sales forecasting accuracy

As a sales leader have you looked at your forecast and asked questions like these:

“Do we have enough opportunities in our forecast to confidently make our goal this quarter/year?”

“We may have enough opportunities, but are they large enough in terms of projected revenue? What is our go-get?”

“Are we progressing these opportunities through our pipeline process towards close?”

Sales forecasting accuracy is one of the most important processes for running a successful sales organization. Sales forecasts provide the data leaders need to determine projected revenue and new opportunities as well as gaps so that they can make informed, effective business decisions. An accurate forecast allows you to identify strengths and weaknesses in the pipeline, what opportunities need time, energy and resources and which sales reps need additional coaching and in what areas.

Despite this business imperative and the advances in technology that promise so much when it comes to being able to accurately predict future sales results, sales forecasting is frequently still more alchemy than science. It too often falls prey to a sales rep’s subjective emotions, sandbagging, happy-ears optimism or ignorance of the factors that contribute to whether an opportunity will close, when and for how much.

In my view, pipeline management, coaching and forecasting accuracy go hand in glove. Poor forecasting is a symptom of a much deeper problem, one that is inherently fixable with a change of perspective and behavior — that is, being able to establish and execute a customer-centric sales strategy. Let’s take a closer look at what factors contribute to inaccuracy and what leaders, sales reps and sales enablement teams can do to turn things around.

How Misalignment Kills Sales Forecasting Accuracy

First off, what do we mean when we talk about sales forecasting accuracy? SiriusDecisions found that only 21% of companies forecast within 10% of their actual numbers. Shooting for 100% accuracy in the forecast is certainly a noble goal, but this will soon become your full-time job, with perfection remaining frustratingly elusive. Instead, can you get to 95%? Even 90%? This will give you the data you need to plan and strategize more efficiently, lead your team more productively and grow the business with greater predictability. At the same time, you won’t be sidetracked and frustrated by the inevitable minor surprises that can happen even late in a sales cycle.

That said, most managers continue to accept that even 90% accuracy is out of reach. And they end up finding themselves saying things like, “It’s a week until the end of the quarter — how do we make up the shortfall?” or “We’re way over our goal – love these kinds of surprises! Can we find more?”

Good forecasting requires a set of leading indicators that provide you with objective milestones for predicting the likelihood of revenue from a specific deal or collection of deals. Poor forecasting often stems from a fundamental issue: Sales and pipeline processes only look at milestones from one side of the story, and it isn’t the customer’s side.

We frequently see sales processes that are not much more than a checklist of activities that a seller should take during a sale, with milestones such as first meeting held, cost-benefit analysis created, objections resolved, first proposal submitted and decision-makers identified. These activities are then incorporated into the pipeline and become a flawed roadmap to pipeline effectiveness. While the activities are all important aspects to making a sale, they only give you half of the process. They’re leaving out one important element — the customer.

We need to start with a sales strategy that is designed to capture critical actions that a customer is taking at specific moments in the sales process. A well designed and executed sales process and pipeline process should be intrinsically linked, and they need to incorporate the seller’s as well as the buyer’s point of view. It’s not just about sales reps checking off activities that they’ve done; it’s also factoring in whether the customer has been taking action as well.

Here’s why this is a significant point when it comes to sales forecasting accuracy. It’s not unusual for a seller to report that an opportunity is in a late stage of the pipeline because they’ve worked extensively to conduct a needs analysis, create a proposal, deliver that proposal, negotiate pricing and terms, line up internal resources and even send out a contract. To the seller this deal may feel like it’s late-stage and, as such, they forecast it at 90% with optimism. After all, they’ve been working tirelessly on it for weeks, maybe months.

But what has the customer done during that time? What specific actions has the customer taken that would indicate that they are also progressing through the sales process, and they are also in the late stage of their buying process? In this example, does the customer have a clear understanding of their internal buying process and who will be involved? Have the various individuals who make up the buying team been part of the discussions so far, or is the seller “single-threaded”? Do they see a gap between their current situation and their desired situation, and have they articulated the value of closing that gap? Have they stated the cost of inaction/status quo? Have they provided feedback on the seller’s proposal? Is there a budget allocated?

If the answer to these questions is no, then this is an opportunity that is still very early stage with much selling to do. The late-stage revenue that the seller has forecasted may be subject to significant changes in timing and revenue, and he or she may not even be aware of it.

This misalignment between buyer and seller pipeline actions is a silent killer for forecasting accuracy.

The good news is, sometimes a change in language in the pipeline milestones can lead to a change in selling behavior. For example. there’s a big difference between a milestone that states, “Asked about decision process” and one that says, “The customer shared their decision process.” The latter implies the seller has asked about the decision process and goes a step further to document the customer’s action. As another example, consider “Key stakeholders uncovered” (seller activity) vs. “Client agreed to provide access to key stakeholders” (implies the seller activity and incorporates buyer action).

