Falling short of your goal is one thing. Falling short of your quarterly goal after telling your CEO that you will definitely hit your goal?
Well that’s a different level of egg-on-your-face altogether.
That type of scenario is simply mortifying if you’re a Sales VP, suggesting to the CEO and Executive Team that you really have no idea what the hell you’re talking about, or doing. That’s not a good look. Yet, it’s something that you will have to suffer the ignominy of over and over again…as long as your sales forecasts remain so inaccurate and off-base.
So why, exactly, are your sales forecasts never accurate? More importantly, what can you do to turn that ship around?
(For more detailed information about sales forecasting, check out our FREE eBook: The Definitive Guide to Data-Driven Sales Forecasting.)
1) You’re still using traditional sales forecasting stages:
If your stages are still listed by traditional, out-of-date names – “Best Case,” “Upside” – then your sales forecast is probably already sunk. These traditional stages do two things wrong:
they reflect the seller’s process and perspective, rather than the buyer’s
they rely on the intuition of your sales reps, instead of having clear-cut exit criteria from one stage to the next
Instead, you want a sales process that reflects the buyer’s journey, with the subsequent sales pipeline stages that map to each step of that journey. Furthermore, each stage should have very strict exit criteria; an opportunity cannot go from one stage to the next stage unless that criteria has been met. For instance, moving onto the third stage might require first sitting through a demo. This way, reps can’t simply say, “Oh yeah, this opportunity is more than ready to be in this stage based on our conversations.”
2) Sales reps have notoriously happy ears
The bigger problem with reps having “happy ears” is that managers are apt to trust in and listen to their sales reps. If a rep says that an opportunity is primed and ready to buy based on the conversations they have been having, a bad sales manager is likely to accept that at face value.
This is an issue because reps are notorious for having “happy ears” and letting their emotions and intuition cloud their judgment. Their desperation in wanting that deal to close leads to them listening to only the things they want to hear; in truth, the opportunity might be nowhere near ready to close and has articulated that several times. The rep, in his rush to close, might just gloss over those verbalized issues and focus only on the positive things that the opportunity has been saying.
3) Sales reps will sandbag and try to cheat the system
Having naive, all-too-optimistic sales reps is one thing; having dishonest sales reps who will sacrifice the team and the company in their bid to make themselves look good is another story altogether. A sales rep might enter a late closing date in your Salesforce CRM, and then move that date up if it looks like the opportunity is ready to buy right away. Or if the opportunity looks like they are not going to buy, the sales rep might just push that close date to a month where they have already hit their quota. This type of data dishonesty will throw your sales forecasting – and the rest of your sales analytics – way out of whack. Look out for those data red flags and implement a system and culture where data hygiene is critical and your sales reps are honest.
4) Your sales process lacks inspectability
Inspectability in your sales process means that at every opportunity, there is a system of checks and balances, of validation and confirmation, from the prospect that he is indeed ready to transition to the next sales stage. This ensures that opportunities belong in the right stage and will go a long way toward improving your sales forecasting accuracy.
This also serves the twin benefits of putting your reps firmly in the shoes of the potential buyer, while also instilling discipline and rigor in their sales process. After each phone conversation, your reps should send an email confirming what was said in the conversation, as well as next steps. Remember that each stage has its own set of exit criteria to be independently confirmed:
At stage 1, the inspection will look for, “The prospect confirmed and validated her problem, and has a specific need to solve this problem.
At stage 2, the inspection will look for, “The prospect confirmed that after seeing our product demo, she sees a solution and has a timeline for when she wants to solve this problem.
At stage 3, the inspection will look for, “The prospect confirmed that she has a budget to solve this problem.”
5) You don’t know your historic win rate
Finally, you can’t forecast your sales accurately if you aren’t leaning on your historical data, or if your reps aren’t entering data into your CRM at all! After all, the key to forecasting accuracy is to apply historical win rates at specific stages to your existing opportunities in your current sales pipeline.
For example, if your historical win-rate shows that opportunities around your average sale price in the 4th (penultimate) sales funnel stage close at an 80% clip, you can safely apply that win rate to all your open opportunities that fit that criteria (i.e. with a typical ASP at that stage). At that same stage, your historical win rate for large opportunities (more than 3x your ASP) might close at only a 20% rate. You will then know to flag all large late-stage opportunities and not necessarily assume that they will close.
Of course, applying historical win rates means tracking your data early and often – everything from win rates to sales pipeline data to sales cycle to average sale prices should all be meticulously tracked and analyzed. If you don’t have the right sales metrics and system in place, your forecasts will be invariably sunk.
Do one – or all – of these reasons sound familiar? Chances are your sales forecasts are very inaccurate…but they don’t always have to be! All of these reasons can be fixed, and your sales forecasts will soon be able to deliver with prescient accuracy.