The word forecasting doesn’t inspire much confidence, does it? It’s synonymous with other inexact words like guess, prophesy, divine, and even soothsayer. Not exactly the kind of reliable information you’re looking for when trying to grow a business.
But sales forecasting plays a critical role in business planning, and if you’re managing a sales team, it’s your job to produce an accurate number on which your company can base important decisions.
While it’s never an exact science, there are some best practices you and your sales team can follow to transform your sales forecast from the realm of a flaky fortune-teller to a more educated and precise prediction.
Here’s the thing before we get started: you MUST have a defined and documented process that your entire sales team commits to. “Yeah, yeah,” you’re thinking, eyes glazing over at the word ‘process’.
But, if everyone is calculating their numbers differently, defining leads differently, and generally doing their own thing, there is no way you’ll ever be able to put together a report that’s any more valuable than a horoscope. Are you willing to stake your career as a sales manager on the stars?
Standardize your definitions of sales terms
You can’t assume everyone on your sales team shares the same definition of an opportunity, a qualified lead, a prospect, or a close.
Let’s say your monthly goal is to fill a bushel of fruit (I guess you’re a monkey sales manager in this example), but what you mean by fruit is oranges. If you don’t make it clear that the kind of fruit you want is oranges, your team could come to you with bananas, apples, lemons, and maybe some oranges. “You said fruit,” they’ll cry. “This IS fruit!” And they’d be right.
So it’s critical that you articulate exactly what qualifies as a lead, a prospect, an opportunity, a close, and any other terms your team uses when it comes to sales. Otherwise, don’t be surprised when your sales projections are off because you ended up with apples instead of oranges.
Outline objective stages and exit criteria
Maybe you already have your objective stages and exit criteria defined, but are they dependant on the actions of your salesperson, or your potential customer?
If you’re not considering the actions of a lead before an opportunity moves to the next stage of your funnel, then you’ll never get an accurate sales forecast. For example, your sales rep may send product or service information to their lead, but if the lead doesn’t acknowledge that they reviewed it or schedule a demo, there’s no effect on the opportunity.
I’m not suggesting the actions of your salespeople are useless, but when it comes to legitimately advancing an opportunity, they are useless if customers don’t react. The two go hand-in-hand. (There’s likely a cliché ‘If a tree falls in the forest’ reference here, but I’ll skip it for now).
By marrying the sales rep’s task with the customer’s action at every stage, you can be more confident about the true status of your pipeline, thus contributing to more accurate sales forecasting.
Establish a baseline
You need to know where you’ve been to see if you’ve actually moved forward or, (ugh) backwards. Dig into your historical data to look at how your company performed, grew, and reacted to different market conditions, like competition, the economy, innovation, changes to your industry, staff turnover, and seasonality.
Drill down to pull these sales stats:
Average number of deals closed per month
Average number of deals lost per month
Average value of deals closed per month
Average value of deals closed anytime
Knowing these numbers will give you a baseline from which you can assess both current sales performance and how to set realistic expectations when it comes to forecasting future sales.
A super simple sales forecasting formula is to multiply your team’s performance in a time period X the average rate of growth for the same time.
For example, if you made $20 million during Q4 last year, and your company’s average growth rate is 12%, then earning $22.4 million in Q4 of the upcoming year would be a reasonable sales forecast. Again, no system is perfect, but at least this is based on something you can qualify, as opposed to the overly optimistic guesses of your sales team.
Assign a probability factor
Now that you’ve defined your customer-focused objective stages and exit criteria, and you’re armed with historical data on your average wins/losses, your sales reps should assign a probability factor to each stage of the pipeline about whether or not a deal will close at that stage.
For example, it makes sense that a prospect who’s just hit the pipeline—maybe responded to a cold email—is only 10% likely to close at that stage, while a prospect who’s agreed to a demo is probably 60% likely to agree to a deal.
CRMs can assign probability factors that err on the optimistic side, so don’t just rely on their numbers—use your own intel for a more accurate snapshot of the state of your sales.
Clean up your CRM
You’ll never get close to formulating an authentic sales forecast if your CRM is full of junk.
First, go in and eliminate all the unnecessary fields that end up cluttering your pipeline with information that has no effect on closing a deal.
Second, get rid of any data that’s more than two years old. It’s decaying at 23% a year, so chasing down those leads is a waste of everyone’s time, and it distorts your view of what’s actually happening.
Finally, make sure your sales reps are vigilant about keeping their entries up-to-date; logging calls, and keeping customer contact information current. They also need to use proper labels, flag inactive leads for follow-up, delete duplicate entries, and make sure all the information in each entry is complete. This shouldn’t be an optional task. Clean record management is a critical part of their role.
There’s no point in having a CRM if it’s weighed down with useless, out-of-date information. Clean it up and you’ll be able to see a truer sales pipeline.
Get a commitment to the forecast
Salespeople can be commitment-phobic when it comes to numbers, but every member of your team should prepare their own monthly forecast, and COMMIT to it.
So it’s not just, ‘Here’s a fairly arbitrary and overly optimistic number I think I can hit’. It should be, ‘Here’s a number based on our process that I can commit to’. It makes your sales reps more accountable and draws attention to the importance of contributing to a clean pipeline and accurate projections.
If (and when) one of your salespeople misses their forecast, then you both need to figure out why. It may be something to do with your process, your product, your marketing, your pricing, your messaging, or the skills of that individual rep. Digging into the why is a critical exercise that can significantly impact your entire business.
If everyone just shrugs their shoulders, it diminishes the significance of accurate sales forecasts and communicates a message of complacency. No one gets rich from being complacent.
It’s not about perfection; it’s about precision
Your sales forecast will rarely be perfect, and that’s OK. What you should be striving for is precision, not perfection. More accurate data, a clean pipeline, a documented process that everyone commits to, and a realistic vs optimistic approach. This is what will get you closer to the numbers that drive decisions, growth, and success.
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