Over the past several weeks, I’ve spent a lot of time talking and corresponding with lots of people on forecasts. An article I wrote several years ago, The Most Used, Useless Metric In Sales has been republished in several venues–creating some discussion. With clients, with people in email (Adam, thanks for reminding me), and others, there have been lots of discussions about forecasting.
To be honest, I think we spend way too much time on forecasts. To my way of thinking, the forecasting discussion a manager has with the team shouldn’t last much longer than an hour each month–if that. But toward the end of each month, then again, at the end of the quarter, the intensity increases and person weeks are invested in finalizing the quarterly forecast.
It’s not that forecasts aren’t important, it’s just that we spend way too much time in the forecasting process. A large part of the time drain is simply because we are dealing with poor quality, inconsistent date about deals–which deals do we expect to come in, when, what’s our confidence in these deals, is it a “pinky commit,” a “blood commit,” will we bet our unborn children on the accuracy of the forecast. If we start with bad data, then we produce faulty forecasts, or we have to invest huge amount of time in getting the right data to have an accurate forecast.
Great forecasts start with several things:
- A sales process that each person uses rigorously in executing their deal strategies.
- A high integrity pipeline that accurately reflects where all the deals are in the buying process.
- Some level of buyer verification (ideally the Buyer Verified Forecast).
Let me dive into each in a little more detail.
A Sales Process That Everyone Uses: The sales process is the foundation to our ability to develop and execute winning deal strategies. A great sales process is based on our best practices in winning deals. A great sales process must do 3 things: Maximize our probability of winning, Reduce our sales cycle, Maximize our deal value/margin. If your sales process doesn’t do this, it’s time to go back to the drawing board.
The sales process enables us to align with the customer buying process. It allows us to know the critical next steps we have to take with the customer. It tells us where we’ve come from, where we are in the cycle, and the critical next steps. Without a sales process, we are wandering aimlessly, wasting the customer’s time, not creating value in every exchange, and not maximizing our ability to win. In projecting our ability to win a deal, we’d probably be better off rolling dice or flipping a coin. We are simply clueless, because we have no basis upon which to project when or if a deal will close, and the likelihood of us winning the deal.
High Integrity Pipeline: The pipeline is the collection of all deals a sales person is working on. Rolled up, it is the collection of all deals every sales person in the organization is working on. It summarizes where every deal is in the sales process, it’s projected close date, and the projected value of the deal. A high integrity pipeline shows great alignment between the target close date and where we are in the sales process.
We sales consultants have a deep dark secret. A lot of the so called “magic” we create is just cleaning the garbage out of the pipeline. I don’t know why sales people and managers aren’t paying attention, but it’s so easy to see. I don’t know how many pipelines I see where:
- A large number of deals have projected close dates that have long passed. Recently, I looked at a pipeline that was supposed to have been cleaned. 15% of the deals in the pipeline had close dates in the past, some dates were 6 months in the past. Is the sales person paying attention when they are updating their pipelines? Are the deals real? Have they been forgotten? Why doesn’t management catch it. It’s easy to find. All you have to know is today’s date, everything that has a close date before today’s date is suspect.
- Then there are the deals where the position in the sales cycle versus the target close date don’t make sense. Not long ago, I was looking at a pipeline for deals projected to close in the month–two weeks to go. The client had a 90-120 day sales cycle, and a large number of deals projected to close in the next two weeks were still in the qualifying stage. Sure, every once in a while, you get a deal that goes very quickly, but that’s rare. When, in this case, roughly 20% of the deal projected to close within 2 weeks were still in qualifying or discovery, I thought, “How are they going to compress the remaining 90-120 days and related selling/buying activities into fewer than 10 business days?
- Or you see the deals that died long ago, that no one has bothered to wash out of the pipeline–some that are projected to close any day now. A few years ago, I was reviewing a pipeline. The client had a 180-210 day sales cycle. 5 deals in the pipeline had been in process for over 1000 days. One was projected to close in the next 60 days. But when you looked at the CRM records, the last time a sales person had made a call on the account and decision makers was 700 days ago or more. Yet those 5 deals were still “alive” and cluttering the pipeline. In the review, I questioned the sales person who claimed one of those deals would close in the next 60 days. He claimed it was real and it would close within 60 days (none of his CRM records showed an update on the deal in the past 500 days.). I asked him to leave the meeting, call the customer to verify the project was on target, then come back and report to me. He came back in about 30 minutes later, I could tell what was going to happen by the look on his face. His “customer,” had left the company over a year ago. The deal had died, but no one had taken in out of the pipeline.
