How important is a sales forecast to a sales organization and the overall company?

Let’s tick a few boxes: Sales forecasting (at the least) influences sales performance, eventual cash flow, COGS (cost of goods sold), customer satisfaction, intracompany communication (Sales, Finance, Ops), sales team coaching, revenue maximization, and overall business mood.

A recent Aberdeen study finds that attending to sales forecasts brings the following benefits:

• A 12-month increase in organic revenue by 23%
• Decrease the sales cycle by 8.3%
• 9.3% increase in number of sales reps making quota

Virtually all research demonstrates that those organizations with higher levels of forecast accuracy are also more likely to achieve their quota.

One might look at the cascade of goodness on this list, rejoice in the healthy effects of a business well-run and conclude this is such an obvious known-known that everyone must be doing great at sales forecasting.

And yet… Ventana Research found in a recent benchmark study that more than half (55%) of companies surveyed are not fully confident in their sales forecasts. A majority of respondents said they are being done poorly, if at all.

Why is a function so fundamental to a company’s success and survival such a #FAIL?

The Right Decision…at the Right Time

One answer could very well lie in decision-making practices around important tasks and information. You’re most likely familiar with Dwight D. Eisenhower’s Decision Matrix:

Tell me when this starts to sound familiar… Most businesspeople live in Quadrants 1 (important and urgent) and 3 (not important, but urgent). They’re focusing on crises, deadlines and problems that come across their desks, and they’re focused on meetings and various interruptions and activities when they’re not putting out fires.

Examining the subject of sales forecasts through the useful lens of Ike’s Decision Matrix, it’s apparent why companies have a problem with forecasts.

Where would a sales forecast fall in this matrix?

If you think about it, forecasting is a Quadrant 2 (Important but Not Urgent) activity. It’s planning. So it’s important, but it’s never urgent…of course until the week (the day?) before the forecast is due.

Sales forecasting and the decision matrix are fruit from the same tree: organized, accurate, important views of more than what is immediately in front of us. It’s no surprise that issues that would fall into Quadrant 2, such as relationships and planning, are most neglected and the most in need of a fix. Sales forecasts—when used effectively—would be of the greatest help in managing sales relationships and planning. But have Sales Forecasts joined going to the gym in late summer, eating enough fiber and doing taxes before April as the known knowns we’re inextricably wired not to do (well enough)?

Execution and Effectiveness

Another finding from the Ventana benchmark study:

Notice that the primary issue motivating investment into Sales Forecasting is “Inconsistent Execution.” For sales, “inconsistent execution” is another way of saying, “We don’t close as many deals as we’d like” or “There goes another quarter of missed quotas.”

Scattered Information and Limited Visibility are other ways of saying, “We don’t have all the facts in one place to make good decisions, and we aren’t seeing the whole picture.”

Lack of effectiveness is the other piece of bread in the sandwich—seemingly a judgment on the capabilities of the sales team. Forty-one percent is a high number; it means that almost half of the sales team isn’t successful.

The Solution Hidden in the Problem

So what’s behind all these factors? Drop all the way to the bottom of the above graph, and we discover what very well could be the culprit—lack of process. It receives the least amount of attention as a sales impediment. The survey didn’t find process to be the likely culprit, which would indicate it’s “not a problem.” Probably, somewhere in the company is a document that states what the process should be that would likely solve these other top issues, but it is being ignored.

Putting in place a reliable process—a sales process—that would both guide and help predict sales would move companies toward a solution of better, more reliable forecasts. So the solution to the forecasting problem would begin right there, where it’s obviously being swept aside.

But boiling this down even further, let’s take a look at the dictionary definitions for 2 key words from the above survey findings:

ex·e·cu·tion; eksəˈkyo͞oSH(ə)n/; noun; 1. the carrying out or putting into effect of a plan, order, or course of action. “He was fascinated by the entire operation and its execution.”

ef·fec·tive·ness; iˈfektivnəs/; noun; 1. the degree to which something is successful in producing a desired result; success; “the effectiveness of the treatment”

If you blend the dictionary definitions of execution and effectiveness, you’re talking about “the carrying out or putting into effect of a plan” and then “the degree to which something is successful in producing a desired result.”

How would a proven sales process affect execution? Sales reps would have a reliable path, and sales could progress and close much more confidently and with more velocity. It would be easier to meet quotas, too.

Effectiveness? A reliable process

• contains methods that are proven to convince prospects
• is designed to move sales from one stage of the sales process to the next
• moves deals to closes

If you’ve instituted a reliable sales process, and are both executing and effective, guess what? Your data will be far more reliable. That means a much greater degree of confidence in your sales forecasts.

Tools

Based on the survey results, it’s obvious that your team needs the right tools to make salespeople more effective. Logically, a reliable sales forecast will follow in the wake of their success. Used correctly, good tools sustain good behaviors because they work on behalf of all the users.

The best tool should improve the neglected little item on the above graph—the process. Add visibility and insights to your process, and you will bolster both execution and effectiveness.

You can be successful at creating (and basking in the glow of) reliable sales forecasts. Make sales forecasting a priority, execute with the right tools, and watch your team’s effectiveness soar.