For any business engaged in sales (and that would be pretty much all of them) sales forecasts are crucially important. Companies normally go to great lengths to create accurate sales forecasts, for entire chains of events are tied to them. These include the procurement of raw materials, creation of products to meet demand, hiring and investment for expansion, among others.
To the degree a sales forecast is inaccurate is the degree to which events such as these go awry. Such errors can range from the simply annoying to the nearly catastrophic. Examples might include a serious overstock or understock on produced goods; an outlay for expansion that, as it turns out, was needed for company survival; or numerous staff hired that have little to do or must now be laid off.
A company’s investors also keep a sharp eye on forecasts to ensure they are getting returns on their investment. When returns are predicted and don’t materialize, trust in the company and its executives is placed in jeopardy.
What Are Causes of Sales Forecast Inaccuracy?
Causes of sales forecast inaccuracy can be many, but they generally boil down to two things:
#1: The raw data being used to forecast is in itself inaccurate.
#2: The sales forecasting tools are not robust enough to assist in creating an accurate forecast.
There will always be salespeople and sales managers that will be overly optimistic in their prediction of sales. This isn’t necessarily a bad thing; it is that optimism that drives them and keeps them seeing the positive aspects of opportunities that often result in wins.
But that over-optimism can also tie in with #2 above—the sales forecasting tools. If a sales manager doesn’t have an accurate picture of similar sales, the closing ratio of that sales rep, or a longer-term history of sales of that particular product, all that manager can do is a “best guess.” The same might even be true of a sales rep—if salespeople had past performance at their easy reference, they might not be so overly optimistic with the actual facts to hand.
Traditional Methods
When looking behind the scenes at the traditional creation of sales forecasts, it is no wonder that their accuracy is questionable. They normally come about through sales management meetings with members of the sales force, during which the sales rep is asked to give a best prediction of when various sales cycles will come to fruition, and for how much. That prediction is normally based mostly in guesswork, even if educated guesswork.
All Down to the CRM Solution
It is only a leading-edge CRM solution that makes more accurate sales forecasts possible. Data such as rep closing ratios, longer-term history, ratings of sales, history with particular clients and types of clients, profit margins and other KPIs are not only taken fully into account, but visually represented. It is then easy to see where sales might actually be headed, and the risk factors involved.
This kind of CRM solution also makes it possible for forecasts and opportunity reports to be easily created, so administrative time is greatly reduced. It is even possible for salespeople to create their own forecasts, which is not only a reduction of work for sales management but brings a higher degree of sales control to the rep.
How can sales forecast accuracy be improved? The answer is simple: with a leading-edge, flexible and intuitive CRM solution.
The CRM solution described above can be found here.
