Best practices for generating accurate sales forecasts
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A major part of forecasting accurately is identifying and quantifying the factors or risks that will affect the overall target, as well as knowing when they impact the forecast. It’s well known that sales forecasting is notoriously inaccurate and yet, too many managers accept it as inevitable.
By putting best practice steps in place, sales leaders will be better equipped to interpret the sales cycle, draw out crucial insights and coach the sales individuals to success.
The systems and process:
1. Use consistent definitions.
If the entire sales team is working from a consistent set of definitions (i.e., what is a good lead, what is a qualified opportunity, etc.), it’s easier to trust the data. They should be clearly communicated and understood by the entire sales & marketing team and reinforced by regular usage by sales management.
2. Agreed criteria for deal progression.
Defining and agreeing on the criteria for each stage of the forecast is critical to ensure consistency across all individual sellers as well as teams across the organisation. This may differ across products or regions but using the same methodology will create consistency at an organisational level.
3. Align the stages of the sales pipeline to the key stages of the client’s decision-making process
Only promote opportunities to the following stage when verifiable progress can be observed, based on an accurate understanding of the decision-making process within the client organisation (as well as the next steps required before they are ready to place an order).
4. Set quotas using a data-driven approach
By including both internal and external market data sales leaders can create a realistic quota at an individual level. Sales leaders should, at a detailed level understand client budgets and market conditions as well as include data from marketing for segmentation, finance for margins and profit contributions as well as historic data.
5. Build a typical sales cycle length into the sales forecast model.
This makes it easier to map when expected sales are likely to close. Many inaccurate sales forecasts get this wrong, meaning conversion rates are accurate but do not take place in the period assumed.
6. Optimise time-consuming processes.
If salespeople are having to fill out spreadsheets for forecasting, the organisation is wasting time and risks having outdated data.
7. Invest in FP&A software.
There is no simpler way to improve sales forecasting than using an automated, cloud-based software platform. These systems provide a forecasting feature that allows an organisation to generate forecasts instantly with a high level of accuracy. They can help organisations move from diagnostic analytics to predictive and prescriptive analytics that will help transform a reactive sales organisation into a predictive sales organisation.
8. Make updating the forecast fast, easy & mandatory.
Ensure that salespeople enter accurate data related to the sales progress and meeting summaries in a timely manner. Making changes in real-time management can improve selling conditions and address real-time changes with the resources needed to close more businesses.
9. Review and reforecast where necessary.
By revisiting the forecast, understanding actuals against the original forecast will keep individuals accountable and understand underlying drivers.
The people side of forecasting
Unlock behaviour drivers that support your go-to- market strategy by tying incentive programs to the organisation’s strategic goals.
1. Train managers and individuals on how to forecast.
Training will remove guess work and help individuals and leaders to accurately identify and qualify good quality, consistent leads. Often, when sales individuals are promoted into leadership positions, training is essential to support them in understanding data analysis, plotting sales cycles as well as understanding the importance of an accurate forecast.
2. Conduct regular deal reviews.
By regularly reviewing the deals with individuals, establishes a culture of accountability, learning and collaboration. Not just reviewing names and numbers, but context including the back story, why they are qualified that is driving action. By confirming verifiable outcomes that indicate whether a deal should be forecast, removes subjectivity from the process.
3. Determine where to focus.
Not all deals are equal and unless priority is given to the ‘must win’ deals to make the forecast and the quarter, the risk is that all deals will slip. Each deal in the forecast should be categorised as a ‘must win now,’ ‘must develop for next quarter’ or ‘qualify out’ – so that individuals are laser-focused on the priority deals in the forecast.
4. Visibility of deals at risk.
It is critical to identify which opportunities are evolving and which ones are at risk.
5. Reward accuracy and honesty.
Create incentives for your sales teams to accurately forecast their expected sales. Foster an environment where honest changes to forecasts, even if the news is not good, is encouraged and rewarded. Equally, call out sandbagging behaviour as it undermines forecasting accuracy and deprives the organisation of growth that may have been achieved through more ambitious growth targets.
For further information, including how to leverage advanced analytics, download our guide
