standards
- Inability to understand factors affecting probability of closing deals
Let’s look at each of these factors in turn, and identify some simple recommendations that can help any sales organisation to elevate its sales forecast accuracy.
1: Insufficient / inadequate data on current deals
The most commonly cited cause of poor sales forecasting was the lack of accurate information about the true state of sales opportunities. You can’t influence what you don’t understand – and without accurate, complete and timely information, sales people and managers are simply flying in the dark.
My Recommendation: First, don’t ask sales people to collect information that you don’t know how you or they will use. But - having established a sensible set of “required fields” in your CRM system - insist on the relevant information being entered at each point in the sales process before an opportunity can be promoted to the next stage. Don’t allow sales people to believe that any old entry will do as long as it fills in the field - managers have a responsibility to inspect and review the quality of information being entered.
2: Lack of personal accountability for sales forecasts
Surprisingly few companies systematically measure and analyse the sales forecast accuracy of their sales people and managers, or hold them accountable for it. But if the people involved are not made to feel accountable for the accuracy of their projections, there is little incentive for them to improve their performance.
My Recommendation: First, be cautious about relying on the “out-of-the-box” probabilities that are implemented by default in so many CRM installations. Insist on your sales people and managers basing their sales forecasts on a combination of fact (“what stage has the buyer reached in the decision making process”) and judgement (“rationally, what is the likelihood of this deal closing in the current forecast period, and why?”). Insist on tangible evidence to support the forecasted outcome. And measure the actual performance against forecast, and work systematically to eliminate the causes of variation.
3: Over-confidence or sand-bagging
As Rick Page pointed out in his best selling sales handbook, “Hope Is Not a Strategy: The 6 Keys to Winning the Complex Sale”, sales people are often by their nature over-optimistic about their chances of winning deals – and there’s another equally dangerous group who may be tempted to “sandbag” or delay reporting or closing deals until it suits them.
My Recommendation: First, take steps to ensure that your code-of-conduct and sales compensation plans eliminate any incentive to sandbag by penalising this unhelpful behaviour. More generally, insist on sales people backing up their forecasts on a deal by deal basis with observable evidence of buying behaviour or intent on the part of the prospect. Don’t let “happy ears” muffle your sales person’s judgement.
4: Failure to enforce consistent data entry standards
It’s hard to generate an accurate sales forecast when your sales people are applying their own interpretation to what is expected at each stage of the sales process. Having multiple inconsistent interpretations of what is required for a deal to be regarded as a “qualified opportunity” (or any subsequent stage in your process) can only result in chaotic, inconsistent forecasting.
My Recommendation: First, ensure that you have simple, crystal clear definitions of each stage in your sales pipeline, and insist (through inspection) that these standards are consistently applied. Then, establish clear milestones through which each opportunity must pass before it can be promoted to the next stage in the process – and base these milestones on something the prospect can be shown to have done rather than simply on your sales person’s activities or aspirations.
5: Inability to understand factors affecting probability of closing deals
The fifth most commonly cited reason was the failure to properly understand the dynamics of the deal, and to translate that into an accurate judgement about the likelihood of the opportunity closing in the forecasted period.
My Recommendation: This problem is usually founded in the sales person not having asked enough of the right questions of the right people at the right stage in their buying decision process – or in failing to properly interpret the answers they have been given. Questions such as “Who else will be affected?”, “What would happen if this issue wasn’t addressed?” and “What other options have you tried?” are often critical to making accurate assessments about the probability of any opportunity closing.
Why It’s Worth Fixing Your Forecasting Issues
Is the effort worthwhile? The Aberdeen Group offered some compelling evidence. Their research suggested that Best-in-Class companies showed nearly 24% better sales quota achievement figures and over 16% better sales cycle reduction figures than the laggards at the opposite end of the scale. So here's my question: how much might a focused sales forecast performance accuracy initiative be worth to your organisation?
A Systematic Approach to Improving Forecast Accuracy
By the way, if you like the idea of taking a more systematic approach to improving your sales forecast accuracy, I’d like to suggest that you download our latest guide to the D3ARE framework – an evidence based approach which encapsulates all we’ve learned over the years from top sales organisations.