Everyday business leaders attempt to understand and predict when revenue will land.
But the reality is that human-based forecasting is subjective and error-prone. A miss in a sales forecast creates pessimism in your market and might impact how your company allocates resources. Business success depends on forecast accuracy, but what happens if the inputs are flawed?
These flaws can be attributed to many causes, and it’s hard to place blame on anyone factor when they happen. The good news is that there are improvements you can make and processes you can put into place to both identify and move past the two most common flaws that result in a failed sales forecast. Let’s take a look at a case study.
John was a competent VP of Sales, leading a focused global team of sellers who had been riding a wave of successful growth. Their company was getting a lot of buzz, and planning for the IPO was already in flight. In fact, the phrase “like shooting fish in a barrel” came to John’s mind as he looked at his increasing growth month over month and quarter over quarter. But last month was different. Every sales leader forecasted a drop in projections. It wasn’t significant, but it was a drop.
The sales managers were confident this was a glitch. Salespeople were not updating their CRM system because they were so busy with their increasing customer demand. At least that was the story that sounded good. It was a logical reason to explain away the miss, and other managers not wanting further inspection jumped onto this argument.
John was now poring over looking at the forecast data, which showed double-digit decreases in every period forward. He hid his hands in his face and sighed.
In Las Vegas, there are only two ways to lose money: chasing your winnings and chasing your losses. While John and his company’s story is fictional, it’s based on real-life cases of companies. Clayton Christensen, former Harvard Business professor and author of The Innovator’s Dilemma, saw this and the rise and fall of Digital Equipment Company (DEC). The ill-fated story of DEC led him to create his well-known theory of disruptive innovation.
How to spot disruptive innovation
You can spot disruptive innovation the same way you catch fireflies: by getting out in the world and being present where they live. Your sales team can serve as early warning signals to trends and the presence of new competitors in your market.
How often are you looking beyond the rosy metric to understand why you are winning and losing customers. Are you gaining customers, yet losing yield? Blind focus on new logo acquisition should not come at an unprofitable cost of acquisition.
Sales forecasting is a complex process because people are part of the process. Humans are both rational and irrational and do many things that don’t make much sense. Nonetheless, we develop process and forecast models to make sense and predict a sale’s future. Here are some common flaws in the forecast process and some ideas to help you improve.
We map and model a fraction of what’s known
Selling is like playing chess on five chess boards while standing on your head. Selling strategies and variables are endless. So are perceptions, histories, biases, and even cultures of people engaged in the sale who influence the outcomes. Why are we so surprised when we misread the situation, or a large deal fails to land when our forecast models predict?
Ask yourself how have your forecast models adapted to selling during the pandemic? The U.S. consumer price index rose at the fastest pace in the last eight years – an inflationary warning signal. How will this impact how your customers respond to your products and or services?
Another thing to explore is how agile your business is. Can you digitally move without missing a beat, or are you constrained to a physical location and infrastructure? These are essential elements of any business plan to consider.
As markets change to the impacts of COVID-19, we will witness some of the largest mass migrations of people since the dust bowl crisis of the 1930s. We are at a turning point in sales history. We need a better way to understand and interpret customer behavior. On the one hand, we leverage plenty of data to inform our decisions. Yet, we still trust many people in the process to share their gut instincts. John may have trusted his success too much and what was important to his customers.
Don’t forget that your sales processes and models represent a deal’s abstract dynamics – it’s not what’s actually going on. The reality of the situation rests with many different variables we perceive. If we are lucky enough, we capture the variables. If not, we fail and wonder why. The fix for this flaw is to have a robust opportunity scoring system. Reward variables that lead to more clarity in the sales process.
You could score the:
- Number of buying influences
- Time spent in a particular stage of the sales cycle
- Level of industry competitiveness
- Marketing engagement score
- Customer satisfaction score
Here’s an example of how this might look for the owner of a small advertising agency:
In this business, new customer acquisition is essential, and there are many buying influences. Your most profitable and successful customer relationships all engage the same three influencers. CMO, a C-level executive, and the creative team’s leaders.
If you want to score your deals, you can give weighting by a “1” for the presence of these contact types and a bonus “5” when all exist. A perfect target opportunity would have at least a score of “8” in your system. This is one dimension.
Time kills all deals, so spare time spent in sales stages starts to erode confidence and value that this deal will come to fruition. You could decrease the opportunity score based on time in the stage. If the ad agency only had retail brand clients, you might want to rate a retail brand high and other industries lower.
What type of social listening do you do? Can you tell how often an interested client is reviewing marketing information? Can you see when they are engaging with you digitally? There are many variables you could use to score opportunities. Only place opportunities in your forecast that clear your hurdle.
Decide in advance and apply a scoring system across all opportunities in your CRM system. Forecast the ones that clear your hurdle. Those that do not either drop them or move them up over time.
Also, consider using artificial intelligence to create your forecast models. Consider how much time you spend forecasting. If your top sales leaders spend hours to get the forecast correct, could automation save money and do it better? The answer may surprise you.
Data models can look at historical forecast data, sales, and variance from forecasts. With your data variables, you could develop accurate sales forecast models. Spend the time you’ve saved investing it with your customers and salespeople. You will cut subjectivity and delight your customers.
We don’t have good instrumentation of shared value
When you don’t have a plan, you risk losing control of a sale. If you are using a joint execution agreement or an evaluation plan to help guide your sales, you are on the right track.
Customers appreciate the signposts that tell them where you are in a sales cycle and where you are going. I recently went to the Tesla store, curious about their cars. The sales professional was excellent and communicated the value of owning a Tesla. He took control of the sale by saying: “We should get you an appointment to come drive one of these.”
I thought it was a good idea, too, and agreed. He asked for my name, phone number, and email and said, “I’m going to email you to set up a time, ok?” He had control of the sale and led me through the process of saying yes. He could have said: “Hey, it was nice showing you these cars. Have a great day!” Instead, he took control.
The customer appreciates the knowledge of what will happen next and how they can plan for it. When you take control and show what happens next, who is accountable and set realistic timelines, you have a path to a successful sale.
Sell with your customers, not to them. Customer evaluation plans and joint execution agreements help to map the process of realizing value. Most sales evaluation plans stop at the seller’s payday. Be customer-centric and see the world through their eyes.
Resist the urge and map out how your customer success team will engage and when the customer will likely see the value. I call this “selling through the close”. Chart the path to their win and stick around to see the impacts. Then, you can ask to share this with others via a customer reference.
You now will have a satisfied customer with tangible outcome metrics to build a case on. The process of a customer sharing their positive experience alone bolsters their satisfaction. It makes the next sale to them more manageable.
Summary and impact
In a competitive world, sales success will determine a company’s viability. Yet forecasting what customers will do can be difficult, and it’s like navigating a minefield. One wrong forecast slip and your business explodes. It does not have to be this way, though.
The bright spot is that there are ways to increase predictability and accuracy, which will help fund future growth. First, we explored connecting with customers and all your customer-facing teams to create ways to score your sales opportunities. Scoring can bring focus to your high potential deals. It also gives certainty that is often missing from more subjective approaches.
Be honest and look at your sales process through the eye of the customer. Customers want to use the products and services they buy from you. How do you track where you are with them, what’s next, and how well are you both aligned?
Sell through the close to realize the customer’s payday. Not only will you have happy customers, but your sellers will also appreciate greater objectivity that they can plan for and sell toward.