How Do We Improve Forecast Accuracy?

Yesterday, I wrote, Forecast Accuracy, Again. It’s an important foundation to this article. It focuses on why we need forecast accuracy, which may be different from what most sales leaders think.

I’ve actually become very accurate forecasting when and how this topic comes up. There are two peak periods.

The first is about now, midway through the second quarter. This happens because people may have struggled to make their numbers in the first quarter, they are midway through the second quarter, looking forward, seeing both the quarter and the year at risk. Jumping on the topic in the middle of the second quarter, hopefully, helps them get the right things going for the quarter and the year.

The second time this topic is hot is in the last 30 days of the third quarter. These queries come from people and organizations in deep trouble, trying to figure out some sort of recovery strategy–most often, too little too late.

It almost never comes up in the first quarter, people are focused on kick-offs, optimistic about a fresh start. Also, it never comes in the fourth quarter, every one is powering through doing whatever they can to make the numbers.

Often, the query, “How do we improve forecast accuracy,” is really masking the issue, “We’re struggling to make our numbers, how do we fix it?” I’ll focus on improving forecast accuracy, which will also address, how we make our numbers.

When I talk to people about the issue, they inevitably start the discussion in the wrong place–the forecasting process. Somehow they think that’s the problem.

They go into great detail describing the forecasting process and the various levels of “commitment to the forecast.” They use different language, “Firm commitment, commit, possible…..”

One client, the highest level commitment is called the “blood commit.” I, foolishly asked the question, “What’s a pinky finger commit?” You probably can guess their patience with my observation.

This whole concept is intriguing, in itself. We want to have very accurate forecasts, yet we set up a forecasting process that has various levels of certainty about the forecast. Implicitly, this process sets up uncertainty and inaccuracy in the forecasting process.

It seems to me, there is a commitment or not. There can’t be degrees of commitment because those degrees of commitment usually have nothing to do with the customer’s readiness/urgency to buy, but with the sales person’s opinion. In this case, it seems we would be more accurate by running trend analysis and analytics because this process has more to do with the number and not with the deal (or collection of deals).

Lesson 1: We don’t fix the forecasting process by fixing the forecast meeting/review process.

If we don’t improve forecast accuracy in the forecasting process, how do we improve forecast accuracy?

The next place to look is the pipeline. If our pipeline is filled with crap, if our pipeline is inaccurate, we can never have accurate forecasts! There’s the old saying, “Garbage in, garbage out.”

We have to have high quality and high integrity pipelines to begin to have higher degrees of accuracy in the forecast.

We have to inspect our pipelines, are the deals real or wishful thinking? Are they high quality? Are they accurately positioned in the pipeline? Do we have an accurate view of the target close date, the value of the deal, what the customer will buy?

Quickly, we realize these questions are less about the pipeline, but more about the deals themselves. The pipeline is just a representation of all the deals we are working on and where they are in the buying process.

Lesson 2: So isn’t forecast accuracy is really more about a deal and the quality of the deal/customer engagement, than the pipeline and forecasting process?

But then we have to start asking some questions about the deal? Too often, we ask the wrong questions, focusing n what we are doing and what the competition is doing, and how we are positioning ourselves to beat the composition. The customer ends up becoming the poor victim upon who we inflict these activities.

But the most important questions about the deal end up being about the customer. What problem are they trying to solve? What is the impact of this problem? What happens if they don’t solve the problem? What is the urgency the customer has about solving the problem? When do they need to have a solution in place? What happens if they miss that target date? Do they agree with this and are they committed to achieve the date?

Unfortunately, too often we don’t ask ourselves these questions, we don’t ask the customer these questions, the customer may not even ask themselves these questions. But until the customer can answer these questions, in a quality manner, we have no idea about “when” a certain deal will happen, or even the likelihood that anything will happen.

Once we and the customer have answers to these questions. We have a start to forecast accuracy.

But there are a lot of other questions that impact the accuracy of forecasts. Unfortunately, they are about the customer again. We know customers struggle to buy. 53% of their buying journey’s end in no decision made–even though they have a need to buy.

As a result, the next series of questions that contribute to forecast accuracy has to do with the customer’s ability to navigate their buying process and make a decision–for anyone. We can make an assessment, perhaps flip a coin (at 53% No Decision Made, I’d tend to bet tails).

Do they know how to buy? Do they know how to align interests and agendas? Do they have a project plan and are managing to that? If they have a compelling urgency and a deadline they have to make something happen, we have much more certainty.

This struggle to buy has a huge impact on forecast accuracy.

Lesson 3: Forecast accuracy is more about what the customer is/isn’t doing, not what we are doing. Yet we make forecast discussions all about what we are doing and our confidence level with those activities.

But we can have a huge impact in this process–helping the customer discover how to buy. If the customer wants to buy, but fails in their buying process, they don’t buy. If we want to sell, we only do that when the customer buys. Consequently, we achieve our goals when we help the customer navigate through their buying process.

Lesson 4: A key issue in forecast accuracy is, what are we doing to help the customer buy, how are the incorporating our leadership in their buying process, is this creating differentiated value for them?

Finally we get to the issue of vendor/product selection. Yet this is where we focus our forecast discussions—“What makes you think they will choose our product over the competitors’?” The reality, is any supplier on the customer’s shortlist will solve their problem. So it probably is not the key to success in winning and in forecast accuracy.

Magically, it’s comes back to the customer–but how we are helping the customer through their buying journey.

Lesson 5: Forecast accuracy has little to do with what we sell and how we stack up against the competition. It is always all about the customer.

Bottom Line: We make forecasting and forecast accuracy about things that have very little to do with what cause a customer to buy and what causes the customer to select us. It’s no wonder that forecast accuracy is terrible. Regardless of our “blood commits,” or whatever commitment we make, we are assessing the wrong issues, so we might as well flip a coin or do some sort of trend analysis. We’d probably be more accurate and waste less of sales people time.

Second Bottom Line: We don’t need to do this stuff just to get accurate forecasts. In fact, these things are critical to building differentiated value with customers and and executing value based deal strategies.

If we are doing these things, qualifying opportunities where the customer has a compelling need to change, helping the customer understand the importance of making the change, helping the customer navigate the buying process—we are doing the most impactful things, the things most important to the customer, the things that create value for and with the customer. If we do these things we maximize our differentiation and value and maximize our ability to win deals.

So doing these things is critical to high performance selling–and, by the way, improves forecast accuracy. By doing what we should be doing in each and every deal, we will be improving our performance and our accuracy.

Final conclusion: We need to do these things to hit our numbers. We need to do these things to improve forecast accuracy.

However, it will never be perfect. Sometimes, shit happens.