Tuesday, April 12, 2011

 

Improve sales forecast accuracy with these 7 steps

A consistent weak point across sales organizations is their sales forecast.

Yes, it's difficult to predict which sales will close. But your forecast drives numerous decisions across the organization. And when forecasts are wrong, the implications go well beyond commission checks.

To improve the quality and accuracy of your sales forecasts, starting immediately, I recommend the following seven steps.

1. Use consistent definitions
If your entire sales team is working from a consistent set of definitions (i.e. what is a good lead, what is a qualified opportunity, etc.), then it's easier to trust the data you have. If you look historically at your conversion rates - overall, by industry, by geography, by rep - it's easier to predict conversion rates and new sales from a future pipeline of opportunities. The entire sales & marketing team needs to understand these definitions, and sales management needs to enforce their usage on a regular basis.

2. Know your sales cycle length
If you get a good lead today, when will it likely close? This week? This quarter? This year? Many inaccurate sales forecasts get this one piece of data wrong, meaning your conversion rates are accurate but don't take place in the window of time you assumed. You eventually get the revenue, but not at the time your organization was expecting it. By building in a typical (or even conservative) sales cycle length into your model, you're making it easier to map expected sales to the week, month, quarter or year in which they're likely to land.

3. Read market changes (and their impact on closing behavior)
The model you build last year might not work this year. If market conditions are weak, sales cycle length may have spread out. If budgets are tighter, an earlier decision maker may need permission from the CFO to take action now. These changes can wreak havoc on your sales forecast if you don't anticipate, identify and adjust both behavior and expectations as a result.

4. Require a "compelling event" to become an opportunity
It's the right contact at the right company in an ideal market. They can surely benefit from your product or service. But do they want it? Is it a priority? Is there something internally that is driving urgency and prioritization of what you're selling? Requiring a defined "compelling event" for new opportunities may reduce the volume of opportunities created, but it also increases the likelihood that those deals will close, which in turn makes your forecast far more accurate.

5. Conduct regular deal reviews
Sit down with your sales reps and walk through their pipelines. Not just names and numbers, but context. Ask for the back story, why they're qualified, what the compelling event internally is that's driving action. This isn't about not trusting your reps. It's about establishing a culture of accountability, learning and collaboration.

Make these deal reviews about helping your reps brainstorm new ways of accelerating deals, establishing greater urgency with latent opportunities, and creating greater income opportunities for them personally. In the process, you'll have a more intimate idea of the quality and accuracy of the pipeline.

6. Make updating the forecast fast, easy & mandatory for your reps
Opportunities change after they've entered the pipeline. Close dates move out. Or up. Deals that were on a fast track suddenly slow down, and perhaps should be moved back to an earlier stage. Most reps don't want to make these changes to opportunities in their CRM system, as that may imply weakness in their own pipelines and selling skills.

Instead, make it easy and mandatory to make these changes in real-time. Make it clear to the sales organization that these changes will help management improve selling conditions, and address real-time changes with the resources needed to close more business.

7. Reward accuracy and honesty
Very few sales organizations reward pipeline performance & behavior. They compensate based on closed business, but not based on how close reps come to their forecasts. Create incentives for your reps to accurately forecast their expected sales. Foster an environment where honest changes to forecasts, even if the news isn't good, is encouraged and rewarded.

Would you really reward a rep for reducing their sales forecast? Absolutely. Imagine the alternative, that they led you to believe their output would be much higher when they knew they couldn't deliver.

What strategies and tactics have you used in your sales organization to improve accuracy? What can you add to this list?

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