Do you measure salespeople and sales managers on the accuracy of their sales forecasts?
Developing an accurate sales forecast is a valuable skill. And, like most every other skill, the ability to create a more accurate sales forecast is one that can be improved.
Educate Your Sales Team About Why a Good Sales Forecast Matters
Don’t assume that everyone on your sales team has the business background to understand why accurate sales forecasts are so important to your company. Educate your sales team about the adverse impacts on their ability to sell that stem from poor forecasting.
For instance, if you’re a small to mid-sized manufacturer that struggles with accurate sales forecasting you might need to maintain an extra quantity of finished product in inventory in order to ensure that you can meet your promised delivery times. You’d need to educate your sales team about what that means to the company in terms of extra costs. Teach them about the trade-offs that necessarily happen when you have to tie up cash in inventory versus spending it on activities that support sales, such as lead generation, sales support, customer service or investing in adding needed features to your product line. Such can be the impacts of poor forecasting.
Be proactive and invest 15-20 minutes once per month during a sales meeting to teach your sales team about the bigger picture. Use actual data to show how overly conservative or overly aggressive forecasts can have an negative impact on their ability to sell and service their customers.
Measure The Accuracy of Your Sales Forecasts
The first step towards improving the quality of your forecasting is to measure the accuracy of the forecasts you receive from your team. As the old saying goes you can’t improve, what you don’t measure.
The quickest way to start measuring is to build a simple spreadsheet and track the accuracy of your team’s forecasts on a regular basis. Chart trends by individual sales rep. It’s important to know if the sales forecasts your team submits are consistently are high or low. And, similarly, whether they were accurate relative to dollars but wrong regarding the mix of products or services.
Provide feedback to your sales team about the accuracy of their forecast after each forecast cycle.
If your team missed their forecast, then provide them with detailed feedback about where they missed. Identify trends that indicate the specific areas where salespeople and managers may need coaching (i.e, qualification, value selling, closing). This feedback loop is critical to any effort to increase the accuracy and the value of your forecast to your company.
Coach Your Sales People to Create Consistently Better Forecasts
A good first step is to reduce your forecast cycles to a shorter period of time. The shorter the forecast period the greater its accuracy should be. A week is a good length of time as it keeps salespeople focused on what needs to happen in real time in order to close a deal.
Create a weekly Hot List that is a forecast of the deals that your sales team is absolutely positive are going to close in the current week. Review the new Hot List at the start of each week in your Monday morning sales meeting. Every sales rep must know the following information about each opportunity they placed on the Hot List:
- -Why is the decision going to be made this week?
-Why are we going to win the deal?
-What additional information does the customer need from us now to make their decision?
-What resources does the salesperson need from management to help close the deal?
If a salesperson doesn’t know the answer to even one of these questions, then that opportunity needs to be removed from the Hot List and re-instated when they do.
Review the accuracy of their previous sales forecast with each sales rep.
Go through it line by line to help the sales rep understand why a particular opportunity didn’t happen as they had forecast. Develop strategies for what they could do the next time they encounter a similar situation.
Lastly, exercise caution in building your forecasts using a weighted probability-based forecasting method (that is the default for many managers and in so many CRM systems.) Assigning a probability of success based on the achievement of a certain sales milestone (i.e., submitting a proposal) is problematic at best. Let’s say that you’ve configured your CRM system to assign a 75% probability of winning to every opportunity to which you’ve submitted a proposal. If you have 3 competitors on a particular deal, who have each submitted a proposal to the prospect, then it’s impossible for all four of you to have a 75% probability of winning the sale. 25%, maybe. 75%, no.