Let’s be very clear: Nobody likes sales forecasting. Long seen as an administrative task, it’s a pain for everyone involved. Setting up territories, quotas, compensation plans and pricing can be a complex once-off task with lots of stakeholders. But forecasting is a regular, weekly cadence of misery.
Despite this status as one of the most hated tasks in the office, sales forecasting is incredibly important for your business. Your sales forecast is much more than a prediction of the number that your vice president of sales is going to bring in at the end of the quarter. On average, 37 percent of sales management time is spent on forecasting. Sales forecasts are a way to self-assess your performance so far and a key indicator of the health of your company.
Fortunately, some sales teams have found ways to make sales forecasts as painless and intelligent as possible. If you’re reading this article, however, you likely haven’t quite arrived at that point yet. While working to improve your sales processes, make sure that you avoid the five biggest pitfalls that sales teams encounter when drawing up forecasts.
While most mission-critical tasks that companies complete have moved to the cloud, forecasting is still stuck in spreadsheets. Sales reps are often required to manually enter data about their interactions with prospective clients, from calls and contact information to tasks and appointments.
However, manual data entry is tedious, repetitive, soul-sucking — and also extremely error-prone. Various studies have shown that roughly 90 percent of all spreadsheets contain significant errors. What’s more, because data entry is such a hated task, many sales reps fail to log their activity at regular intervals, resulting in knowledge gaps that create problems for managers.
I was at a conference recently and asked an acquaintance if she’s been submitting a regular forecast. She told me, “They ask me to do so much of that stuff, I just don’t do anything anymore.”
Looking to the Past
Unlike sales development and marketing, which are now starting to look at leading indicators such as buyer intent information, forecasting is still, ironically, based on looking back into the past. Both sales reps and managers tend to assume that the future will look exactly like the past does (or even better).
However, consumer demand isn’t a linear upward trend; rather, it ebbs, flows and fluctuates as new desires and marketplace conditions emerge. Rather than looking to past sales figures to predict consumers’ behavior, look to the future, at the direction of your industry and the actual deals in your pipeline, and try to predict what will be in demand next quarter or next year.
Gut Feels and No Reality Checks
These days, most attempts to start a conversation about sales forecasting are met with either a groan of displeasure or shrieks of pain. As a result, many companies have very little defined in terms of the processes or rules around forecasting. This means that sales reps often go with their gut when creating forecasts, which can be a recipe for disaster when these numbers aren’t backed up by hard data.
Although gut instincts are often a great source of insight, sales forecasting tends to require a more empirical, qualitative approach. Facts, historical trends and prospect interactions should all be prioritized over a number that was written down just because it “feels right.”
Lack of Sales Process
When you’re hiring a salesperson, you’re looking for traits like charisma, problem-solving abilities and tenacity. Unfortunately, the ability to make great sales forecasts usually isn’t too high on the list of priorities.
As a result, sales reps feel adrift when they don’t have a formal sales process available to them, or when the company’s sales process is ineffective. If sales reps aren’t given a road-map and a clear picture of what success should look like, then your company is in danger of hampering its own growth and falling behind on its forecasts.
No Numbers Behind the Number
It’s true that no sales forecast is going to be 100 percent accurate, but that doesn’t mean you can throw out any old number and hope that it sticks. Many companies are still relying on the “weighted pipeline” method, where sales reps estimate the percentage of the total deal revenue in their pipeline that they’ll be able to close, and use that to create their forecast.
However, saying that you’ll be able to close 30 percent of your deals, for example, isn’t the most useful data point, because it tends to be inaccurate and dependent on the individual sales rep’s outlook. Instead, construct your forecasts from the bottom up, by focusing on each of the individual deals that you plan to close.
Sales forecasting is both an art and a science, and it’s something that can be improved over time. Instead of throwing your hands up in despair at the state of your forecasting efforts, take a deep breath and acknowledge that your forecasts will never be completely accurate — and you may not want them to be. Rather, investigate how you can improve your forecasting processes by investing in tools to help automate and streamline your sales workflow.