Making Your Sales Forecast Believable

If I asked 10 CEOs if they had confidence in the forecast that their sales leader gives them, nine of them would say no. We see this time and time again. Why does this have to be so hard?  There are several reasons.

Some sales leaders simply provide a list of all of the opportunities in the system with dollar amounts and close dates associated.  Let’s call this the opportunity dump.  It typically has everything from “I talked to someone there” to “Should get the PO next week.”  The sales leader expects the CEO to know how to interpret this report and decide what is real and what is not.  That’s never going to happen and that forecast is useless.

Next we see the “Weighted Forecast.”  This is where we take all of the opportunities and multiple the deal amounts by some probability factor (either defined by stage or by the salesperson’s opinion) and then add up all of those amounts.  However, these forecasts are often unreliable because a $500,000 deal at 25% does not mean you should forecast $125,000. If something is really at 25% probability, I would forecast $0.

Then there is the approach where sales leaders say “I am only going to forecast deals that are in stage x or later.  Maybe they even take these later stage opportunities and apply a weight factor.  This is better, because you are filtering out all the noise from the early stage deals that won’t close, and discounting some, but they still include deals that the salesperson doesn’t feel great about.

All of these approaches miss some fundamental elements that CEOs want to see:

  • What can I count on because I need to manage cash flow?
  • When will the revenue hit?   Just because the CRM says it has a close date of 5/31, that doesn’t tell me when the revenue will hit.
  • How do I know if this is accurate or you are not just overly optimistic?

So what’s the answer?  We have implemented this simple approach at multiple companies and CEOs love it.  Here is the basic concept –

  • Segment your forecast into the following:
    • Forecastable – Deals you know you can count on.  These should be rock solid or close to it.
    • Upside – these are deals that you feel good about, but you’re not completely sure.
    • Others – these are early stage deals, deals that are super competitive, deals you don’t feel good about, etc.

Segmenting these deals can be easy.  If you use a CRM, create a “Forecast Status” field or something similar.   If you are on spreadsheets, create a column.

  • Separate your segments on the forecast
  • Apply timing to the revenue

Here is what a segmented forecast might look like:

forcast1 forcast2 forcast3

Now if I am the CEO, I know what I can count on and possible upside and can plan accordingly.  I know timing of revenue which can help me manage other areas like inventory and operations costs.  And just as importantly, I know that my sales leader is taking a realistic look at the business and not just counting everything.

This is a different way of looking at forecasts, but I have seen it make a huge difference in how the CEO and Sales Leader communicate.

This entry was posted in Leadership and Implementation, Process by Gary Braun. Bookmark the permalink.

About Gary Braun

Gary is a founder and owner of Pivotal Advisors dedicated to improving sales force effectiveness by consulting with CEO’s and sales leaders on the critical elements required for superior performance. Gary is experienced in planning and implementing sales strategies in highly competitive technology markets. He works with sales leaders to identify key areas within sales team for improvement, instruction on the use of technology, and how it helps provide structure for teh sales leader to get the most out of his/her team and be more productive within the organization. As a sales leader, Gary's teams had continual growth in year over year's sales and led successful engagements with companies including Microsoft, Symantec, VMWare, Compuware, Sun Microsystems and Electronic Arts.

9 thoughts on “Making Your Sales Forecast Believable

  1. Question: Does missing a $20 million monthly forecast by 10% sometimes mean its believable or unreliable? That is the range I work in and get challenged on.

    The problem is I cannot err to the low side because my forecast drives the MRP and we would not have the proper raw materials stock levels if I don’t keep my forecast on the upside.

    This is an interesting topic for me and I would like my team to get involved in evaluating what we do compared to other industries / organizations.

  2. Thanks for the question, Gary. I would need more information to give you an accurate reply, but missing your forecast can be the symptom of many things including forecasting methodology, staffing, sales process or many other things. One thing that I can say is that there needs to be an alignment between you and your boss about what he/she wants to see in the forecast and what his/her threshold is for missing it.

    I would be more than happy to dig in a little deeper with you via phone call or meeting if you like. You can reach me at gbraun@pivotaladvisors.com or by phone at 952-226-3385. I would love to understand a little bit more about your situation.

    Thanks again for your comments.

    Gary

  3. Or you could just rely on your rock star reps that you know will deliver with linearity every quarter. 🙂 Consistency and linearity are everything. SaaS vs licenses vs services all deserve there own forecasting methodology.

  4. Peter,

    I agree with you. Each type of sale (Saas vs. licenses vs. Services vs. Products) all have modifications to the forecasting process. Good point and we have helped companies modify this approach in all of these types of sales. However, I believe the methodology of determining a) what you can count on vs. b) what is upside vs. c) don’t count on this at all has been proven to help CEOs get more confidence in the forecast and plan accordingly.

    Thanks for your comments!

  5. Make sure your sales assumptions are linked to the detailed sales forecast, otherwise you can end up with completely contradictory information. For instance, if you assume a declining market and declining market share, it’s illogical to then forecast increased sales. For more information, see the page in this guide on your sales assumptions.

  6. Keep the forecast and results in front of everyone on a weekly or at least a monthly basis. When you recognize someone for sales attainment , tie it back to how they are doing regarding their forecast. In other words acknowledge them for their sales results and what percentage they attained against their CRM Pipeline forecast .

  7. Find a healthy balance between stretching yourself to grow and being honest about the market, capabilities and follow-through record. I’ve worked with owners who simply like to set goals that shoot for the moon hoping their team will hit the top of the mountain . The problem is the goal is not real and everyone knows it, but they all play along throughout the year fudging their closing dates and sales stages to please the boss at the beginning of each month or quarter. If you keep the goals real and believable your team will be more honest in their assessment of closing dates and stages and will fight to reach the moon.

  8. Sales forecasting is a difficult area of management. Most managers believe they are good at forecasting. However, forecasts made usually turn out to be wrong!

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