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According to Salesforce, “Forecasts are expressions of expected sales revenue. Forecasts help sales teams predict and plan their sales cycle through the pipeline to closure. A forecast is the gross roll-up of a set of opportunities.”
By rolling up a set of opportunities, sales leaders manage sales expectations. Forecasts use reporting periods, for example, the current financial quarter, or fiscal half year. Filtering and reporting depend upon the Customer Relationship Management (CRM) system. Sales forecasts are presented in a variety of ways, for example, territory or region, specific products and services, sales reps, sales teams, and so on. What and how you forecast depends upon how your CRM system is set up.
We have split this guide into sections. Each section covers a specific topic related to sales forecasting. Sales forecasting tips provide recommendations to improve your own sales forecasting. Use the summary below to navigate to an area of interest.
Putting your sales forecasting into perspective
Introduces some of the latest sales forecast research, confirming sellers are still closing less than half of what they forecast to close. Why you must focus on improving your sales pipeline management and forecast accuracy. Guidance which sales lead metrics to use to track the health of your sales forecast.
No problem here! Our business is growing rapidly…
Defines Toxic Forecasting Debt and how you could be banking and accruing future business risk. Why there is no difference between active management and change management. Encourages you to be better than your industry average and guides how to perform a forecast health check.
Check out our Sales Pipeline Guide for Sales Teams & Business Owners
We know forecasting is weak, but we are still achieving our fiscal plans…
Introduces research confirming most sales leaders are meeting their fiscal plans. Why sales rep’s quota attainment, forecast accuracy, sales leaders quota plans are different. The hefty price sales leaders are paying to compensate for sales teams’ poor forecasting performance. Guidance on how to perform a quick QBR Health Check review.
Creating the space to improve your sales forecasting
Why successful companies focus on three areas to improve sales forecast performance. How to increase your business success focusing on these three areas. Guidance on how to perform a quick sales enablement health check within your business.
How do you manage your sales forecast process?
How sales leaders are using sales pipeline reviews to finalise their sales forecasts. Introduces six methods businesses can use to forecast sales revenue. Why sales forecasting requires unbiased input from conversations taking place with sales leads. Provides recommends reviewing how many of your sales leads are slipping. Guidance on how you can improve your teams’ sales forecast accuracy.
The window of opportunity for sales to close a deal is reducing
The need for sales and marketing to adapt to improve forecast accuracy. Presents why the buyers’ decision-making process is central to accurate sales forecasting. Why the term Smarketing has become relevant and how it extends the influence you have in an account and your market. Why Smarketing enables you to remain relevant both before and after a sales lead has contacted you.
Sales forecasting and pipeline management need to be separated
Unravels the difference between sales forecasting and sales pipeline management and should be considered separate activities. Explains the risk of mixing these two activities during sales pipeline reviews. Why you should invest in a lightweight and dynamic sales prospecting tool. Introduces the Conversational Solution Sales Scorecard.
Accurate sales forecasting needs a dynamic sales process
Why you should include conversational metrics within sales pipeline and sales forecast reports. Perform a simple return on investment for the Conversational Solution Sales Scorecard. Companies reluctance to improve sales forecast accuracy has been habitual. Why existing sales forecast processes could be restricting your business growth. Guidance to perform a quick sales revenue upside health check.
Solving the sales forecast challenge
Provide the right tools to improve sales reps and leaders forecast accuracy. Improve sales forecast accuracy in four steps. How these steps deliver five follow-on sales practice benefits. Why they remove sales forecasting risk caught up in your sales pipeline. Do this, and you can expect to see a further eight business performance benefits.
Pulling it all together
How much more revenue and profit could you secure if you had more confidence in your sales forecasts?
According to CSO Insights, Selling in the Age of Ceaseless Change: The 2018-2019 Sales Performance Report. Quota attainment has increased only slightly between 2017 to 2018, moving from 53.0% to 54.3%. These rates are still below 2014 statistics at 63% quota attainment. According to a Salesforce survey, sales teams are struggling, 57% expect to miss their quotas this year, which is a slightly higher figure than that presented by CSO Insights.
