Sales forecasting is the process of estimating accurate future sales. Accurate sales forecasts are absolutely critical to companies and enable them to make informed business decisions and predict short-term and long-term performance. It is needed to manage cash flow, make decisions on expenses, manage capacity and resources, etc. Yet, we’ve found that many companies struggle with accuracy.
We’ve found that there are three types of salespeople when it comes to reporting forecasts:
Now keeping those three types of salespeople in your mind, which do you mostly see? Why do you think that is? Anyone come to mind right away?
Accurate forecasting is such an important function; no one denies that, but then why do we allow such inaccuracy? We find that when it comes to the overly optimistic salespeople they say what they think the sales leader wants to hear. Often, they will claim that all their opportunities went well and that they will all close.
But they don’t have an excellent system to rank them, qualify them, or determine probability - this is seen a lot with underperformers. They are afraid to give an accurate forecast that says, “I’m not going to do very much or meet my goal,” because they feel as if they are going to get beat up over it.
They have it in their minds that if the sales leader asks every week how their forecast looks and they say “good, good, good,” then they will only get slapped once at the end of the month vs. repeatedly telling the sales leader that they are off their goal and getting beat up several times. They are conditioned to believe that being accurate isn’t good if their numbers are low.
Then we find that with the sandbagger types that they don’t realize the importance of being accurate and on time. We’ve conditioned them so that if they forecast their big deals, we will continually hound them to see what is happening. So, they just decide not to forecast them. We even reward them when they pull the big order out at the end of the month that we weren’t expecting because we want that revenue. That’s counterproductive to being accurate.
We believe that the sales leader’s role is to promote accuracy in forecasting as an essential responsibility of the salesperson. If the forecast is accurate, then the executive team can make better decisions – your budget isn’t tied up, and it can be spent on other additional resources such as marketing which, can help you. Sales leaders should think about measuring accuracy and then reward salespeople for being accurate. This can be as simple as tracking accuracy and reporting it to the team each month.
Show the team who among them is accurate and who is not. Nobody wants to be just 20% accurate on their forecast, and simple visibility can improve their efforts. Sales leaders can recognize who is good at forecasting the correct numbers. When it comes to people who are accurate with their forecast, but the forecast is below expectations, sales leaders can focus on how they can help that salesperson get back on track rather than remind them that they are not succeeding. They should always be looking for coachable moments.
Accurate low forecast > Inaccurate high forecast
Accurate sales and forecasting lets you spread out your production to ensure your customers and clients have the product or services when they need it. Forecasting your product and resource demands let you better plan your production, including materials, labor, and shipping requirements. It also helps you reduce unnecessary spending, better schedule production, and staffing, and helps you avoid missing out on potential opportunities.
If you can accurately forecast your sales, not only by volume but also by product, service type, and time of year, then you can allow for planned and unplanned expenses to occur without stress.
If your organization is seasonal or you know there are slow or busy periods at certain times of the year, plan on increasing or reducing staff when necessary. Having an accurate forecast allows you to staff more during your busy periods and to reduce staff when needed.
If you can accurately plot your revenue during the year, you’ll be able to harness your marketing efforts better and not have to worry about the cost.
Accurate sales and forecasting allows you to spread out your production to ensure your customers and clients have products when they need it. This is very important. You can easily miss opportunities if your clients and customers aren’t happy because you couldn’t deliver.
Once the sales leader gets their team on board with the importance of accurate forecasts, then it’s time to bring that information to the CEO or owner. Sales leaders can also be guilty of not wanting to give bad news, and instead, they provide an overly optimistic forecast. That can lead to problems too. I once had a CEO tell me, “Bad news is not like wine. It does not get better with age. If you are not going to hit your numbers, I would rather know that now rather than have to make drastic adjustments later.”
Now the sales leader knows that accuracy is essential. Still, in several cases, they’ll talk about everything they have in the pipeline vs. the actual forecast of what will actually come in. Not every CEO or Owner will know the difference and can easily misinterpret the information you are giving them, so you must agree with them on what they want and need to see. Most will want to know what they can bank on and don’t need to see every opportunity from every stage. That is just noise. But, discuss so you are on the same page.
An accurate sales forecast shouldn’t demotivate you or discourage you or your team. It’s merely a fact of life. On the contrary, it should encourage you to push the boundaries and hone your skills at making better and better predictions for the months and years to come.