There are lots of other things that create integrity problems in the pipeline, but I’ll stop here.
We have no idea about our ability to make our numbers or develop an accurate forecast if we don’t have high integrity pipelines. I haven’t seen a pipeline that doesn’t have at least 20% garbage–some with as much as 70%. It isn’t rocket science to understand, all it takes is skimming the pipeline report that any CRM system provides. But for some reason, sales people and managers don’t pay attention to pipeline integrity. Why pay people like me $10’s of thousands to do something that each sales person and each manager should be doing in the normal course of their jobs?
Buyer Verified Forecast: We spend a lot of time trying to assess the probability of a deal. As I’ve written many times, most of our methods for assigning a probability are tragically flawed. Out of the box, every major CRM system assesses probabilities based on progress through the selling cycle. If the customer is qualified, we have 25% probability of winning, following discovery it goes to 50%, after proposing it goes to 75%, when we are in closing it goes to 85-90%. None of this measures the customer’s propensity to buy! None of this assesses the customer attitudes toward your solution versus the alternatives! None is driven by the customer urgency or ability to justify and get approval for buying! All these probabilities are based on where we are in the selling process.
We need to assess the likelihood of closing at a certain date, for a certain amount, based on the customer, where they are at in their buying process, how they feel about the alternatives, where they are in aligning agendas on their team, and their ability to move forward to a decision. I cover this more deeply in the Buyer Verified Forecast article.
What’s This Mean To Forecasting?
So the reason we waste so much time in forecasting is we aren’t doing the 3 things I’ve outlined above well. The information upon which we base the forecast is bad, inaccurate, or purely wishful thinking. So management in trying to uncover these go back and forth with sale people and with each other trying to second guess what reality is likely to be. Since they are dealing with such poor quality information, they add their guesses, contingency, and hedges in to the final commitments.
All of this is meaningless and a waste of time. It doesn’t improve forecast accuracy or quality.
If we do these fundamentals well, we have a strong base of accurate information upon which to build the forecast. With this, forecasting should not take a lot of time, yet they are likely to be far more accurate.
Finally, we have to be very careful about what the sales forecast is–and what it isn’t. Rather than repeat myself (making this already too long article, much longer), take a look at Sales Forecast Accuracy, Demand Planning, And Other Ramblings.
Additionally, doing these three things well helps us address a huge number of other sales performance/effectiveness issues–but I’ll save those for later.
Dave,
whenever I see or read about these wasted time in forecast ritual, I wonder why supposedly intelligent people still continue doing it. My speculation is that the root cause is false thinking from the very top of the organization. With the shareholder value hype still strong, these people think that optimizing financial results are the ultimate goal. Leaders of public companies also have to cater to the stock market, where this thinking is even more ingrained, when in actual fact the real purpose of the firm is to have paying customers (Peter Drucker) and the the financial results are an outcome of pursuing this purpose. Catering to the stork markets
sorry Dave do not know what happened in the middle of writing the post was prematurely submitted so here is the rest of what I wanted to say:
also means to avoid surprises. So if you come to think of it, forecasting seen from the top of the firm is expectation management. The flawed thinking is that by forecasting the outcome you actually can influence these results when in actual fact other parameters as you described are of essence. If you can trust the underlying data, the forecasting can be done by the push of a button. This flawed thinking also makes management look at the wrong end of the funnel. The outcome can much better be influenced when management gets involved in opportunities in early stages of the funnel.
To make a long story short, the thinking at the very top of a firm has to change if we want to have lean effective forecasting.
Christian, great thoughts. If we have the right systems, processes, tools–and they are being well used, so that we have accurate data, sales forecasting can be done very quickly. The reason we waste so much time is, as you address, that we focus on the wrong end of the process.
You raise a separate issue, that of exec management expectations, satisfying investors, etc. It’s critical to recognize the sales forecast and the company revenue forecasts are not the same. The sales forecast is an input to the revenue projections. Much of the challenge is aligning expectations. But that’s the subject of future posts.