I discuss this further in a recent video Why has Smarketing become relevant to the buyer’s journey. One reason is the shift in power from the seller to the buyer. Since 2014 this shift has accelerated, and yet most sales practices have not kept up with buyers increasing power and access to information.
Quota attainment and forecast accuracy are different. The CSO Insights report also highlights win rates have stayed the same as the previous year, 47.3% of sellers are still closing less than half of what they forecast to close.
You may be a business leader, sales leader, sales rep or work in a supporting sales or marketing team. Inaccurate sales forecasting, slipping or lost deals impact everyone in your business. Investors and your executive probably will not see this reality if sales leaders are achieving their own sales revenue plans. Inaccurate sales forecasting is a hidden operational cost not shown on your bottom line.
These CSO Insights are either reassuring or worrying. Reassuring that you are not alone, half of your competitors are not managing their sales forecasts well either. Worrying because the other half are! Consider also the potential risk from new challengers entering your market.
There is an increasing number of new innovative challengers entering all markets. If you are not one of them, and they are not biting at your heels yet, they will. A single challenger is an annoyance, many present a potential health and survival threat. Steeling away forecasted sales leads presents a risk to your long-term success.
Your competitors will be focusing on improving their forecast accuracy and sales pipeline management. Resources, time, effort and the cost of overheads are impacted by inaccurate sales forecasting and hurt your business. This represents hard earned cash and resources that could have been better invested. They create missed opportunities to grow and strengthen your business in preparation for the future.
Sales Forecasting Tip: Review the sales lead metrics you are using to track the health of your sales forecast. The following are four metrics we recommend including in your reporting.
Where are most of your sales lead attrition occurring? Is it front-loaded during early sales stages or back loaded during the latter sales stages? Backloaded attrition may be caused by poor qualification early in the sales process. This will impact reps’ available time to focus on higher value sales opportunities.
Front loaded attrition may mean a rep is feature benefit selling. Buyers will gravitate towards sellers who pay attention and understand their specific problems rather than selling features and benefits.
Strive to increase sales values as sales leads move through the sales pipeline. There will be situations where this does not occur. You need to identify the trends rather than dig into the specifics. Digging into specifics is the focus for sales pipeline reviews.
Where ‘x’ is the number of days before the end of a reporting period. If a forecasted sales lead moves into another reporting period, track it as a slipped sales lead. Compare the managed closed and slipped closed ratios. If a sales lead is not moving forward, there will be a reason. Slipping deals are costing both time and money. Use sales pipeline reviews to understand the cause, the following Guide will help.
You may be selling new products and services everyone is talking about and wants. Business is booming, you are achieving your quota targets, your business is overachieving on its revenue growth plans. The fact your sales teams may be closing less than half their forecasted deals is academic because there is enough business to keep everyone happy.
If you are in that group, do not pat yourself on your backs for too long. You may be benefiting from a market spike or you may be one of the many companies driving the new technological change, what many are calling Industry 4.0. You are still banking and accruing future business risk and that risk may become a toxic forecasting debt when:
Our definition of a toxic forecasting debt is:
“The financial and operational impact caused by poor forecast and pipeline management.”
This debt will increase in the shadows. Rapid growth often papers over cracks hiding poor forecast and sales pipeline management. Successful companies recognise there is no difference between effective management and change management. To remain competitive in a changing market, you must keep improving and transforming your internal processes to become more effective.
Aim to be better than your industry average. This is particularly relevant during times of change given we are on the cusp of a new Industrial age, known as Industry 4.0. You must give priority to improving your sales teams’ sales forecasting skills. If you want to know more about Industrial 4.0, check out another recent video. How will Industrial 4_0 impact us in sales.
Sales Forecasting Tip: Perform the following forecast reality health check. What percentage of your sales are closing when they are first forecast? Are deals slipping or lost? If they have, you have room to strengthen your competitive edge in your marketplace. Embrace the opportunity and get ahead of the pack.
The fact 47.3% sellers are still closing less than half of what they forecast to close is an important marker because it represents those businesses that may be struggling now or in the future as a result of the change. Consider incorporating accurate sales forecast performance into your Management Business Objectives (MBOs), commission and compensation plans.
