Why is sales forecasting such a pain?
I'll give you the two main reasons why most sales managers find sales forecasting such a pain in the backside.
1. To meet and exceed your sales budgets, manage your client portfolios and direct your sales activities you need to know what deals are in your pipeline, where you are at with each deal and what you need to do next. And without accurate information it is really hard to get accurate forecasts and predict sales revenue and margins.
2. Senior management make a really big deal about sales forecasts and pipelines because they need to be able to get accurate information about revenue and margins so they can effectively lead and manage the business and make the best decisions for the future of the business.
Sadly, a lot of sales forecasting efforts are based on little more than guesswork and thus leave people feeling less than confident in their predictions. No wonder there is often a lot of angst and argument when sales has to report back to senior management on sales forecasting and pipelines.
Having borne witness to this for more years than we care to remember, this got our head of sales strategy, Peter Finkelstein, thinking that there has to be a better way to create more reliable and effective sales forecasting practices that will satisfy everyone.
So here is Peter's approach to rethinking sales forecasting:
For as long as I have been in sales – that's more than 40 years – salespeople have been using a basic model for forecasting sales based on their sales cycle.
Here's what I'm talking about.
We identify someone to sell to and make a phone call to arrange a meeting. If we get the appointment, we immediately assign a 10% probability of winning the sale – even though we have no idea about the customer.
Why? Because our management and our systems usually only recognise prospects with some sort of value. By assigning a 10% probability to an imagined number we get that value and record the prospect – never mind that the 10% is purely arbitrary and, at best, a guess. Perhaps the 10% is based on past experience the company has had. Whatever the reason, the number has little to do with the decision-making process, only the sales cycle.
After assigning this probability we then have a few meetings to qualify the prospect, determined needs, identify decision-making and decision-makers, identify if funding is available and who we are selling against. Once we have this information – even though we have not yet made any real progress in the actual sales (we have certainly progressed in our sales cycle) our probability of winning the deal randomly jumps to 50% or more. From here it's the sales cycle stages of presenting a proposal, presenting pricing and winning the deal, with miraculous jumps from 50% to 70% or 80%.
The flaw in this logic is that none of the milestones upon which we base our probabilities and weightings for getting a sale – that underpin our sales forecasts – have anything to do with our customers and the way they buy.
None of the steps look at what the customer thinks of one solution or available option, as opposed to another. Nor are the risks involved in making (or not making) a decision included in the thinking about probabilities. And none of the present sales forecasting methods has anything to do with how much share of mind of the customer we have captured, our footprint in the customer's organisation, or our reputation for delivery of our sales promise – all of which are de jure in selling today.
So, if we really want to "walk in our customer's shoes..." and not simply use the thought as a meaningless sentiment, we need to start doing something really startling – we can start by:
Changing our forecasting model from an intrinsic focus based on how we sell to an extrinsic base around how our customers buy.
Just imagine the impact on the accuracy of sales forecasting if salespeople started thinking about things from where their customer is on their buying journey? How much better positioned would salespeople be if they forecast based on activities such as:
- The urgency with which buyers have to change and do something different
- The level of commitment buyers have for change
- The understanding the customer has about what they want
- The assessments buyers have made about what options are available
- The buyer's understanding of the risks involved
- The customer's assessment of what alternative best fits their needs
- Our relationship with the customer and their confidence in doing business with us
When salespeople start pipeline management based on how their buyers make decisions, the sales forecasts are bound to be more accurate. Better yet, understanding where a sale is in the decision-making process (rather than the sales cycle) makes prospecting more focused and the sales pipelines easier to manage.
Salespeople (and sales managers) would certainly have a better understanding of how and where they stand in the sale, what actions to take to improve the customer's assessment of a sales/business proposal and what needs to be done to improve the probability.
So, what do you need to do to make the change?
The starting point is to identify the decision-making process of the various sales segments served by the organisation. Armed with this knowledge, sales can then assign percentage probabilities for each of the (usually 15) stages in the buying process, with each stage representing a progressive probability, based on how you are positioned at that stage of the customer's buying process.
Now that will start to give more certainty to sales forecasting and thus making senior management and sales teams a lot happier in the short and long term.
For more information on the Sales Pipeline Forecasting model, please contact us on (+61) 03 9533 0000.
Remember, everybody lives by selling something.
If you are interested in attending the Sales Management Essentials five-day intensive workshop from April 15-19 please contact us to book your place.
Who is it for? Barrett Sales Management Essentials is designed for sales managers and people moving into a role in sales management who want to ensure they are current with sales management best practice. Until now, no single program has provided sales leaders with a complete curriculum of sales management and leadership skills and techniques.