Extensive guide on sales forecasting methods.
Sales process expert Bob Apollo poses the question, "Why is Accurate Sales Forecasting Such a Challenge?" and provides details of sales forecasting methods that lead to improvements.
Paper by Bob Apollo - Part 2 of 3
Clearly-defined sales process
Most sales organisations have implemented some form of sales process with named stages. But if this is to be effective, these stages must be clearly and unambiguously defined - and consistently applied across the whole sales organisation, with no scope or tolerance for creative interpretation.
The transitions between stages are equally important, and yet often poorly defined. It’s critically important that you establish observable, evidence based milestones - preferably grounded in buyer behaviour rather than sales activity - and insist that they are rigorously applied.
No opportunity should be promoted by the sales person to the next stage in the process unless the milestone can be proved to have been achieved.
By the way, the first time organisations apply these rules, there’s often a dramatic shift in the weight of the pipeline with lots of opportunities being demoted to an earlier stage. Some drop out altogether. But it’s much better that this happens there and then, rather than clinging to the false hope that opportunities are far more advanced than they really are.
Progressive opportunity qualification
Qualification is not - and should never be - a one-time event. Opportunities must be progressively re-qualified throughout the sales process, and certainly whenever an opportunity is a candidate for promotion to the next stage in your defined sales process. Your qualification criteria will undoubtedly vary depending from one offering and market to another. They will evolve from one stage to the next. But your qualification questions must always seek to answer the following:
- Is the opportunity real?
- Are they really likely to buy?
- Are we really likely to win?
- Is the deal really worth winning?
- Where’s the evidence?
Your CRM system
The best place to capture the information you need to assess each sales opportunity is your CRM system - and the quality of that information has a critical bearing on your ability to generate an accurate sales forecast. If you want good information, you need to take pains to ensure that your sales people see the system as inherently useful to them, and not just a convenient administration system for you.
If you want enthusiastic acceptance, and not merely mute and minimal compliance, your CRM system has got to pass your sales people’s “what’s in it for me” test.
Avoid asking them for more information than you (or they) really need to make smart, well-informed decisions.
Make sure you use the information to provide opportunity-level coaching that helps your sales people to evolve winning strategies for each account.
Environment of Accountability
It’s hard to generate consistently accurate forecasts without an environment in which every participant is held accountable for their contribution. Let’s start with the quality of information you expect the sales person to know about every opportunity. Be clear about which fields you expect to be completed in the CRM system, and make sure that the sales person has a personal commitment to capturing timely, accurate information.
Of course, forecasting isn't just about having the facts at your fingertips - it’s also about making informed judgements with the data you have to hand. So accountability must also extend to the sales person’s responsibility for making intelligent and thoughtful judgements about the timing of each opportunity and the probability of it closing.
Building your forecast
Assuming you've established these foundations, the process of building your forecast should start with asking each of your sales people to present their forecast for the relevant reporting period. They should classify each opportunity they believe they have the realistic potential to close as either a “commit” or a “upside”.
- The “commit” deals are those where all the evidence (and they should expect to be asked to provide this) points to a bookable order being received within the reporting period without any need for unnatural acts
- The “upside” deals are those where the evidence points to a realistic chance of a bookable order being received within the reporting period if all goes to plan (and, yes, they should expect to be interrogated with regard to the plan)
By the way, I’ve also seen some sales organisations include a “long shot” category for fast tracking opportunities that with a following wind and a great deal of luck might just be closable. Of course, you’ll want to keep your eyes on these, but my strong recommendation is that the value of these deals must be excluded from any current forecast.
You’ll want them to provide the expected deal value (erring on the conservative side if there is a range), the probability of the opportunity closing in the period, the expected close date, and the current stage the opportunity has reached in the sales process.
The value of using probability percentages as a guide to forecasting is close to zero if all you’ve done is to take the CRM vendor’s out of the box stage probability percentages without any adjustment.
If you use stage-related percentages, then you must base them on the actual percentage of opportunities that have been shown to close from that stage in your specific sales environment. If you don’t have the figures, then make it an urgent priority to calculate them. And if you allow your sales people to over-ride the percentages, you must define what you mean by them (for example, is it the percentage chance the deal will close in the current period, or ever?)
The sales stage is particularly important, because it ought to be (if you've applied consistent sales process definitions) an issue of fact, whereas the probability of that individual deal closing will always tend to be more of an issue of judgement.
You’ll also want to ensure that the projected close date is backed by some clear evidence of buying intent or a compelling event and consistent with the rate of progress (velocity) usually observed for an opportunity at that stage in the sales process. Make sure that “close date” means the same thing to everyone involved in the process. Does it mean the date on which the decision is made or does it take into account approval cycles, potential delays in the prospect’s order raising system, etc? Has it been confirmed in writing (or an exchange of email) with the executive sponsor?
We’ll talk later about the importance of measuring deal velocity, but for the moment it’s worth observing that one of the most common “unnatural acts” is a sales person’s misguided hope that they can close an opportunity far faster than other similar winning opportunities have taken from the given sales stage.
With each fresh iteration of the forecast, you’ll want to know what’s changed since their last submission. What deals have been closed? Which ones have moved forward? Which ones appear to be stuck or moving backwards? Have any of the values changed and if so, why? Have any risk factors changed, and how have they responded? Have their overall “commit” and “best case” projections changed as a consequence?
You now have the basic foundations for your sales forecast. But you'd be very unwise to simply roll up the forecast numbers and present that as your overall forecast. Assuming that you've carefully tested the issues of fact at a deal-by-deal level, you'll want to apply intelligent judgement to the numbers in front of you.
Bob Apollo is the Managing Partner of UK-based Inflexion-Point Strategy Partners. He helps B2B companies to accelerate their revenue growth by designing and implementing repeatable, scalable and highly-aligned sales and marketing processes that enable them to systematically identify, attract, engage, qualify and convert more of the right sort of prospects.
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