Forecasting | A Sales Guy

How to Build an Accurate Sales Forecast

I gave my two cents earlier this week on why sales and earnings forecasts fail. They fail because of lack culture NOT because of lack of smarts.

Chris Waldron called out culture in his comment on the post. I think Chris is right.

There are only 3 things needed to build an accurate forecast; data, interpretation and culture. That’s it.

If building an accurate forecast is important to your business, start with building a culture of reality. Reality is at the core. An organization that confronts reality accepts what the information is telling them and plans accordingly. There is no King James bible interpretation going on. Their is no discarding of the data because someone doesn’t like it. It is what it is. If the data is telling you business is going to slide, accept it, build an accurate forecast around it, figure out away to minimize and move on.

If forecasting is an exercise to support a predetermined number, it’s not forecasting and a culture of reality doesn’t exist. Don’t waste anyones time, just give out the numbers and move on.

A culture of reality is critical to accurate forecasting. Allowing the organization to accurately interpret the data to arrive at the most accurate representation of future revenue is key.

That brings us to the data. I’m a gut guy, so this is hard for me. However, I accept it and dig in. An accurate forecast needs data. It needs:

Historical information
Editorial dialog
Customer data
Competitive data
Trend analysis
Industry analysis
Company data:
1. Support analysis
2. resource availability
3. Product availability
4. New product development
5. New product availability
6. Marketing plans
7. Customer satisfaction
8. etc
Expected Macro Economic Data
1. Consumer Spending
2. GDP Growth
3. Consumer Confidence
4. Interest Rates
5. Inflation
6. Housing prices
7. Government regulations/intervention
8. etc

All of this info and more can influence the numbers. Building a forecast without all the data, internal and external, marco and micro is a hollow effort.

Use the data, it’s the foundation.

If the culture is there and the data is there, interpretation is the special sauce. It’s what differentiates the professionals from the amateurs. Interpreting the data to create an accurate forecast is an art. There is no science to it. The best people I’ve ever seen can look at the data and with an amazing accuracy determine the impact to the forecast from the data. It’s a little bit experience, it’s good data, it’s knowledge of their world and it’s a little bit gut.

I purposely chose not to be perscriptive in this post, because I don’t think forecasting is all that hard. It’s only hard when the culture allowing for good ones doesn’t exist. Build a culture of reality, get good data and learn to interpret it. The forecast will come out fine — and by that I mean ACCURATE!

The Sales Forecast, An “Informed Guess” (customerthink.com)
Explaining Common Sales Forecast Formulas (brighthub.com)

August 26, 2010 | Filed under: Business Performance,Leadership | View Comments |

Not Just How Much but When

Conventional sales asks; how much is the deal worth? How much did you sell? Most sales people and organizations are fixated on how much is sold and justifiably so. The more that is sold, the healthier the company, the stronger the sales team. How much is an important measurement.

There is another measurement I think needs to get more attention than it does. It’s “when” is it going to be sold.

In sales it’s not good enough to know how much you are going to sell, it’s also important to know when you are going to sell it.

Being able to accurately predict when a sale will close is part of the science of sales. The most successful sales people are good at this and they make a huge impact on an organization.

Organizations need to manage cash, revenue, product deployment, inventory and more. Sales prediction plays a hug role in the success of all of these. Without accurate sales predictions companies are often left scrambling to deliver, face inventory issues, miss Wall St. projections and more.

I don’t see enough focus on the predictability of sales. I rarely see teams or individuals measured on predictability. On the “carrot” side, I can’t say I hear sales people lauded for their accuracy. It doesn’t happen very often and it should.

I think every sales person and sales team needs to commit to their numbers. Every quarter they need to tell the organization how much they are going to sell. They need to commit to a monthly number and a quarterly number and standby it. At the end of each quarter commits should be reviewed for accuracy. Who go it right? Who missed it?

Measure the people and teams on how accurate they are and rank them. It’ll provide great insight into who knows their business and who has command of the sales cycle and who doesn’t.

Good sales people make their number. Great sales people make their number and accurately tell you when they will do it.

It’s not good enough just to know how much, you need to know when.

How accurate are you?

April 21, 2010 | Filed under: Sales Process,The Chase | View Comments |

Why Your Quota for Next Year Will Be Unrealistic!

Do you set quota? Do you set financial goals and plans for your organization? It’s getting to be that time again when sales and business leaders begin to look into their next fiscal year. Over the years I’ve noticed an interesting trend. When it comes to fiscal planning, leaders do one of two things, they pick a number they want to make, then figure out how they are going to make it or they look at the data and identify a number that is consistent with what the data tells them.

