The Problem With Forecasting
In virtually every conversation with a sales executive, at one point we get into a discussion about forecasting. Usually it starts with the executive mumbling something like, “Damn forecasts are worthless, I might was well flip a coin……..” Being very cue sensitive, I usually reply something like, “Forecasting system not working for you?”
Then I just sit back and listen. No one has accurate forecasts. They put in strange processes to increase the accuracy of the forecast. I see strange sequences of forecasts, the “This may happen forecast,” moves to “I hope this will happen forecast,” to “I’m sure this will happen because you’re telling me it needs to happen forecast.”
Some companies adopt interesting names, “Firm forecast,” I wonder what the not firm forecast is–yes, I’ve seen some organizations that have a “soft forecast.” Some organizations have “Blood forecasts,” I wonder if blood forecasts are preceded by “Pinky Swear forecasts.” I get the image of the Yakuza in the movie “Black Rain,” (yeah it’s old). He has failed to meet his objectives, he sits at the end of the table, wraps his finger tightly in a handkerchief and cuts his finger off. Perhaps I should start counting the fingers on sales managers I meet? Wonder if this technique will improve forecast quality?
There are lots of problems with forecasts. It is always a challenge to develop an accurate forecast, but here are some thoughts that should help you improve the accuracy.
1. What are we forecasting? A forecast isn’t “will we close this order some time?” A forecast is: “We expect to get and order for this amount by this date.” It has to have specificity in time and value. We measure our forecasting accuracy, based on our ability to accurately predict this time and value. So even if we get the $1 M order, if we get it 180 days after it was originally forecast, we have a business management and forecast integrity problem.
2. A forecast is about a deal, not a number. I talk to too many managers who are achieving forecasting to a number, “I have to forecast $10M this month!” They then look at their pipelines, saying, “I’ve got $20M of deals going into closing, surely I can make $1oM out of those.” The forecast is about a deal, “We believe we will close this deal for this amount by this date or time frame.” The forecast number becomes the aggregate of those deals closing in the timeframe. If you fall short of your target number, then you have to look, deal by deal, determining: “What can we do to close this deal by this date?” It requires a specific action plan and very close alignment with the customer’s buying process. You close the gap in a forecast by identifying specific deals and actions you are going to take to close those deals.
3. Bad forecast integrity indicates deeper problems with pipeline integrity and your selling process. The forecast is a natural outcome of the sales process. At some point in our selling process, we have confirmed where they are in their buying process, when they will make a decision (pinky swear), and their attitudes regarding our solution versus the alternatives. Based on where we and the customer are in the process, we can forecast it. We won’t hit it all the time, unexpected thing may happen, but the process is pretty simple and can be very accurate.
So if we start missing forecasts consistently, it creates deeper concerns. What’s the quality of our pipeline? Is it high quality, or do we have garbage that is misleading us? How well are we executing the sales process? A forecasted deal that slips,,,,, and slips…. and slips, shows a problem with the selling process. You either aren’t using it, it isn’t aligned with the customer buying process, it’s a bad process.
Bad forecasts bring the quality of the entire pipeline, your sales process, and your deal strategies into question. Everything is up for grabs, not just the forecast. We have no idea what the problem is, we had no idea what to do to fix it. Is it a skills problem? Is it a competitiveness problem? Are we seeing shifts in the markets? It no longer is an issue about making the forecast, but it’s an issue about the organization’s overall ability to consistently achieve it’s goals. We don’t know what to attack to improve the business.
4. When you have consistently bad forecasts from an individual, it’s probably a skills problem. They probably don’t understand or aren’t using the sales process, they may be having problems with certain parts of the sales process, they may be chasing the wrong deals. It’s actually pretty easy to start identifying this looking at their pipelines and deals.
5. When your organization has a consistently bad forecast, you have a systemic set of problems that you need to understand and fix. You don’t fix these problems by putting more rigor or steps into your forecasting process; “We start with pinky swears, then move to blood commits, then move into be-headings?” Putting these phases into your forecasting process is dealing with the symptoms, not the root problems. Focus on the quality of your pipeline, clean out the garbage. Focus on the sales process, is it right, is it aligned with customer buying processes, are your people executing it with integrity?
6. Leverage the reports in your CRM system to better understand the quality of your forecasts and begin to isolate problems. You can easily look at slips/misses (I used to have a “slip factor” I could apply to each of my regional vice presidents.). Pipeline quality reports should be directly correlated to the quality of your forecasts. Stuck deals, average age in phase, total sales cycles, pipeline velocity, win rates, all are indicators and impact forecast quality. Opportunity reporting gives you great clues. Consistently changing “estimated close dates,” lack of progression, and others are directly tied to forecast quality.
There are other things you can leverage to improve the quality of your forecasting. In some cases, data analytics, tied to your deals can help improve the quality of forecasting. Assessing “odds to win” and “timing” using tools focused on the customer decision-making and buying can improve the quality of the forecast. I cover a lot of these in my white paper, “Beyond The Crystal Ball, Issues In Sales Forecasting.” Just email me for a free copy. Send your full name and emails address to firstname.lastname@example.org. You may also be interested in one of my past articles on the same topic: The Most Used Useless Metric In Sales.
Bad forecasts are a problem. Consistently bad forecasts indicate you have a deeper problem—and it’s not about forecasting!
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