Sales forecasting never gets easier.
You’d think after doing it for a dozen quarters or a dozen years, you’d have it down to a science – whether you’re a rep trying to hit goal, a manager forecasting business, a director anticipating revenue or the VP forecasting.
But there’s the problem: Sales forecasting is as much art as it is science.
The art and science of forecasting
While it’s difficult to get the science wrong – countless technologies promise accurate forecasting – the art leaves more room for inaccuracies: Humans tend to over-inflate and under-estimate.
So sales professionals continue to struggle with sales forecasting. Seventy-nine percent of organizations miss their sales forecast by more than 10 percent, SiriusDecisions researchers found. What’s more, according to research from InsideSales.com Labs:
- Just 28% of closed deals are forecasted accurately
- Close amounts are off by 31% from the forecasts
- When sales reps’ forecasts are off, they overestimate by about $91,000 and underestimate by about $47,000, and
- The bigger the deal, the more likely sales reps are to overestimate the outcome.
The good news: If you know and understand the biggest reasons sales forecasting runs awry, you can implement strategies to improve accuracy.
Where forecasting fails
Here are seven things that cause sales professionals to forecast inaccurately. They:
1. Keep two sets of books
Many salespeople report one set of numbers in the CRM system or sales software and keep another set of numbers in a private spreadsheet. Then they run scenarios to see potential commissions. The private spreadsheet is almost always more accurate, according to Bob Suh, CEO of OnCorps, in his research published in the Harvard Business Review.
2. Cling to hope
Salespeople and their managers often recognize when a deal is all but sunk. Yet they are reluctant to admit defeat, so they cling to one piece of hope that it’ll happen. That inflates the pipeline’s health and causes everyone to ignore potential gaps in the forecast.
3. Fear consequences
“The accuracy of sales forecasting can be affected by rigid CEOs who are inflexible when it comes to sales targets. Often, their theoretical or hoped-for number is wildly desperate from the reality of the sales person’s projection,” says Bill Wooditch, speaker and author of Always Forward!: Discover the 7 Secrets of Sales Success and Fail More: Embrace, Learn, and Adapt to Failure As a Way to Success.
“Not to mention, consumer behavior is difficult to predict and industry conditions are always in flux,” Wooditch says.
Bottom line: Even confident salespeople fear losing their jobs, their customers and their careers. So they might use some numbers that make themselves feel better and temper their bosses.
4. Stuff the pipeline
At some organizations, the sales pipeline gets stuffed with opportunities at the end of the month – exactly when salespeople kick up their game by making more prospecting calls and following up on potential deals. The procrastination and panic before deadlines skew numbers.
5. Sandbag deals
Nearly opposite of stuffing the pipeline is sandbagging deals. Some salespeople might hold good opportunities from moving to the next stage in the pipeline (or funnel) in the current quarter, anticipating they’ll need those to make quota next quarter.
It’s a short-term fix with long-term consequences on sales forecasting and potentially compensation and supply.
6. Rely on subjective data
When forecasting, sales professionals are sometimes asked to rate the health of a relationship, buyer interest, strategic alignment and other quality attributes. Whether it’s on a scale of 1 to 10 or 20 to infinity, the answer is subjective and those numbers mess with forecasts.
7. Don’t report bad news
In some extraordinary cases, salespeople might hold back on reporting bad deals in their systems and to their bosses. That skews the predictions and inflates the success rate (which can really hurt individuals in the long run when they won’t be able to actually reach the artificially inflated success rate).
Critical first step to improve forecasting accuracy
There’s no cure-all for sales forecasting accuracy. But closer attention to detail is a critical, first element.
“When things get hard, the best sales leaders get closer to the details. Many discover that if they don’t get involved with the actual execution of this work, there is a high likelihood that critical details will get overlooked,” says Byron Matthews, Chief Executive Officer of Miller Heiman Group. “By getting into the details, they make sure the margin of error decreases. They increase win rates by getting much closer to what drives the result in a certain deal, and they don’t make assumptions about seller activity.”
From there, try these 13 strategies that can help eliminate the inaccuracies.
1. Allow some wiggle room
Sales professionals are more likely to follow recommendations from their CRM system when they know they can adjust them a bit, researchers at the University of Pennsylvania found. Even better, when they can adjust their forecasting, they tend to make better forecasts.
Suh suggests this best practice: Give salespeople simple scenarios they can adjust, name, track and compare to see different outcomes of specific deals and how they’d affect their targets. Then they’ll be able to determine the best use of their time and focus for each potential deal.
2. Refine the process
When it comes to the forecasting process, “flexibility is critical,” says Wooditch.
You don’t have to be flexible on weekly, or even monthly basis.
