“The reps are forecasting $1,000,000 this month,” I told my CEO back when I worked at InsightSquared.
“Well, what are YOU forecasting?” He asked me.
Now that I’m a seasoned sales leader, I understand the difference between the two, and why accurate sales forecasting relies on more than just the reps.
The Biggest Reason Reps Overestimate Their Forecasts
Most of the reasons reps are over-optimistic in their forecasts are psychological and are rooted in the nature of the AE job. The biggest reason of them all is fear.
Every day, AEs wake up to live and die by their quota. They only hit their OTE if they meet the quota. They constantly eyeball their name and position on the leaderboard. They pray for the day you call out their good results in an email or meeting. They fear being put on a performance plan when a deal falls through last minute.
All that stress and fear can be taxing, and make it hard for even (or especially) the best reps to accurately predict their future performance. That’s why you can’t set a forecast based entirely on the word of your sales team.
Four Steps to More Accurate Sales Forecasts
Overestimating sales forecasts happens when we rely on the people in the high-pressure position of hitting their number. That whole system is broken. Rather than expecting AEs to not have the “happy ears” that many use to psychologically survive in this cutthroat world, try these four tactics.
1. Create a healthier dialogue about forecasting
Ensure your sales reps know that forecasting is not about telling your boss what they want to hear. It’s not “signing up for a goal.” It’s just an exercise in accuracy and transparency so that the company can do proper planning, including getting sellers the resources they need to succeed. Painting a detailed picture of what happens downstream when forecasts are accurate and inaccurate can help, so tell that story too.
Still, removing the fear of an honest and accurate forecast is a challenge. After all, your reps may have faced negative repercussions in the past for submitting forecasts below expectations. Who could blame them if they’re not excited to do it again?
(Strangely enough, one study found that penalizing over-forecasting more than under-forecasting led to more accurate results over time.)
So from now on, when reps submit forecasts that are below expectations, commend them on their honesty and transparency. Spread praise liberally and openly, and repeat it forever.
Reps who hit their number, but forecast inaccurately should also hear from you. Either way, you need to separate sales performance from forecasting performance and deliver constructive feedback on each skill individually.
2. Start tracking forecasting accuracy and delivering results to the team
Make forecasting accuracy visible and put the same importance on creating a reliable forecast as you do on goal attainment.
If you use a leaderboard to track quota attainment, do the same for forecasting accuracy. You should also incentivize accurate forecasting with rewards and recognition – even small ones.
For example, you could offer a nice dinner for two to the person who most accurately forecasted their quarterly number. Reps who forecast accurately should be rewarded – even if they didn’t hit quota.
If there’s absolutely no budget to support accuracy incentives, you’ve got another issue.
3. Develop a forecasting methodology that moves beyond inputs that include rep confidence
There are several forecasting methods you can use, but one of the most popular is stage-based forecasting.
Start with stage behavior, including using up-to-date conversion rates across stages, as well as sales cycle times. If anything, err on the side of being conservative about these metrics as reps tend to think things will close faster than they actually will and at higher deal values. There are also sometimes bumps in the road, such as team churn, and a more conservative forecast will help you prepare.
Create a Stage Management Guide like the below and exit criteria before a prospect is moved to a new stage so that all of the necessary housekeeping items are checked off on. For instance, perhaps before a proposal is submitted it must be approved internally by Sales Ops or the VP of Customer Success.
Focus on tracking behaviors, not assumptions. For instance, instead of saying a contract is “in legal,” which can be vague, use a term like “Redlines Working.”
4. During 1:1s, deep dive into commits and ensure the right topics have been covered
Reps don’t know what they don’t know.
Sometimes you’re better at noticing red flags on deals since you sit across every deal and hear about them all at length. On the other hand, some sales leaders spend a lot of time perfecting the “pitch” and attending early-stage meetings. If that sounds like you, try to spend some time listening to recorded late-stage follow-up calls to coach reps on closing more efficiently.
Make sure your reps have good coaching coverage during every stage!
At Chorus our clients use Conversation Intelligence to track sales conversation themes that influence win rates. For example, we found that demo duration is an important factor. Win rates go up by as much as 37% when demo calls are longer than 40 minutes.
Our clients also listen to late-stage calls and ensure reps cross off all major points, including:
- proactively understanding the prospect’s legal process and any potential hurdles
- getting a firm commitment on price and deliverables
- setting timelines
- educating prospects on the kick-off process
As an example, Placester was able to identify that reps were explaining contract details in a way that wasn’t resonating well with some customers. The effect was and delayed deals.
By creating a healthy dialogue, incentivizing accuracy, getting rigorous about stage management and the sales KPIs you use to predict revenue, and using 1:1s to uncover red flags, you will be able to forecast much more accurately.
Do you think your reps often overestimate forecasts? As a sales manager or leader, what are you doing about it?