How to deliver an accurate sales forecast

5 min read
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Roy Jacques, Managing Director, UK & EMEA of Appcast shares his tips for delivering an accurate sales forecast.

There is a strand of wisdom that says the accuracy of a sales reps’ forecast will tell you everything you need to know about their professional ability. To deliver an accurate sales forecast, great command over your sales process and your CRM is essential. Combined with achievement against quota, you get a fairly clear picture.

Let’s take that up another level to the sales manager. Your accuracy of forecast to the board demonstrates numerical competency, control over process and therefore builds trust in that relationship.

Most companies will have an acceptable level of sales forecast accuracy based on their business model. In a high-volume, transactional business with low prices, sales reps will be busy selling, not forecasting. Those scenarios call for metrics-based ratios, rather than insight-led sales forecasting. You’re more likely to say, ‘I know 1000 calls is 100 contacts, which is 5 sales’.  This boils down to a ratio. Therefore, your leading indicator is the activity. (Reps who show variance from standard ratios most likely need some more training.)

In enterprise focused roles where you are selling high value software or mid-range Software as a Service products, a system of record is needed (typically a CRM), along with an agreed process to assess and progress deals. In a good sales process, each stage should have exit criteria. As a sales leader, you use this ‘evidence’ to genuinely understand where a rep is in a sales process. For example, you would not send a proposal to a client without a clear and documented understanding of the need you were fulfilling. It is also important to understand if progress in a sales / client buying relationship is mutually agreed e.g. an e-mail with comment from both sides laying out next steps and accountability.

Desk to desk processes

Why do sales reps deliver short of their forecast? Lots can happen during the course of a sales process. A prospect’s business may be sold through an M&A program, for example. But in a standard sales environment, forecast accuracy is typically down to diligence in process and being in control of the deal.

Desk to desk’ process is one key area of control. This process consists of the physical steps that a prospect takes to set you up as a supplier, process a contractual agreement, have it signed and delivered back to you. Deals can be pushed out by months because the client’s procurement process was not fully understood by the rep. Trust me, I’ve seen it happen! Ideally, the rep needs to know the process inside out. They need to know who is involved in the process and how long each stage of the process is expected to take. In an ideal world, this will be planned and mutually agreed with the client.

The forecasting meeting: Forecasting down

For me, the forecasting meeting is always an individual meeting. Even with a clearly defined process you get natural levels of optimism and pessimism from a sales rep, which can skew the forecast. 1:1’s are critical touch points between sales leaders and their reps. It’s a time for deal exploration and coaching and should be sacrosanct in your calendar.

To be truly effective sales forecaster, you need to go deal by deal with the rep. Look at the CRM evidence base for the forecast and ask some searching questions. Then decide if that deal is actually closing this month.

I typically do deal deep dives once per month, with the interposed meetings used to get operating updates. These are great for asking reps to self-reflect on their deals. Sometimes, taking a step back is progressive. Are we engaged with the decision maker? Is there more than one decision maker? What is the legal process? Are there any blockers? (This could be as innocuous as a single legal clause.)

Your buying process will be affected by the type of customer that’s buying from you. For example, your forecast should be good if you work in an enterprise only team who sell directly to companies with an established desk to desk process. But if you’re selling through an intermediary, like a channel or agency, you don’t have direct control over the budget at the end of that process. It becomes much harder to understand the desk to desk process. To avoid the inevitable margin of error, I used to add 6 weeks closing time to any ‘committed’ deal via an agency.

Forecasting periods are also important. For example, in a solutions-based business, a rep should be able to give you a 95% accurate forecast within one month. But on a 90 day sales cycles, that accuracy will drop considerably three months out.

It’s a slightly different ball game in scaled businesses. The same principles apply: forecast accuracy, variance of forecast, submission to the board etc. But your CRM and adherence to stages and evidence bases need to be more robust. If you have 100 sales reps, they will still have managers who can go through the same due diligence. But the bigger the organisation gets, variance can start to kick in because now you’re measuring optimism and pessimism in all these different channels and across several teams. In this scenario, a CRO would want to click the report button in the CRM and see the forecast. That’s the utopia. But to do that you need rigid stages and evidence base.

Forecasting up: Managing expectations

A lot depends on the leader that receives the forecast, the structure of the business and how well the CEO understands sales. For a CRO who is genuinely responsible for the revenue of the business, you put forward the number, you are accountable! Your CEO should not need to stress test that number.

There’s always that balance between delivering that number and not over-selling it or under-selling it. In the same way that reps are optimistic or pessimistic, sales leaders are the same. You never want to hugely overstate or understate the forecast. That starts to harm your credibility with the board. Basically, no surprises.

When forecasting month to month, there is always an upside and downside risk. The upside is the handful of deals the reps tell you will come in but you are uncertain of. The downside is a risk in the ‘desk to desk’ process that might tip you into the next month or deals that are on the fringe of the month end date. This is why forecast tolerance becomes interesting. A business that’s happy to accept plus or minus 5% always looks at the forecast within those brackets.

What sales forecasting means to different businesses

As an early stage tech business burning through cash, knowing your sales forecast, actual sales and debtor days becomes crucial. It might indicate how long you’ll stay in business or when you need your next funding round.

In manufacturing, sales forecasting helps with raw material ordering. It keeps your inventory at the optimal levels.

Sometimes, forecasting might just not be important. Forecasting might not mean as much to a privately held, profitable business running at 60% forecast accuracy. They might choose to overlook the fact that with better rigour, they could increase sales by another 20%.

Download our Guide to Sales Forecasting and learn how to deliver an accurate sales forecast your board will love.

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