Sales analytics and sales forecasting are vital not only to the survival of a sales department but to an overall company as well. Unfortunately, by actual statistic, sales forecasts—along with closing rates—are generally off by a considerable margin.
Here are 6 key factors that, if implemented, will go a long way to greatly improving the accuracy of your sales analytics and forecasting:
#1: An Established and Proven Sales Process
The very foundation of sales analytics is a workable sales process. The sales process is the exact series of steps a sale evolves through, from lead to close. It is usually established by evaluating the series of sales actions taken by the most proven and experienced sales reps within a company, and then refined as needed through time.
It should not only include steps such as “initial pitch”, “demonstration,” and “PO approved”, but also other important factors such as prospect’s proven need for your product or service, available budget established and even counteractions to competitors. The more complete your sales process, the less guesswork will have to be done further up the line in forecasting.
The steps of that sales process form the basis of any analysis, and as well should form the plan of a company’s CRM solution.
#2: Established Conversion Rates per Pipeline Step
It will be found that each step of the sales pipeline (sales process) has its own particular ratio of success versus failure. What percentage of sales make it out of that step and into the next, and what percentage of sales make it out of that step and to a close? Establishing such conversion rates for each step will make accurate sales analytics and forecasting more possible.
#3: Established Closing Ratios
This is one of the most important elements of sales analytics. First, an average closing ratio for overall sales should be established, based on past performance of experienced sales reps. Then an average closing ratio for each current sales rep should be computed so that it can be compared to the average. The current ratios will always be changing, so they should be regularly recalculated.
Closing ratios will always weigh heavily in any sales forecast, as they are one of the prime factors in the overall analysis. Without closing ratios being accurately calculated, forecasting will never be accurate.
A rough but somewhat accurate analysis can be quickly figured by taking the number of opportunities in the pipeline and multiplying by the average closing ratio.
#4: Accurate Historical Data
As any statistician will tell you, no analysis or forecast can be performed without an examination of past performance. Hence it is vital to have accurate historical data available for analysis. Ideally it will be part of your CRM solution, and easily obtained. If not, thorough research must be conducted, and figures should be cross-checked for accuracy wherever possible.
#5: Established Accurate Metrics
It is vital to take the time to establish by exactly what metrics your analysis will be done, and to make sure these are agreed upon by all who will later utilize them. You don’t want to go to all the trouble of creating a detailed sales forecast, then have your controller reject it out of hand because he or she didn’t agree with the metrics utilized.
It might seem odd to include a somewhat intangible quality such as honesty in a list such as this, but honesty or the lack thereof can greatly skew the results of sales analytics and sales forecasts. This can of course apply to a sales rep who is being overly optimistic in predicting various sales, or to a rep who is “sandbagging” (hiding potential sales to meet future sales quotas). But it can also apply to a sales manager trying to make a weak forecast look good, or even to other executives for endless other reasons.
Putting any potential blame aside, it is highly suggested that a campaign be run company-wide for honesty in reporting. The benefit to all is more accurate sales analytics. The more accurate the sales forecast, the more positive sales control that can be brought to bear by everyone from sales reps on up. The more positive control, the better your company is going to succeed.
Accurate sales analytics and sales forecasting are possible. Institute these key factors and make it work in lifting your company to ever-greater heights.
Watch for more articles in our series on sales analytics and sales forecasting.