The CSO Insights, The 2018-2019 Sales Performance Report highlighted over 90% of companies are achieving their fiscal plans. Remember that a sales rep’s quota attainment and forecast accuracy are different. Sales leaders’ fiscal plans are also a separate metric.
We now know that sales leaders are finding ways to make their number, which raises two important questions:
Sales leaders achieving their fiscal plans is reassuring, especially if you are one of them. Sales leadership is a tough job at the best of times so why make your job more challenging than it already is?
Many successful sales leaders are making their life harder and feeling exhausted. Some may even feel close to burn out. If this is you, I’m afraid you too are contributing to your business’s forecast risk debt. It is understandable sales leaders focus on their immediate quarter, however sales leadership also requires being strategic. Are you compensating for your sales teams’ poor forecasting performance? If you are you are paying a hefty price.
The metaphor of the hamster wheel comes to mind. Running in circles but making no real progress has become a reality for many sales leaders. If 47.3% of sellers are still closing less than half of what they forecast to close. Is it reasonable to assume half the sales leaders feel exhausted at the end of every quarter? I have found no evidence to prove this fact, however, if you are one of those sales leaders achieving your plan while your team closes half what they forecast, you may agree. Feeling exhausted presents both a health risk to yourself and your business.
I offer some guidance in a recent video, Sales pipeline review and QBR Dos and Don’ts. It is a short insight into how you can create the space to improve the value and performance of your QBR investments.
Sales Forecast Tip: Perform a quick QBR Health Check review. Are your QBRs more an extension of your sales pipeline reviews? You may be building a toxic forecasting debt within the business. I recommend you focus on improving your sales pipeline reviews.
The CSO Insights, The 2018-2019 Sales Performance Report highlighted another important trend. Improving business processes managing and guiding sales relationships pays dividends. Salesforce reinforced this point in another recent survey. Intelligent capabilities help high-performing sales teams improve forecast accuracy by 10.5 times. This is comparing their sales performance with underperforming sales teams.
CSO Insights recommend focusing on three areas to improve performance:
Businesses focusing on these three areas have improved their performance and increased business success. Here is some further guidance to help improve these three areas of your business.
Sales Forecasting Tip: Perform a quick sales enablement health check within your business. Where would you put your own business sales enablement on the following starter grid? Remember, the closer to the front of the grid you are the better chance you have winning the race. Each row up to the front row leader position includes a specific sales skill you need to sharpen. Your sales enablement and training must focus on moving your sales teams up to the front row.
Consider using the Conversational Solution Sales Scorecard because it will strengthen your business’s sales enablement and sales training. It will also support sales leaders move their sales reps and teams up through the starting grid to pole position.
Sales forecasts are often set during pipeline reviews. CRM systems use different terms to present forecast confidence, for example:
These terms are separate from the sales pipeline stages tracking the flow of sales leads through the sales pipeline. A forecast presents expected sales revenue within the reported period. It also includes financial adjustments that include currency exchange, products or services being forecast, carve-outs.
According to HubSpot, there are six methods to forecast sales
The challenge with all these methods is they use a mix of historical data and sales rep’s own perception. The risk is that these inputs are often based on assumptions. Sales forecast accuracy is reliant upon unbiased input. This input must come from conversations taking place with buyers and influencers.
A sales reps’ understanding and their perspective of a situation may be incorrect. They may have had a meaningful conversation with their prospects. We need to step into the prospects’ perspective and ask, “Has the prospect had a meaningful conversation with the sales rep?” I discuss this in more detail in a recent sales blog. Why do sales forecasts slip?
The challenge here is compounding the risk. All inaccuracies roll up into the sales leaders’ own sales revenue forecast and these roll up into the company’s revenue sales forecast.
How can over 90% of companies be achieving their fiscal plans? When less than half of their sales team will not close forecasted deals?
We have already mentioned sales leaders are finding other ways to achieve their plan, even though over half of their sales team will not close their forecasted deals. Next, we will uncover how you can improve your teams’ sales forecast accuracy.