These are two very different approaches. The first one makes us feel good inside, because we’re getting what we want. We want to grow by 30%. So, we say that’s what we are going to grow by and then we ask the team to tell us how we are going to do it. It’s a game companies have been playing for years. I call it the pressure game. The board, or the PE firm or the street have performance expectations. They put pressure on the CEO and leadership team to make some number. The CEO/Executive team then turns around and puts pressure on the organization to make that number regardless. The leaders provide a number of reasons why they think goal or quota is possible, why it’s important to the organization and then pass the numbers down. Everyone is rallied around the grand goal, initiatives are put in place, strategies are created, and everyone charges the hill. People like this approach because they never have to say NO. Any hint at dissent and the dissenters are cast aside for not being on board. We take what we’re given and go for it. No push back, no challenging the status quo. The problem with this approach is it’s not grounded in anything. It’s driven by the emotional, political, or crisis needs of the organization.

The second approach, starts with the data. It starts with a solid understanding of the external environment. What does the macro-economic environment look like? Is the industry growing, flat, or shrinking? What is the competition doing etc. It also includes a thorough internal assessment. What is the team capable of? Do the resources exist to execute. Are the appropriate relationships established? Is the capital available to make the investments? Are the processes in place to support the goals, etc? Finally, it includes setting reality based goals based on the data and internal and external assessments. Aligning the information acquired in the assessments with the financial goals and targets creates a realistic set of goals. By setting realistic goals, strategies can be built, strategies that can be achieved. This approach is more difficult. It can put people at odds. It may not provide the number everyone wants to see. It forces the players to be real with their growth and quota goals.

What type of company is your company? What type of leader are you? Are you looking at setting a double digit growth goal for quota in FY10? If so, why? Have you considered the economy is expected to grow only 1.6%? Where is the additional 9% growth going to come from? Is there something in your sector that you are looking to exploit. If so, is your company prepared to respond? Are the processes in place to capitalize on the opportunity? What information are you using to determine quota? Do you play the pressure game? Do you succumb to the pressure? Do you pick your goals based on what feels good, or what is real?

One sure fire test to determine which you are is to ask this one question? Have you ever determined that growth was not possible and that a decline was inevitable? If the answer is yes, then you listen to the data. Most companies should have seen 09 revenues would decline? By the fall of 2008 we had entered the recession, credit was tight to non existent, the housing market was in shambles, unemployment was climbing and consumer confidence was at some of the lowest points it had ever been. There was NO macro-economic data that could have supported an 09 growth number unless your business benefited from a shrinking economy. Yet very few companies or leaders were able to defy the pressure to announce growth. So growth it was, despite the data.

Data gives you the answers, you just have to listen. What is your quota going to be next year? Is it realistic? How do you know?

August 3, 2009 | Filed under: Business Performance,Economy,Leadership | View Comments |

Getting Real and Not Being Seen as Weak

Not too long ago I was invited to a National Sales Conference. It was your typical, yearly sales conference designed to rally the troops and set agenda for the coming year. What I remember most was the CEO’s presentation and the companies goal to grow 5% to 7%. Grow 5 to 7%? I remember asking myself what evidence did he have that allowed him and the company to believe they could grow at this rate? The banking crisis had already begun. Credit was already tight. The market had already fallen 30%. And most notably, these numbers represented similar growth patterns for the company during “good times”. I just couldn’t see how this organization believed they could grow at that rate, based on the current economic environment.

The truth is they couldn’t and they’re not. Since the conference, I’ve been told sales are down substantially, like almost every other company in America. Could this company have seen the size of this economic decline? I don’t think so. But they could have seen A decline. The just chose not to. They chose not to confront reality.

Nobody wants to hear the truth, especially when its bad. Getting real with what is happening within an organizations environment is the achilles heel of business. The pressure to perform is too great. It’s not OK to say we can’t do something. But, it should be. It’s considered a weakness to say something can’t be done. Saying something is unachievable or not likely labels you weak, not on board, or worse – incompetent. This is only true when the data doesn’t support it. However, when the data suggests something is improbable or not realistic confronting it is exactly what should be done. Had this company confronted the reality of the economy and their real capabilities they could have responded entirely different, thereby preserving profit and mitigating the losses.

Since the downturn in the economy I am hearing numerous stories of sales and business leaders demanding numbers of their teams to meet their goals regardless of what is truly realistic. This authoritative approach only kills moral as it continues to push and drive the organization toward unrealistic goals, employees become more frustrated with lack of success, which in turn drives even more dictatorial demands. A cycle is started.

What should be done? Confront Reality! Ram Charan, and Larry Bossidy’s book, by the same name talks about this very topic. Engage your team, assess what your truly capable of, understand what the economic environment will allow, be real in accepting the information, and set goals best on what you can do, not what you want to do or “NEED” to do. Getting real with your environment allows organizations to be more nimble, it allows them to capitalize on growth and mitigate decline. HINT; Sometimes decline is inevitable, pretending it isn’t doesn’t help. Accepting it, mitigating it and taking your lumps early is far less impacting than pretending it isn’t going to happen.

In our society, getting real is hard, especially if it’s bad news. We don’t like naysayers. We cast out those with “negative” information. We don’t like to hear it. But we need to.

