I’ve shared before the importance of sales training and sales compensation plans to the overall goal of improving sales performance. But there’s another ingredient that most sales organizations either undervalue or dismiss as essential to sales success. They do so at their peril. Consider the following scenario:
Have you ever sat through a meeting that goes something like…
Frank (Sales Manager): “Hey, Bill, what can I put you down for this month?”
Bill (Salesperson): “I’m in for $180K, $220K best case.”
Frank: “Great. Will you close that deal with Acme, Inc.?”
Bill: “Sure will. I have a meeting with my guys over there on Tuesday. It’s all good.”
Frank: “Great. What about you, Mary?”
And so it goes, around the room, from one salesperson to the next.
What does this scenario illustrate? What does it highlight as the missing ingredient to sales success? (Drum roll, please…)
In the example above, there is one line that makes it clear that sales forecasting is missing from this organization’s sales practices: “It’s all good.” Really? It’s all good? It might be all gut-feel or all finger-in-the-wind or crystal-ball-wishful-thinking, but it’s certainly not all good. Where’s the data? Where’s the historical insight? Where’s that little bit of science backing up the art of sales management? Where’s the sanity check?
Why is Sales Forecasting So Important?
Your company’s success depends on the decisions Sales Managers make, and Sales Managers make better decisions when aided by a good sales forecast (especially when it is integral with a CRM system). An accurate sales forecast also helps managers predict future cash flow and production levels, so they can adjust business accordingly. With a proper sales forecast, you’ll even be better equipped to plan your company’s investments, launch new products and services, calculate profits, and much more.
At this point you might be wondering, “What’s the difference between sales forecasting and a sales or prospect pipeline?” Simply put, sales forecasts help a company determine whether or not they can pay their bills; pipelines do not.
How to Add Sales Forecasting to Your Recipe for Sales Success
First, make sure your sales people are involved in the forecasting process. While they may see sales forecasting as a “necessary evil”, only they will have the necessary firsthand knowledge of the accounts.
Next, be realistic when approaching the forecasting process. Part of the problem in the absence of a sales forecast is that some sales people are eternally optimistic (see the scenario above), while others tend to be pessimistic and forecast low since they do not want to “stick their necks out”. A realistic forecast based on facts, not wishes, can be one of the Sales Manager’s best tools for improving sales.
No matter what, anticipate at least 10 to 20% deviation from your forecast. Anything more and it will become clear that your salespersons do not know their business, their markets or customers. There is an old sales adage – you can miss your quota and you can miss your forecast, but you can’t miss both. Missing your quota may indicate poor performance, but missing your forecast definitely indicates that you don’t understand the opportunities in your pipeline well enough. The good news is that you can use the results vs. forecasting gap as a sales development and sales coaching tool.
Schedule a meeting before the end of the month and hold a sales forecast meeting to cover two things: Close plans on remaining deals and a “pre-forecast” for the coming month. Most companies produce 30-60-90 day forecasts; opportunities more than 90 days into the future are considered less reliable and are generally not forecast.
The Bottom Line:
A business owner without a sales forecast is like a ship’s captain sailing without a map: both operate without good information and don’t have any direction. Indeed, sales forecasting is a vital part of sales management. Complete and accurate information – derived from a well-designed sales forecasting process – makes it easier for the Sales Manager to make the right decisions and improve sales. Without an accurate sales forecast, however, bad decisions and a loss of sales opportunities can result. Sales forecasts can, after all, be the secret ingredient that helps the Sales Manager, well, manage sales!
If you’d like to learn more about how to implement and manage sales forecasting in your company, contact a Sales Xceleration Advisor today. We can help your sales organization know where it is going and how to achieve more.
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