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Jim Schuchart was responsible for InsightSquared’s own sales forecast for over a year. He’s here to provide some tips based on his first-hand experience improving our own forecast methodology.

Forecasting is always a hot topic of conversation with my customers, and for good reason. What sales leader doesn’t want to confidently tell his or her CEO how they are going to do next quarter? Yet as frequently as the subject comes up, I hear about the troubles of actually pulling it off.

The reality is sales forecasting is hard. Really hard.

It’s a major test in understanding how your business (micro and macro) really works. It requires process to be followed, data to be captured, numbers to be crunched, and internal agreement on what you are actually doing. If you are using a CRM like Salesforce.com, you probably have a pile of data in the form of old opportunities and custom fields. You may have even changed your sales process along the way. This can all make it tough to know where to start with respect to your salesforce reporting, let alone your sales forecast. At InsightSquared, we spend a lot of time thinking about how to forecast sales, both for our own team and to help our customers.

(For more detailed information about sales forecasting, check out our FREE eBook: The Definitive Guide to Data-Driven Sales Forecasting.)

 

Here are three steps that we use to build a data-driven view of our sales forecast:

1. Know what’s in your pipeline.

On the surface, this one is easy. But with forecasting, the devil is in the details. It’s not enough just to know how many opportunities you have open today. You also need to calculate the value of those opportunities and understand how the total value is changing month to month. Further, you need to break your pipeline value down by stage. This is crucial to separate the late stage pipeline value, which impacts this quarter’s forecast, from the early stage pipeline, which will set you up for success or failure next quarter.

Pipeline Status

A $10M pipeline is great, but if you historically have $15-20M in the pipeline, your team is about to get crushed with a top of the funnel problem, and your forecast needs to show that. Or perhaps your pipeline is in the $20M range, but it’s full of early stage deals that won’t go this quarter. Understanding the nuance of your pipeline value – how it changes over time and the stage in which the dollars sit – is a critical first step to understanding how your team will perform this quarter and next.

2. Consider your sales cycle.

Now that you know what you’re holding, you can begin to layer your sales cycle on top. To start, calculate your average time from creating an opportunity until it is won (note: this is your sales cycle, not your lost cycle, so only include deals that were successfully closed). We look 12 months back to ensure there is enough data to be meaningful. Once you have that, it’s time to dive into some nuances of the sales cycle. How does this data vary by sales rep? We break our cycle out by opportunity stage to understand how many days our average win lives in each stage. This allows the team to confidently say that our pipeline in the three latest stages, for example, is relevant to this quarter’s forecast, while the earlier stage pipeline isn’t going to cross the finish line until next quarter. Now I know that while I have a $20M pipeline overall, only $8M is relevant to this quarter’s sales forecast.

Won vs. Loss

Finally, don’t forget the subjective data here. Most CRMs have a Closed Date field which allows your reps to enter their own prediction on when a deal will close. Seek out examples where the Close Date doesn’t match the data (current stage + sales cycle from that stage). Sit down and talk to the rep to find out what is happening. We love numbers at InsightSquared, but you can’t ignore all of the subjective data your sales rep has gathered through the process.

3. Add your win rate to the mix.

OK, so I know I have $20M in my pipeline and $8M of it affects my sales forecast for this quarter. But sadly, our team doesn’t win every opportunity in our system. Take the final step in improving your sales forecast by multiplying your pipeline by your actual win rate.

Opps Won

As we have discussed before, it’s critical to know the actual win rate, not just your guess or where you would like to be. You also need to know how this changes by stage, so look at your overall sales funnel. My $8M pipeline for this quarter reflects opportunities in three stages, and I need to acknowledge that they don’t all have the same historic likelihood of closing. If you want extra credit with your CEO, look for even more factors that cause differences in your win rate. Different products, geographies, deal types or sales reps often have different shapes to the sales funnel. The better you are at identifying these driving forces (and better yet, why they are so important) and factor them in your sales forecast, the more confident you will be with your results.

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