How are forecasts being used ?
As strange as it may seem, lots of companies mean different things when they talk about forecasting. Sometimes it means predicting. Sometimes it means committing to a number that the rep will bring about. Often it transitions between the two as the month or quarter progresses. For example at the start of the quarter, a sales rep can be asked “what do you think you will do ?”. The answer can be an honest estimate based on expected value of opportunities.
As the quarter progresses and deals are closed or fall out, the number becomes more or less likely. The sales manager, may or may not accept a slip and push the reps to deliver on their original ‘forecast’. Where the number is looking more likely a rep may be asked to increase his or her forecast.
All of this makes forecast accuracy difficult to track.
Managing at the opportunity level
Managing like to a target number means the individual opportunities can be lost, especially smaller ones. Sales reps can hit their numbers with completely different deals to the ones they were forecasting. It is reasonable that this happens sometimes. There are always a few deals in the mix.
At the highest levels in a company, the deals can average out and forecasting is easier. It gets tougher for front line managers and sales reps. Prior year comparisons and trends don’t help as much at the deal or rep level.
However, it is important to understand how a number was achieved. How accurate were the predictions about the individual opportunities ? If not, the business begins to drift and be driven by a prior period comparison.
Problems at the top
Top down or trend based forecasting means the quality of the pipeline starts to deteriorate. Top reps can be reluctant to call opportunities because they know it could mean expectations rise. Weaker reps can overstate opportunities and hope that they get cover from somewhere to save the day. It all gets lost in the mix when the period has closed because all that matters is the overall number. If the team has hit its number, few questions are asked. If it hasn’t, it is difficult to identify which reps got lucky and which reps were unlucky. A top performer might have had a big deal slip by a week. A poor rep might have been saved by a customer ringing up out of the blue with an order.
The focus on big deals landing or slipping hides a lot of performance problems and makes forecasting more susceptible to changes in the underlying market trend. The professionalism of the sales reps working the opportunities needs to be the main driver behind the forecasting.
How are reps judged ?
The most common methods used to assess a reps professionalism are: 1) sales closed and 2) win rates. Anyone who has managed a sales team knows that the top rep in raw sales number is not always the top rep. The second method, win rates, can be calculated by the value of opportunities won divided by the value of total opportunities (closed dead and won). This is often distorted by reluctance to recognize the death of an opportunity. Grief can be funny like that. Some reps never get over the denial stage. They just move the opportunity out until eventually the rep retires and someone else takes over the territory. The new rep quickly engages with the “opportunities” and finds they have boarded the Marie Celeste. If a lot of reps leave at the same time the entire company misses a quarter and misattributes it to the loss of experience.
The other way to that win rates can be manipulated is to win big opportunities and lose small ones. The trick here is to keep the opportunity value low until it is about to close. If it dies, nobody notices and it doesn’t affect the win rate as much.
Often the battle between rep and CRM system is like Gary Kasparov trying to outwit IBM’s Big Blue in chess, with human quitting before the machine could figure out how he was playing.
How can forecasting accuracy be improved ?
The best reps are good at knowing what deals have real potential. They understand the value of the solution they are selling to the people they are selling to. They understand the steps in the buying process and how long it is likely to take. They qualify early. They negotiate when they know the value. Despite all of this, they do not necessarily forecast it. They can look average compared to their peers when it comes to forecasting.
Under-performing reps can play a different game of cat and mouse. They are over-stating everything in the hopes that something will come good. They believe that they might be saved by a deal whether or not they were able to forecast it. They hold on to dead opportunities in an act of necrophilia, moving the bodies out one month at a time. If they are lucky they stay off the bottom of the ladder by virtue of a good territory that bares fruit magically from time to time.
How do you get reps to forecast what they genuinely believe an opportunity is worth and when it will close? Track forecast accuracy by value and close date. Manage based on this to avoid problems being hidden or great reps low balling opportunities. Benchmark reps against norms. What are the average sales cycles and deal sizes ? Look at it by segment and by type of opportunity ? Recognize reps who forecast early based on these norms and win the individual opportunities they have forecast. Recognize and reward good forecasting behaviors. If reps at the top of the leader board in terms of sales number are not forecasting, explain it blemishes their achievement.
Emphasize the importance of good forecasting for the business. It is the basis for investment. The company can not scale up as quickly if it cannot see where the business is coming from. Products cannot be developed; marketing cannot be as effective; purchases not made, if all must wait until orders are won to make decisions.
Record quarters start with clean pipeline.