Sales Pipeline Management and the Sales Forecast

An accurate sales forecast will help you pinpoint deals that are stagnating or don’t progress pass a certain stage. Deals stagnate in the pipeline for one of several reasons, including:

  • Pull of status quo with clients: The client is holding on to their current thinking even if there’s compelling evidence to change. This means something that’s important to them is keeping them from changing in spite of the benefits your sales rep has stated they will receive. Maybe the cost of change, the disruption outweighs the cost of the problem?
  • The client’s fear of making a mistake: There is a wealth of research indicating that a buyer’s fear of making the wrong decision — the perception of risk — will override the fear of inaction. One major recent study found that anywhere from 40% to 60% of the average seller’s qualified pipeline will ultimately be lost to a verdict of no decision. Fear of failure or messing up (FOMU) can and will override any fear of missing out (FOMO) when it comes to your solution.
  • Increased number of decision-makers in B2B deals: Every year this number goes up, and all of these people need to be won over somehow. What if certain people on the buying team move out and new buying team members come in? Will you know? The more people that are required to provide their input to a purchasing decision, the longer it takes to move an opportunity toward that decision. A deal that should take six months, or used to take six months, may now take nine months or longer — and still not close.

These are all selling challenges that need to be addressed for accurate sales forecasting. They also remind us that sales is a very emotional business. What good pipeline management does is put a level of objectivity into the analysis of opportunities. This filter of objectivity creates a path to more accurate forecasting.

On the flip side, a salesperson may be hesitant to put a deal in the pipeline at all because it’s in stage 1 and doesn’t have a high (or has a yet unknown) estimated value. Sales leaders should encourage them to put the deal in and see what the potential is. Salespeople need to know they won’t be jumped on for including a deal that is in very early stages.

Use Sales Forecasting Accuracy to Maximize Coaching Opportunities

An effective way to forecast revenue is to look at two numbers for each opportunity:

  1. Gross Value (GV): This is the amount if the opportunity closed at 100%. It helps you see the full value and assign resources accordingly. An opportunity with a GV of $500,000 should be treated differently from a focus and coaching perspective than one with a GV of $50,000.
  2. Expected Value (EV): This is the GV multiplied by the weighted pipeline stage, e.g., Stage 1 – 5%, Stage 2 – 25%, Stage 3 – 50%, etc.

These calculations can be incorporated into you CRM so they automatically update when an opportunity progresses from one stage to the next. Cumulatively, it will give you a sense of the pipeline broken down not just by individual rep but also by territories and other categories, enabling you to dig deeper into potential obstacles to the goal or to growing the business. For example, you may discover that the Northeast territory seems to always have a consistent gap. Why? What level of coaching are the managers providing around these deals that don’t seem to be progressing? What needs to change?

The other benefit of calculating opportunity value using GV and EV is that it lets you be strategic about time, focus and coaching.. Let’s say Sales Rep A’s portfolio has a Gross Value (GV) of $1.9 million for the next 12 months. However, their Expected Value (EV) is $200,000. Sales Rep B’s GV is also $1.9 million, but their EV is $1.3 million. How would you coach these two reps?

There’s higher risk in the pipeline of Sales Rep A, which means you’re going to want to focus your coaching with them on early-stage strategies. E.G, what’s the plan to help the client see their issues and challenges with degree of severity and urgency? In contrast, Sales Rep B needs more coaching on late-stage challenges.

Coaching plays an important role in providing a reality check on your sales pipeline. We recommend that you ruthlessly examine every opportunity through the filter of the following five questions. Doing so will help you determine the real health of your pipeline and where you need to be placing your team’s focus and resources.

  1. Does the client clearly see the gap between their Current Situation and Desired Situation? How do you know?
  2. Has the client expressed the consequences of status quo? What are they?
  3. Are you getting SMART client commitments that move the opportunity forward? What are some examples?
  4. Have you identified how the decision will be made and what role each person will have? Who are they?
  5. Has your manager been providing coaching in the early stages of your opportunities? What has been the focus?

Do your salespeople know the answers? Where’s your risk?

Do they have the skills to engage customers in a way that customers feel comfortable revealing this important information?

Steps to Better Sales Forecasting Accuracy

An accurate sales forecast is one of the most important tools you have for leading a successful sales organization. Not only will it help you make more informed predictions about future sales and revenue, it help you enhance the quality and effectiveness of your planning, coaching and decision making.

To enhance your organization’s sales forecasting accuracy:

  • Aim for — and expect — 90% to 95% accuracy. Create a sales culture where that’s the standard.
  • Make sure both the seller’s and the buyer’s specific actions are represented in pipeline milestones.
  • Use pipeline management to help reps develop a more objective view of their opportunities and the steps that need to be taken to advance them.
  • Leverage the forecast to be more strategic about how you coach and provide training to individual reps and in analyzing territories, teams and other categories.

Our Sales Pipeline Reality Checklist will help you more critically examine every opportunity through the filter of the five critical questions listed above. Download it here and contact us with questions. We can help you identify where your team may be excelling, and where they may be in need of further development in order to better execute on your sales strategies.

About the Author
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Bruce Wedderburn

Chief Sales Officer

Since 2016 Bruce has led the Sales organization with a passion for creating impactful results for clients through the successful...
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