“It’s best to use a clearly defined 12-month forecast, consistently monitor this to address any deviations, and refine your process of prediction by adjusting the forecast each quarter.”
Here, the onus is on management: “You must provide your sales team with up-to-date data and detailed feedback to hit the target,” Wooditch says.
3. Focus heavily on this one factor
Most CRM systems look at a dozen or more factors – such as product fit, customer profile alignment, degree of competition, price sensitivity, etc. – to determine the health of a particular deal at any given point. Suh recommends eliminating a lot of that complexity and focusing on one important factor to forecast more accurately: time between stages.
In his research, winning deals were almost always in the top half of speed-to-close. Lost deals move more slowly.
4. Regularly assess your sales length
The length of sales cycle can change with seasons, the economy, industry shifts and customer demands. A fluctuating cycle can affect forecasting accuracy.
All your conversion rates could be accurate but don’t happen in the window of time you assumed. An up-to-date, accurate sales cycle length makes it easier to predict the quarter deals will close.
5. Gauge your reality
Salespeople sometimes plug in unrealistic numbers because they feel pressured to make the group or manager look good. So leaders want to periodically gauge their expectations: Do your salespeople have the resources, capabilities and training to hit the goals you set? Can they realistically balance demands and expectations without becoming overwhelmed and losing focus?
6. Focus on the prospect action
Salespeople sometimes move a prospect from one stage to the next in the pipeline because the salesperson met the criteria for moving it along. But you’ll get a more accurate read on the potential sale if you focus on prospects meeting a criteria.
Base lead scoring and any criteria that feeds into your forecasting process on the action prospects need to take before an opportunity can move to the next stage in your pipeline. For instance, instead of moving along an opportunity (and playing into your forecasting) when a salesperson gets interest in a solution, only move it along when the prospect agrees to a meeting.
7. Add dates to action
Throughout the sales process, CRM systems often assign the probability that a deal will close based on the sales stage and prior, similar situations. Looking at those probabilities alone cause inaccuracies.
Ask salespeople to predict the date their prospects will take the next step to move them along in your sales funnel. That can help better determine when the deal will close – and identify if they need to change the close date or decrease the probability of closing.
8. Keep the data clean
Garbage in, garbage out.
If the data in your system is bad, your accuracy will be, too. So regularly clean up data by making sure the above-mentioned exit criteria for customer actions and timeline for them to be met are objective. Opportunities that sit in one stage of the pipeline too long, subjective criteria and actions and sloppy record-keeping will muddy the forecasting waters.
Clean data delivers clean forecasting.
9. Review deals
Sales leaders want to regularly meet with reps individually to talk about the back story on their prospects – why they’re qualified now, the turning point, what makes the biggest and least impact.
“This isn’t about not trusting your reps. It’s about establishing a culture of accountability, learning and collaboration,” says Matt Heinz, Founder and President at Heinz Marketing, and author of Successful Selling.
Then salespeople and their bosses can find new ways to accelerate deals, establish greater urgency with slow-moving opportunities and create better results aligned with their forecasting.
10. Be consistent
Find a forecasting model and stick to it. Consistency matters. Some sales professionals see a few quarters of terribly inaccurate forecasts and blame the system. And they could be right. But they shouldn’t change the system in haste.
Whatever you choose – weighted average, numbers-tracking, historical, intuitive, etc. – consistently apply it over time. When you use the same model, you get a standardized format that is easier to review year after year.
11. Coach so common sense becomes common practice
Sales leaders can’t just demand forecasting numbers and wait for them to come to fruition.
“Common sense doesn’t always mean common practice. Leaders need to get closer to what’s happening on the ground,” says Matthews. “This requires supervisors provide their direct reports with consistent and ongoing coaching until common sense becomes common practice.”
Train salespeople on your forecasting system and continually emphasize the importance – to the business and their careers – of doing it right.
“I’ve been through thousands of deal reviews, and in those cases where a team struggles to close a deal, sales leaders tend to assume their sellers are following up with prospects on a regular basis or that they’re making routine updates to records in the company’s CRM system,” Matthews says.
“But then I’ll ask: ‘Well, did they follow up with the client? When did they last update CRM?’ And if they don’t know the answers to those questions, that’s a case where common sense is getting in the way of common practice.”
12. Penalize those who game the system
Take steps to detect who’s sandbagging, stuffing the pipeline and keeping two sets of books. You might have an algorithm built into your system to continually track individual forecasting performance against the group average.
Raise the red flag on people who consistently beat their lower-than-average forecasts. Then create and enforce consequences for these practices that undermine forecasting accuracy.
13. Reward those who are accurate
Offer incentives and give bonuses to a certain percentage of salespeople whose forecasts accurately reflect true sales. This will foster a sales environment where honest changes to forecasts, even those that aren’t good news, will still be made.