Steer Clear of Sales Forecasting Traps
Sales executives, managers and reps spend countless hours in forecast meetings, yet often find their actual closed revenue falls far from the mark they predicted. With the advanced CRM technology and sales forecasting tools available today, it's a wonder this trend continues.
There are four common pitfalls that take place during the forecasting process that every sales leader should avoid.
Error No. 1: Poor Data Management
Lack of data in a company's CRM -- or worse, bad data -- prevents sales organizations from properly assessing their pipeline. In today's B2B sales world, the buyer's journey usually requires the signoff of many influencers at a prospect company.
Forecasting a deal to close without an accurate view of the individuals involved with the deal is impossible. Yet as many as 85 percent of most opportunities in the average company's CRM have no contacts associated with them.
Correct It: Sales organizations must implement data stewardship policies that ensure the opportunities in their CRM are fully fleshed out with the information necessary to base forecasts on comprehensive, objective data.
Once the policy is in place to create a foundation of good data, sales managers actually need to use it. Far too often, reps are hounded for CRM updates by their manager, but then when it comes time to create the forecast, the manager will disregard the data available and judge a deal based on a gut impression of its likelihood to close.
Bottom Line: A system that creates uncertain data is sure to create a culture of subjective forecasting, which is bad for all parties involved.
Error No. 2: Misreading the Buyer's Journey
Most sales organizations try to shorten their sales cycles by finding the shortest possible path to the decision maker. The logic is that by going straight to the decision maker, they can circumvent two or three conversations with other individuals at a prospect company, and close a deal weeks or months sooner.
This works if the meeting with the decision maker covers every element of your product: the value it provides; the changes it will make to the prospect company's existing workflow; the requirements necessary to have a successful implementation; and how to actually use it.
However, one meeting is not enough to cover all of these topics, or the decision maker loses interest. When this happens, the sales rep often is kicked back down the chain to further explain the product to one of the decision maker's reports.
The rep gets stuck in purgatory, now needing to run a gauntlet of other influencers who must report their findings to the decision maker. Despite the now-uncertain state of the deal, this type of deal will be included in a forecast simply because the decision maker has been reached.
Correct It: When forecasting the deal, don't fall into the trap of relying too much on whether or not a decision maker is engaged. Take a holistic view at the next steps required to close.
Bottom Line: Forecasting requires the tactful combination of data and human judgment so that hamstrung deals don't artificially inflate the report.
Error No. 3: Relying on Historical Performance
When creating a sales forecast, it is tempting to report a number that's close to previous months or quarters, simply to play it safe. This is a common mistake in the sales world, and for companies in turbulent or emerging markets, it frequently leads to missed forecasts.
While historical data can point to the overall trend of your growth, using it to actually build your current forecast is like predicting a thunderstorm tomorrow because it rained yesterday. Though the prediction may turn out to be true, there are many factors affecting it you haven't considered.
Correct It: Historical data can serve as a starting point from which to build a forecast, but only a starting point. Each forecast requires due diligence to be reliable. Without a high-velocity sales cycle and massive volume of deals, each opportunity must be assessed on its own merit to create an accurate forecast.
Bottom Line: Unless you're in a highly transactional and rigid market, relying on the past to tell you what will happen in the future does your company no favors.
Error No. 4: Downward Pressure
It's common for company leadership to fall into a habit of exerting downward pressure onto their sales team that results in the prioritization of forecast accuracy over sales effectiveness. Starting at the very top, the board will place pressure on a CEO to produce accurate revenue forecasts. This is all well and good, as planning for growth requires having a sense of the momentum a company currently carries.
However, problems arise when this emphasis on accuracy finds its way into the rank-and-file of a sales team. CEOs hand off the pressure from their board to their VPs, who in turn pass the pressure down the chain to sales managers.
It's far easier to focus on creating an impeccable forecast than it is to coach a team to improve actual performance, so sales managers are happy to pull reps off their accounts and into deal review meetings for entire days to interrogate close dates and guess pipeline stages. This leads to reports like Sales Benchmark Index's findingthat 37 percent of sales management time is spent on forecasting.
Correct It: Sales leaders must reprioritize their team so that sales productivity takes precedent over forecast accuracy. This means spending deal review meetings discussing the health of conversations and ways to close faster, rather than discussing close dates and deal sizes.
Bottom Line: When the people in charge of improving a sales team's performance are spending less than two thirds of their time doing so, the system is broken.