When you’re the Sales VP or a CEO at a large, publicly traded company, missing your sales forecast is one of the most egregious things to get wrong.
Stock analysts depend on accurate forecasts, and shareholders make their buying and selling investment decisions on this type of forecast-based analysis. A missed sales forecast could lead directly to your stock price plummeting, a scenario that is sure to upset your shareholders and members of your board. Simply put, getting your sales forecast wrong at a public company could spell your doom.
But what about at a smaller, private company?
After all, you’re not held accountable by shareholders or a volatile stock price. This is why a missed sales forecast at smaller companies is generally met with shrugs….but should it?
Missing your sales forecast, even at a small company, can have widely felt repercussions and really impact the way you run your business. To really emphasize the importance of getting it right, here are 4 dire consequences of missing your sales forecast.
(For more detailed information about sales forecasting, check out our FREE eBook: The Ultimate Guide to Sales Forecasting.)
If you Fail to Plan, you Plan to Fail
Forgive us for using this well-worn cliche, but the importance of getting your sales forecast right is centered around these very true words; simply put, as a Sales VP or CEO, you must diligently plan many aspects of your business in order to be successful, and it is exceedingly difficult to plan for the future without a reliable, accurate sales forecast.If you’re in manufacturing, will you have enough inventory to address the demand that you’re forecasting? If your forecast falls short, can you still use your leftover inventory down the line, or will it have to go to waste? Do you need to hire more contractors to keep up with demand?
People tend to think of missing your forecast as undershooting it, but overshooting it by a large margin can also cause distresses in your planning process. Of course, this is a champaign problem – one any Sales VP would welcome – but it nevertheless throws a monkey wrench into your planning.
For instance, what if you need more salespeople or account managers to handle this unexpected surplus of incoming deals? If your forecast did not anticipate this, you might be caught unawares and find yourself scrambling to fill headcounts that opened up last minute. This again all stems back to your sales forecast not being reliable.
Finally, many small companies also have to consider how much incoming cash they should expect, with this revenue forecast not necessarily being the same as your sales forecast. Without a deep-well of customers or the backing of a VC firm, a small company likely depends on incoming cash from customers.
If you expected to bring in $100k in revenue this quarter – of which $50k had been earmarked for general utilities in your office, such as keeping the lights on and the heat running – and you only bring in $70k, that puts your operational planning in a real tough spot. Every cent counts when planning the operations at a small business, so getting both your revenue and sales forecast right absolutely matters.
People are Going to Start Asking Questions
And while you might have some easy and satisfactory answers for some of these tough questions from your CEO or Board of Directors, you can fully expect a series of missed sales forecasts to lead to increased glare from the already hot spotlight. Some of these questions and inquisitions might include:
- “Why did you miss your sales forecast? Was it unrealistically high in the first place, or did your closing team not deliver? If it was unrealistically high, why is that? Are you sure you’re using the right sales forecasting method?”
- “Do you have the resources – both then, and going forward – you need to hit the sales forecast you’ve projected? Do you have enough pipeline? Is your team using the right tools they need to do their jobs?”
- “We’ve missed our forecast two quarters in a row now – is this a coincidence, or a systemic issue with your sales process?
- “Are we sure that you’re the right person to lead this team?”
Of course, of all the hard-hitting questions you might have to answer for, that last one is the most damning, and the most difficult to answer. Regularly missing your sales forecast – either because you can’t produce results or you don’t know how to accurately forecast – is a surefire way to put your job on the line.
Funding Won’t Come Easy
If you’re leading an early-stage startup and are regularly making the fundraising rounds, trying to raise capital and financial backing from VCs, the last thing you want to admit in your presentations is that your team has missed its sales forecast the last two quarters. Why would anyone want to invest funds in a company that can’t even get their sales forecast right?? That raises red flags, suggesting that you’re not a reliable company or – even worse – you don’t have a clear and realistic vision for your future.
After all, that’s what they’re investing in – your growth potential in the future. They expect that you have crystal clear growth plans, and the right strategies and tactics to get there. A missed sales forecast might indicate to them that you don’t actually have a plan in place; rather, you believe in your product and, through a combination of spray-and-pray tactics and some dumb luck, you will find product-market fit.
Does this sound like something a VC would want to invest in? Spoiler: assuredly not, and it’s all because you couldn’t get your sales forecasting right.
A Lack of Vision Today Costs Credibility Tomorrow – John C. Maxwell
Think of a sales forecast as a promise, a stake in the ground, you putting your money where your mouth is. You’re staking one of the most important things you own – your credibility and reputation as a trusted sales leader – on delivering this promise. And as author and speaker John C. Maxwell has said, demonstrating a lack of vision today – and that’s ultimately what a missed sales forecast is – will severely cripple your future credibility.
Ask any disgraced politician (other than Bill Clinton – there’s always an exception to the rule) about how difficult it is to regain credibility when it is lost. From here on out, everything you say will be taken with a grain of salt. If you haven’t delivered on your sales forecast in two quarters, why would next quarter be any different when you say you will deliver this time?
Chances are it won’t.
Consistently missing your sales forecast over and over again can have really dire consequences for Sales VPs or any sales or business leader. The costs – in valuable resources, credibility or even your job! – can be severe.
Don’t miss your sales forecast. Make sure you have the right sales forecasting methods in place and give this very important area the attention and priority it deserves. You’ll be thankful you did.