The table below is an example sales pipeline provided by a market leading CRM provider. It follows the opportunity stage forecasting method. The percentage of revenue weighting is the sales lead’s revenue included in the sales rep’s forecast. Each stage has a different revenue weighting. The right-hand notes are what we can expect many sales leaders and reps to discuss during each sales stage.
Sales forecast reporting compares revenue forecast against the quota target for sales leads forecast to close in that period. The weighted revenue in the sales forecast based on its current sales stage.
|Sales Stage||Description||% Revenue Weighting||Supplier Discussions
|1||Appointment scheduled||20%||Is this a good investment of your/our time?|
|2||Qualified To Buy||40%||Is it a sales trap?|
|3||Presentation Scheduled||60%||Can we win the deal?|
|4||Decision Maker Bought-In||80%||Do we have the sales lead’s support to win?|
|5||Contract Sent||90%||Do we have the strength to win?|
|6||Contract Won||100% Won|
|-||Closed Lost||0% Lost|
This method tracks and reports on the sales leads progress through the sales process. You may, as I do, consider the above revenue gearing to be too high. High gearing amplifies poor sales pipeline management and can be a contributor to inaccurate sales revenue forecasting. The sales pipeline must reflect your customer buying behaviour and their buying journey.
Sales Forecasting Tip: Are sales leads slipping in your sales forecasts? Are sales reps struggling to provide a satisfactory explanation of why it occurred? Are activities not occurring during previous sales stages and slipping or lost? If you have answered yes to any one of these questions, you will be dealing with one or two of these challenges.
To build confidence in your sales forecast, you must track the progress of the conversations occurring within each sales lead. Doing so your sales pipeline can become a more valuable lead indicator for the business.
High performing sales reps and leaders use these indicators through experience. Their pipeline reviews focus on checking and reviewing sales leads moving through the sales pipeline. They clarify and confirm how effective is the sales rep is managing the sales lead to closure when forecast. Focusing on the conversations helps move sales leads forward through the sales stages. Without effective sales pipeline reviews, you may be building a toxic forecast risk within your sales pipeline.
When you have risk in the sales pipeline sales leaders often do not see it until it is too late. To assist in catching these risks, invest in a sales prospecting tool. Our own Conversational Solution Sales Scorecard is one such tool. It includes conversational sales indicators that help improve your sales teams’ sales pipeline management skills and sales forecast accuracy. It also supports your sales leaders to improve their sales pipeline reviews.
Understanding the buyers’ decision process is central to accurate sales forecasting, whic is why the term Smarketing has become relevant. I discuss this in a recent short video. Why has Smarketing become relevant to the buyers path. Smarketing is not a blend of words between sales and marketing. It means both the sales and marketing functions are working together. Their goals and focus is aligned to close more sales revenue.
Smarketing extends the influence you have in an account and market. This has become important in today’s world of sales, and the reason is straightforward. The window of opportunity for sales teams to win buyers trust and confidence is reducing. According to Forrester, 53% of buyers go online and consider it superior to interacting with a salesperson. If you are selling Software as a Service (SaaS) or any other as a service solution, it is 57% and expected to rise to 80% by 2020.
Smarketing allows you to remain relevant before sales leads contact you. When they do, sales reps still must be quick to act. They need to focus immediately on identifying everyone involved in the decision process, which include the roles influencing the decision-making process. Fail early at this stage and you risk forecasting a slipping or lost sales lead, as well as building your forecast risk debt.
Sales Forecasting Tip: Perform a quick supporting team health check. Do your pre- and post-sales and marketing teams understand:
Have you answered No to one or both questions? If you have, you need to focus on making sure all functions align with your sales pipeline stages. Make sure your sales pipeline aligns to the buyers’ journey. Each supporting team must understand the value they need to add to that journey and how the value given will support achieving a successful closure.
Returning to the definition of sales forecasting provided by Salesforce discussed earlier, it contains two important statements.
The answer is both. The business sets expectations. these become both sales leaders’ quota plan and their reps’ quota targets. Sales reps and leaders report on sales revenue they expect to close flowing through the sales pipeline.
Sales forecasting and sales pipeline management must be managed as two separate activities. Salesforce explains the reasoning in their article. Why Forecast and Pipeline Management Are (and Should Be) Two Different Things.
