Can you believe your sales forecast?

Sales forecasts are tricky things!

The importance of accurate and timely sale forecasts to the success of a business cannot be overstated. Sales are the lifeblood of a company upon which all else is predicated. Sales forecasting is non deterministic but drives deterministic process within a corporation. So is a forecast driven by chance? The simple answer is partially, dependent on how the forecast was created. WC Fields famous quote highlights the situation, “poker is not a game of chance the way I play the game”.

Essential there are three components to a sales forecast; rational, analytics and motivation. If not recognized and objectively addressed these components can be distorted thereby diluting the purpose and accuracy of the forecast.

A sales forecast purpose is to say the sale of a certain amount of widgets will occur over a defined period. The forecast then tracks the opportunities and assigns them win likelihoods. Notice that I stay away from words like probabilities which are misleading by attempting to quantify non quantifiable data. With that said, the forecast must provide a reasonable estimate of near term sales and the overall pipeline. But how is this accomplished?

The forecasting process starts before the forecast is created. For existing products and established company’s past history can serve as a model for the future. Historical data will require adjustments based on continued product viability, market conditions and identified opportunities. The degree to which historical data fits current information defines risk.

For new products and companies market analysis and product extensibility are key factors upon which a forecast is based. Understanding the market size and application is essential in establishing a forecast and mitigating risk. Are we addressing a $ 1 M or $ 1 B market? Hitting a bit low in a $ 1 B market hurts expectations. Hitting low in a $ 1 M market is a likely disaster. Also, does the product offer sufficiently extensible both in application and feature sets? Many a product having a solid core has withered on the vine due to missing peripheral feature sets that are essential to clients.

Analytics is the means of managing the sales process by quantifying the conditions of the forecast and tracking opportunities. This is not a trivial task; especially when sales personnel are geographically dispersed and a wide variety of products are sold. Regardless of company size it is worthwhile to use a structured analytical sales tool to add discipline to the process.

But considering the aforementioned there is another truth, don’t get lost in the analytics. Maintain focus on the end objectives of the forecast; near term revenue and pipeline. Earlier I mentioned that a forecast is non deterministic which requires further qualification. For whatever your accounting period is, there is a necessity to have a category of guaranteed opportunities. That is opportunities that will result in sales no matter what! To often forecast are set up so that opportunities perceived to have a high likelihood of closing do not result in sales within an indicated period. This type of forecasting may delay issues but leads quickly to financial trouble. I know this sound like a hard position and it is, but running a company must be based on truth. If the guaranteed list is zero at the extreme, action is required.

Non deterministic opportunities that comprise the pipeline are addressed using a combination of analytics and customized tool sets. For non deterministic opportunities a set of rules defining time period and likelihood of closing require definition. Rules must be specific to the markets and industries in which they apply, accounting for; frequency of prospect contact and feedback, cycle times, channel partner usage and contractual complexities.

From this point you are in a position to establish a forecast consisting of guaranteed and pipeline opportunities spaced in time. Pipeline items should have likelihood estimates assigned such a high, moderate and low.

Up sides, must also be addressed but kept outside of the forecast. Up sides are large opportunities that if closed could significantly effect sales but cannot be assigned a win likelihood and / or time of closing.

The last and one of the most difficult items affecting the forecast is motivation. One must ascertain if personnel involved in the forecasting process are driven by objectivity. Or are other processes involved such as bonus, company net worth, personalities, job security, etc. Threats do not a forecast make.

Now, “Can You Believe Your Sales Forecast?” If you follow the recommendations outlined it will be quickly apparent if the forecast is believable.

If for example there …….

is good historical data and / or a realistic market analysis upon which the forecast is based – Believe your forecast
are analytical tools in place which are customized to your markets - Believe your forecast
is a consistency between forecasted results for guaranteed and pipeline sales – Believe your forecast
is a motivated team environment in place – Believe your forecast

However if ….

historical data and / or market analysis is not the basis of the forecast – Don’t believe your forecast
there is reluctance by staff to make commitments or express ideas – Don’t believe your forecast
analytical tools have not been used which are customized for your markets – Don’t believe your forecast
guaranteed and pipeline sales figures vary significantly from expectations – Don’t believe your forecast
personnel incentives are not based on tangible results - Don’t believe your forecast

Last but not least, if you don’t believe your forecast do not delay, get professional help.

Good luck with your efforts, Sales Forecasts are tricky things!