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I’m on the record strongly in favor of as much objectivity as possible when building your sales forecast. So much so, that I pick fights with prominent venture capitalists on the topic.

If your sales cycle is relatively short, I think sales forecast methods that are based upon asking your sales reps “if they commit” to a deal is highly subjective and prone to inaccuracy. It is not an analytic approach to ask someone “how they feel” about an opportunity and then strictly rely upon that qualitative assessment is simply asking for trouble. Why? Because your sales reps are emotional human beings.

If you let their emotions enter the mix, the analytical foundation of your forecast is shot. Want some examples of this emotion?

  1. Your rep provides a demo, the customer tells them “it looks great”. The customer means “I just want to say something to get me off the phone in time for the next meeting” and your rep hears “they loved it!”. Happy ears.
  2. Your rep is under pressure (self-imposed or otherwise) to have a good month. He knows he needs to deliver a good performance this month. He’s under pressure to perform so of course he’s going to project an air of confidence and be eager to please. Does this mean the opportunities are more likely to close? No. The customer isn’t behaving any differently. This month is probably no better than previous months.
  3. Some reps are simply more optimistic than others. Are you going to inflate your forecast because of particular reps’ positive outlook on life?

Do you have to become an arm chair psychologist to interpret each of your individual reps’ emotional responses to your requests for commitments in their pipeline? Grappling with scenarios like these leads sales leaders to say things like “forecasting is more art than science.”

I call BS on that attitude.

Forecasting methodology needs to drive out as much of the art as possible in favor of more science. The more science you use, the better, more accurate forecasts you will get. Here’s how.

Use the subjective assessments . . . as a start

It is OK to ask those subjective questions. In fact, I would encourage it. You can ask the questions about which deals your reps feel really good about. Which deals they feel bad about. But the questions can’t stop there.

Once they give an answer about their intuition on a particular deal, it is key that you follow up by asking “Why?” And once they answer, you probably want to ask “Why?” again. And again. And again. You want to get to the underlying reason. What might seem on the surface level as simple intuition about a deal is very likely based on some prior experiences or observed behaviors.

Asking “Why?” repeatedly will help you grind that “feeling” or “intuition” about a deal into a hypothesis. It could go something like this:

Manager: “How do you feel about the Acme opportunity?”

Rep: “Oh, I don’t feel good about that one. I wouldn’t commit to it.”

Manager: “But it is a huge opp. You’ve got $30K in value estimated. Why?”

Rep: “Well, the sales cycle is looking like its getting extended out and there are way more stakeholders involved than typical. It’s just a mess.”

Manager: “Why?”

Rep: “There are three products involved instead of our typical one”

Manager: “Why?”

Rep: “Well, it came from that partner, BigFees Consulting. They are always gunning for the services fees that come with the multi-product sales.”

Coming out of this conversation, you are now armed with a new hypothesis, a new theory: deals where the lead source is your channel partner BigFees Consulting tend to close at a lower rate.

Given that hypothesis, you need to take the next step: validate or invalidate the theory. You do so by examining the theory with data, data collected from your CRM system like Salesforce.com and your marketing software (like HubSpot, Marketo or Pardot).  Does the data back up what your rep is telling you? Does that lead source convert worse? What are your conversion rates for that channel relative to the conversion rates overall? Is the difference significant?

If the data really does confirm the hypothesis, then you can incorporate that difference in conversion rates into your sales forecasting methodology. You can improve your sales forecast by using different probabilities for your different channels. With more refined probabilities, you can deliver a more accurate forecast for each type of opportunity in your sales pipeline.

So what am I advocating here? I’m not saying ignore the subjective assessments of your sales reps when you build a forecast. As much as possible, use those subjective pieces of intuition as the start of a rigorous investigation of your sales data.

The impact on your business will be significant. Rather than practicing sales forecasting art, you are practicing sales forecasting science.

Art is dependent on the skills, emotions and intuitions of an individual.

Science is repeatable and transferrable. Your entire organization can benefit and benefit long after some “artist” has left your organization.

I know which one I prefer. What about you?

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Comments
  • SJ Bier

    if the scientist leaves you’re no better of…

    I like the scientific approach though. With analytics software you would probably be able to tell the different conversion ratio before getting the hunch-based-assessment from a sales rep. What it may do however is trigger a different angle at looking at existing reports, and/or a need for a different/additional split of the source data and modified reports. Remember: a report answers an old question. Question is whether it is still relevant.

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