Reporting on achieving expected sales revenues is sales forecasting. Managing sales leads through the pipeline towards closed sales revenue is pipeline management. The link between the two is managing effective sales pipeline reviews. Think of it as follows, you are the captain of your ship, and that ship is your sales team:
The risk from sales pipeline reviews spending too much time on sales forecasting
The challenges occur during sales pipeline reviews. Most sales leaders and their teams are obsessed with and spend too much time staring at the horizon predicting when the sales opportunity will close. This creates a follow-on challenge. Sales leaders have to find reactive ways to achieve their own quota plans. This can include cannibalising future deals, price discounting to bring them in early, pulling in favours, windfalls or sandbagging deals not included in the sales forecast.
This is the reason why you should consider managing your ship, which is your sales pipeline management, and its safe arrival, which is your sales forecasting, as two separate tasks. Blur the lines between the two tasks and you risk drifting off course. You will pay a high price taking your attention away from pipeline management. It is often the reason for a sales lead to slip or be lost.
To help sales leaders and their teams, I recorded a short 6 Step Guide, Sales Pipeline Reviews and QBR Dos and Don’ts. Step One we recommend investing in a lightweight and dynamic sales prospecting tool. The Conversational Solution Sales Scorecard is such a tool. I recommend you read our Guide Using Sales Prospecting Tools to Improve Sales Pipeline Reviews.
Returning to our analogy of the captain and the ship. When you and your sales team stare at the horizon you are giving your own meaning to what you perceive. Have you ever looked at a distant horizon when it is hot? Notice how it shimmers. Sometimes it looks closer than it is. Staring at the horizon predicting when a sales lead will close is not much different.
Accurate sales forecasting requires understanding and documenting the sales process, and must be dynamic reflecting the buyers’ journey tracking sales leads flowing through the sales pipeline.
The one central challenge with many sales forecasts is it is based on the sales teams’ prediction perceptions. I discuss this further in a recent sales blog, Why do sales forecast slip? We also discussed earlier the CSI Insights 2019 Sales Performance Report that Sales reps are still closing less than half of what they forecast to close.
One reason to consider causing this could be sales pipelines is not dynamic. They are not reflecting the buyers’ actual journey. This is a contributor to why sales reps are closing less than half of what they forecast. The challenge becomes worse because there is little to no information available to challenge what is being reported. Have a look at your sales pipeline and sales forecasts reports. Do they contain any data you can use to triage and check what is being reported? If there is no reliable data to challenge what is being reported, how can you be confident it is correct?
Let us step back once again. If this was a life or death situation you would demand such data? That is why a hospital’s Accident and Emergency (A&E) department relies on obtaining data to perform triage. The reason is simple, doctors and nurses check your symptoms to obtain the required data and then based on these insights confirm the priority and course of treatment.
That is exactly what the Conversational Solution Sales Scorecard is doing for you. You may not consider your sales pipeline is a life or death situation. That is until you consider it is the beating heart of your business. Your sales pipeline reviews are your regular health check. Our challenge is we do not think sales pipeline reviews are what is keeping us out of A&E. If your sales forecast accuracy is poor, maybe you should.
I am not suggesting having three sales leaders attend every sales review. What I am suggesting is you provide the tools that allow sales leaders and their teams to triage. To check their sales forecasting is accurate and act upon it when inaccuracies are found.
Instead, during sales pipeline reviews many sales leaders hedge their bets. Experienced sales leaders find ways to achieve their quota plans, but at what price? Consider the pressure they face if their teams continue to close half what they forecast. To help handle this situation and support sales leaders and reps report their confidence, CRM systems categorising opportunities into confidence bands. We mentioned the following example confidence bands earlier:
Let us step back once again for a moment and do another sales forecasting reality check. I will reference the example sales pipeline we discussed above. You have three sales leads in your sales pipeline each at sales stage 4 that you expect to close this quarter. Sales stage 4 is Decision Maker Bought-In. For one of these sales leads you are confident it will close, so you have set it to Commit. The other two you are unsure about, so you have set one to Pipeline and the other to Best Case.
