Sales Management Pain Point #5
An Accurate Sales Forecast
What is forecasting? It is doing your level best to accurately predict the amount of sales that will be closed during a particular sales period—month, quarter, half-year or year.
How important is an accurate sales forecast? Today, every public company in the world must, for every sales or fiscal period, accurately predict its revenue. At the bottom of this is an accurate sales forecast. If the company falls 2-3% or more short of its projected sales, the analysts and various other critics really take it to task (if the company makes more than the predicted figure it’s looked at as a good thing). So it really behooves a company to learn accurate sales forecasting well before it reaches that level.
Internally, accurate forecasting will make or break a sales manager's job. If a sales manager doesn't routinely provide a sales forecast that is at least somewhat accurate, the company will lose confidence in that sales manager. The opposite is also true, of course: If a sales manager is consistently forecasting sales with a fair degree of accuracy, the company will have increasing confidence in that manager.
Sales forecasting is also important because it is interdependent with other sales and marketing functions. For example, in order to bring about a particular forecasted sales figure, it might require you as a sales manager to make a trip over to Marketing and say, “We need more inbound leads! Get that extra campaign rolling!” Or it might necessitate you going to your own reps and telling them they need to get busy on outbound leads, because they need to stock up the pipeline with leads to make that quota.
The trick to forecasting would be to have enough deals in the pipeline to determine the number you will end at. Ideally, you have x times the target value in pipeline you need based on win rates to see if you can hit your target. For example, if we close 1 out of 3 deals, we need 3x the target in the pipeline. If you don't have enough in the pipeline, then you have to review the possibility of each single deal closing. At that point, the weighted, balanced and ranking views come in very handy. You also then need to review deals scheduled to close next month or beyond and pull those in early.
Forecasting is also a challenge because you are trying to guess where you will end up at the end of the month in the beginning of the month when things are the most unclear. Deals also tend to close right at the very end which is the most risky.
- L.F., Sales Manager, Pipeliner CRM user
Accurate Sales Forecasting
So how is an accurate sales forecast done?
There are 2 main components to sales forecasting: the people, and the technology. Without technology accurate forecasting is pretty near impossible. But the other side of it is an understanding of people—specifically the people in your sales team. They can fall anywhere within the gamut of sales forecasting:
- Underestimating, because they're scared to really put their necks on the line and know that if they underestimate and come in over their estimation, they'll be heroes.
- Correctly estimating, which is what you'd really like to have but rarely get.
- Overconfident, which is where many salespeople fall. They're going to give you a fantastic-sounding forecast which they know you want to hear, but for which they don’t quite have the deals.
You could say that people and technology are the raw materials that you as a sales manager have to work with. Now, how do you bring them together?
Well, let us say you have a sales rep named Arnold, who tells you that this month, his forecast for his sales is $50k. You like that—it would be fantastic if Arnold closed 50k this month. But then it falls to you to check out how realistic Arnold's forecast actually is. With a CRM solution like Pipeliner, it's quite easy: With a couple of clicks, you can visually look over Arnold's pipeline and see if his open opportunities add up to 50k. Even more, you can readily see how likely those opportunities are to close within the given time frame.
There are many additional benefits to forecasting with Pipeliner. You can, for example, enter in a forecast of $50k, and immediately trace back and see what opportunities add up to that forecast. No other CRM application allows you to do that so simply.
Accurate Forecasting Creates Tasks
The more accurate a sales forecast is, the more activities that will occur to bring it about. This is almost a natural law. That is because there are actual opportunities, out of which flow those activities.
On the other hand, with an inaccurate forecast, there will be a very noticeable absence of tasks and activities needed to bring about that forecasted number. Suddenly there will be a mad scramble for drastic actions to bring about the number of leads and opportunities needed to make that forecasted sales figure.
Technology and Accurate Sales Forecasts
As far as technology goes, the more simple and intelligent the approach to forecasting, the more effective the forecasting will be. Unfortunately, most CRM systems fail in this regard. Pipeliner, however, utilizes the science of cybernetics—the science used to simplify complexity—and hence is able to provide highly effective forecasting facilities.
Not only do we make it possible, in Pipeliner, to trace a forecast back to its constituent opportunities, but we even make it possible for you to see how a rep's forecast changes throughout a sales period. Let us say your sales rep Pam gives you a forecast of $9k at the beginning of a given month. Halfway through the month, she bumps it way up to $75k. Then right toward the end of the month, she raises it even higher to $95k—and she makes it. All that data will be right there saved as part of the forecast. You can go back and review the history, which will make it even more possible for you to forecast with confidence next sales period.
With Pipeliner, you can bring in factors in addition to the sales figures, such as commissions. This makes Pipeliner's forecast functionality valuable to reps themselves—they can forecast their actual commissions for a sales period.
Learning from the Past
Part of learning to forecast accurately deals with reviewing past performance. Hopefully the technology you are employing will allow you to do that simply and easily. With Pipeliner, for example, you can go back into a previous sales period and readily tell which of the sales were new business, which were renewals, and which were upsells. You can see which rep brought in how much sales. It allows you to rapidly see what really happened.
This also allows you to compare what numbers a particular rep was forecasting, and what they actually closed, so you can get a feel for how they actually forecast (over, under, or pretty close to accurate).
Evaluating Your Sales Process
Forecasting is also a great method of evaluating your actual sales process. The accuracy of your forecast has a direct implication on the accuracy or effectiveness of your sales process. If your sales process steps are outmoded, unwieldy, delay opportunities or reduce effectiveness by not providing the right tasks or actions, it will surely show up in the accuracy of your forecast. You can then take actions to straighten out your sales process.
There is much more to know about sales forecasting—but these are the essentials. Learn them, and you’re well on your way!
Forecasting is a prime benefit of Pipeliner CRM.