In January of 09 how many companies projected a “LOSS” for 2009? I suspect not many. But, most should have. They just didn’t have the guts to state what was real.

It is best for companies to look at their world as it is, not as it was, or how they would like it to be! As I like to say: “It is what it is.” Accept it and then figure out what your going to do about it.

April 29, 2009 | Filed under: Business Performance,Economy,Leadership,What I Think! | View Comments |

Evidence

I was in my first executive role, V.P. of National Sales. It was my first week on the job. It was a new company and I was at a conference. The first day on the floor, one of the territory reps asked me if I’d be willing to meet with one of her prospects. She said she was about to close the deal and wanted my help to get her over the final hump. Ten minutes into the conversation, not only did I realize the deal wasn’t going to close, but that I had a least one bad sales rep and if the rest of the team was anything like her I was in trouble. It also suggested I had manager level challenges. evidence

During the meeting it was apparent the prospect was no where near making a decision, never mind a decision to buy from us. They were still in the discovery phase. The customer didn’t understand our unique value. They were still evaluating their technical options and most importantly they were struggling with budget. There was absolutely NO EVIDENCE to suggest this deal was going to close.

Sales can be emotional. The reasons for poorly forecasting a deal close are many. There is pressure on the sales people to tell the manager what they “think” he/she wants to hear. There is fear of failure. There are missed objections. There are missed buying signs. The competition makes a last minute push and steels it away. The reasons are countless.

To stop the insanity, ask for evidence. When it comes to getting a better understanding on whether a deal is going well or not and if it is going to close ask for evidence. Leave the emotion, and “I thinks” at the door. If sales people are specific and deliberate in customer conversations, the evidence will be clear. Little will be left for interpretation.

Clarify deal closing questions with: “What evidence do you have that it’s going to close?” Responses need to be factual. They need to be rooted in specific, measurable, relevant information.

Answers such as;
“We are the front runner.”, “My contact told me we are going to win it.”, “We are positioned well.” etc. lack evidence. Your job as the sales leader is to dig deeper. Ask probing questions that provide the evidence to support the claim.

Questions such as:
“Why do you believe you are the front runner?”, “Who at the organization shared that with you?”, “Are they the decision maker?”, “Why is it going to close on X date?”, “Why do they have to buy NOW?”, “Can the competition cut their prices or offer additional services free and cut us out?”, “Why don’t you think they will?”, “Why do you think the prospect won’t change their mind if the competition gets aggressive?” etc. The objective is to get as much evidence as possible on why the deal is going to close.

As sales leaders it’s your job to hold your team accountable. Requiring evidence is key to doing just that.

Evidence is crucial. In strong sales organizations deals are “lost until proven closed.”

April 20, 2009 | Filed under: Sales Leadership,The Chase,Uncategorized | View Comments |

Look Deeper, Things May Not Be What They Seem

Not too long ago, during happier times, sales manager only had to look at their funnel to determine if a good quarter was upon them. Depending on the industry a funnel of 3X or 4X quota would ensure a good year; maybe even Presidents Club.

In today’s uglier times, a funnel may not only be inaccurate, it could be a wolf in sheep’s clothing. Luring you into a false sense of safety.

The economy is a differently place today. Companies are cutting operating expenses and reducing capEx (capital expenditures). Every dollar is being reviewed and evaluated. Inspection is at an all time high. Everyone’s budgets are under tremendous scrutiny. There are no longer any free rides. The gig is up.

Companies want a measurable return. For every dollar put out they want to be getting back a 1.25 or more in 12 months. Companies want a 12-month ROI. Companies are hoarding cash. Many are taking an “if it ain’t broke don’t fix it” attitude with their infrastructure. They are putting off capital improvements. They are reducing R&D. Every investment is being weighed against every other need in the company.

If a funnel, no matter how big, hasn’t consider today’s tumultuous economy, it’s no funnel at all. Expect companies to cancel orders already placed, and to put off projects already committed. No project, effort, commitment or budget is safe. Therefore, no funnel is safe. Companies are panicked and they aren’t going to spend a dime on anything that won’t improve their financial position.

If a funnel hasn’t been combed for opportunities with a measurable 9 to 18 month ROI it’s not a funnel. Today organizations have to look deeper. Sales leaders need to pry into their organizations funnel and ferret out the real deals from those that will die on the vine. Account managers must be closer to their customers and know their business, their key goals, and success metrics. A new vernacular of ROI, capex reduction, lower TCO and measurable return is a must.

In a climate where competition is fierce for every dollar, you are no longer competing with your traditional competitors. Your competing with EVERY vendor vying for the few precious dollars your customer will part with. There is no second place. Only haves and have-nots and there is no bread line.

Today’s funnel is like a rock; you have no idea what is under until you turn it over.

March 3, 2009 | Filed under: Uncategorized | Comments Off |