You are confident about the deal you set to Commit because you are supporting the sale rep. Your confidence in the facts related to the other two deals is less certain. Reviewing this hypothetical forecast, let us assume:
What if each sales leader could be 50% more confident in their Best-Case number, how much would their committed forecast increase by? In this hypothetical scenario. Each sales leader would commit to close an extra $50,000 each quarter.
Over a fiscal year, which is four quarters, improving their confidence a further adds $200,000 to their committed sales forecast number. Taking into consideration you have four sales leaders. Taking into consideration you have four sales leaders – You have increased your sales teams commitment to close a further $800,000 within the next four quarters or this fiscal year if you are at the start of it.
That is a simple and compelling return on investment (ROI) calculation. If you deploy the Conversational Solution Sales Scorecard, it is not unrealistic to achieved ROI in a matter of months!
The challenge for many sales leaders and businesses is simple. They have accepted this is the way sales forecasting works. Current sales forecasting practices have become habitual. So many companies consider it normal. Sales reps always struggle to manage an accurate sales forecast.
Why are they struggling? Accepting the situation means we are looking at solving it in the wrong place. Continuing along this path we place more pressure on sales leaders. The evidence is within the CSO Insights 2019 Sales Performance Report. Most sales leaders are achieving their fiscal plans. While half of their sales team are not closing what they forecast to close.
If you gave your sales team the tools to better manage their sales pipeline, would your confidence in their abilities to forecast accurately increase? Our view is a resounding Yes! This is our experience working with sales teams. I have also experienced all these challenges over many years in competitive market conditions.
This is not a new challenge. It is why different forecasting methods have evolved. The HubSpot article presented six methods to forecast sales. The method aligned with the Salesforce sales forecasting definition is Opportunity Stage Forecasting. Remember most salespeople work in dynamic, complex, and unpredictable conditions. Opportunity stage forecasting is the method I have the greatest confidence in.
At the heart of the challenge maintaining an accurate sales forecast is the sales pipeline. Most sales pipelines are not set up to reflect the buyers’ journey. This is a complex challenge because buyers are not contacting sellers until they are 53% or more through their sales process.
Could your sales forecasting process be holding back your business growth?
Milestones most businesses use to predict sales revenue come from the sales stage included in your sales pipeline. Sales pipeline reviews must check the health and accuracy of a teams’ sales forecast. Sales leaders use these reviews to present their own sales forecast. They combine experience and insights to adjust and present their own sales forecast commitment.
The challenge of adopting this approach is it is resource limiting and inward facing.
Sales leaders commit to what they are confident will close.
How much more sales revenue and profit could you secure if you had more confidence? We recommend considering that question when reviewing your best case and pipeline forecasted sales revenues.
Sales Forecasting Tip: Perform a quick sales revenue upside health check.
Sales reps and leaders will improve their sales forecast accuracy using conversational metrics. These act as milestones at each sales stage. The Conversational Solution Sales Scorecard calls these metrics conversational sales indicators. They provide sales leaders and their teams with three major benefits:
You may not receive an RFI/RFP sales lead, but you will always have a company and contact sales lead. The Scorecard guides your sales team by prompting them to connect with all those making and influencing the decision to buy.
Sales forecast accuracy will improve following these four steps:
There is no reason not to continue to use CRM confidence reporting Pipeline, Best Case, Commit and Closed when presenting a sales forecast.
The benefit for sales leaders using the Conversational Solution Sales Scorecard is they:
This delivers five important sales practice benefits:
By addressing and removing the risk caught up in a sales pipeline a business can expect to see the following benefits:
Because your sales teams’ forecast predictions are more accurate:
Accurate sales forecasting is reliant upon unbiased input. That input must come from conversations taking place within sales leads and is the reason we have separated sales forecasting from pipeline management. We have asked some searching questions including how much more revenue and profit could you secure if you had more confidence in your sales forecasts?
Your return of investment deploying the Conversational Solution Sales Scorecard will be rapid. We recommend getting in touch to discuss how we can help.
To discuss how you can strengthen your sales forecasting. Improve sales forecast management and accuracy.