Every business leader has paid the price for the follies of sales forecasting. That price is paid when services are scaled back, products are eliminated, budgets are scrutinized or, much worse, positions are eliminated.
According to Concentric’s State of Forecasting Report, 90% of companies said sales forecasting was important to business success, yet only 13% were truly effective at it.
Why the disconnect? One reason is everyone in the company plays a role, some bigger than others, but they all play a role and they do need to understand why company success hinges on sales forecasting.
Make sure everyone understands why an accurate sales forecast is critical for them – and the company – to be successful
Without an accurate sales forecast, imagine doing more with less (less budget, fewer people and fewer resources overall). An accurate sales forecast allows companies to answer important questions for the immediate and long-term future.
How many new staff will we need? And for each area of the business? This is critical because if the forecast is off, you might have to downsize. As a serial entrepreneur, I can say it’s painful to have those conversations, and I’m quite certain it is more painful to be on the other side of those conversations. If you scale up too soon based on a bad forecast, it not only affects your business, it affects your most valuable assets.
Necessary Budget for Success
How much do we need for marketing, sales and customer success need to be successful? A forecast helps determine the budget for each area of the business. It goes hand-in-hand with marketing spend, sales team training, customer onboarding and, in my case, product development. Well done well, these aspects achieve the “brand promise” and end-user experience we sold and must deliver to our clients.
Product & Service Offerings
How many products are you going to launch? Or do you need to add, adjust or expand services? Ramping up your offering must align with future revenue and it hinges on an accurate sales forecast.
Having each team member understand why an accurate sales forecast should matter to them is just the beginning. There are several methods to forecasting, but I’ll share my method and four factors you need to address not matter the method you use.
My method for sales forecasting
Most forecasting methods are highly dependent on assigning the correct probability to each opportunity. Even if the probabilities are based on sales stage or forecast category, a salesperson is still making a judgment about which stage or category to place their opportunities in. Many times those decisions are based on what their heart or gut tells them about an opportunity instead of fact and logic.
One way to ensure probability is based on fact and not emotion is to listen to your marketing and sales funnel by:
1. Mapping the entire customer journey for both marketing and sales
2. Establishing key measurements that both teams are tracking and monitoring progress
- Net new movement (how many records are moving into each stage)
- Conversion rates (how many records move forward successfully)
- Velocity (how quickly or slowly records move from stage to stage)
- Aging (how old or new the records are sitting in each stage)
3. Building your forecast based on these key measurements allows you to:
- Project how many records will move into your sales cycle
- Convert forward in the funnel
- Reach closed won
- All while informing you how long it will take
This method will show where your funnel is headed. Not to make it harder, but if you can measure these stages by sales rep, products, regions, campaigns and channels, it will only provide your company and teams an accurate revenue future.
No matter the forecasting method, address these 4 factors
1. It takes a village to forecast. I say this frequently, and I think it applies to almost every aspect of growing your business. You must align all areas of the organization to accurately forecast – sales, marketing, finance, customer success, product development and any other department specific to your business. Pulling data from these areas and having collaboration with the different teams and the people who are on the front lines play an integral role.
Creating this collaborative nature to forecasting is challenging. Just as you are trying to push down the “silo mentality,” some areas of your business may want to pull them up to protect and preserve their department, team members and budget. Finger-pointing may start before you even pull up the first spreadsheet to review.
Marketing may make a play for a bigger budget. Sales will question new goals against old goals. Finance will want to understand the ROI of every piece of it. You’ll ask yourself, is this a therapy or a forecasting session?
This leads me to the second point.
2. Check your emotions, biases, gut feelings at the door. At FunnelWise, we love to reference the controversial quote (that no one can be certain whom to attribute it to), “In God we trust, all others must bring data.” Data will overcome the finger-pointing and silo building. The historical marketing and sales metrics as I described in my method above will show past performance and answer the objections and support the insights your team leaders bring to the forecasting process.
For example, a sales leader may understand and respect the different styles each of their sales reps brings to the table, but that leader should also look at their sales effectiveness data (conversions, velocity and aging) and factor in trends, variables or seasonal patterns to predict future performance.
Marketing is always changing and adjusting channels and campaigns, the CMO can take past performance to factor in the marketing analytics by channels and campaigns and roll that up into a more precise forecast and leverage past ROI to make a data-backed request for budget.
So you need collaboration and you need data. That can lead to the next challenge.
3. Find a single source of truth. Creating collaboration during your forecasting process means each area brings their own data. This can cause inconsistencies and errors due to manipulating data from multiple spreadsheets. If you invest in a tool that can factor in different data segments (pricing, products, reps, regions, channels), seasonal trends and other variables that are meaningful to your business, forecasting can become less painful and more accurate.
And if it becomes streamlined and less painful, maybe you can get these teams to do it more frequently.
4. Make it a frequent habit based on your sales cycle. We get up every morning to see the weather forecast. And as much as we like to complain about them being wrong, they typically get the upcoming days fairly right. The frequency helps, right? They may have the weeklong forecast on Monday, but then adjust the weekend forecast by Thursday.
I’m not suggesting you forecast daily, but I do recommend you consider doing it based on your sales cycle. Or if it’s reasonable, push your team to do it quarterly or monthly to see if you are progressing as expected.
In my first startup, we didn’t forecast frequently enough. And we missed our revenue target by 40%. If we had been watching, we would have been able to course correct sooner. These four aspects all played a role. All areas of the business are responsible for revenue, and they all need to have data to prove and effectively predict future revenue. With the right tools to analyze and forecast in place, your company can do it more accurately and more frequently.
If you don’t have a forecasting tool, feel it may not be necessary to invest in one or you already have one but are struggling with it, try out my method to and use past performance data for both marketing, sales and customer success.
– Matt Ostanik
I’d love to learn how you’ve overcome some of the challenges with forecasting future revenue by connecting with me on LinkedIn.