Forecast for the Future … Before It’s Too Late

Just as a weather forecast can predict an impending storm, sales forecasts are able to help you gauge what’s on the horizon for your business. In other words, forecasting helps you calculate your revenue, thereby giving your leadership team the insight it needs to make key decisions around hiring, firing, and investing in the business.

Before I go any further explaining why a forecast can help shelter your company from a tsunami of mistakes, let me acknowledge that some salespeople totally disregard the practice. Many are taught to under-promise and over-deliver, fudge numbers, and underestimate their potential — all of which they do to protect themselves.

This is a careless approach that every sales organization should address proactively, particularly those at expansion-stage companies. Unfortunately, such behavior can easily be overlooked, especially with young and inexperienced sales managers whose reps are meeting their quotas. For organizations trying to scale, sales managers should be looking to reps to, in priority order:

1. Hit their forecast
2. Hit their forecast at quota
3. Hit their forecast above quota

Hold Sales Reps Accountable

If an inexperienced rep’s quota is $25,000, but he knows he can probably close $30,000, the rep will often forecast at his quota, not above. The reason: he doesn’t want to commit to the higher number. As a result, the head of sales’ forecast is off each month. Other times, because they fear repercussions, inexperienced reps will forecast their quota even though they know they won’t hit it. What they don’t realize is that heads of sales will be more upset that they threw off their forecast than if they didn’t make their quota. While missing a quota is never good, forecasting a miss early on can help set expectations for others in the organization, thereby maintaining stability.

Conversely, an accurate forecast can help a company:

• Be more agile in making important decisions about whether or not to reinvest in the business
• Gain insight into what’s going on in the market at the ground level
• Build a clear path to growth and scale
• Help you pitch investors

Where to Begin?

The toughest part about sales forecasting is figuring out how to begin. Before you start building your forecast, set expectations with your reps. Develop a weekly forecasting cadence and make it very clear to your reps what you are expecting in their weekly forecast review meetings. The most basic agenda for a good forecast review meeting is:

• Review the forecasted numbers
  • Best case, worst case
  • How do they compare to last week’s forecast?
• Review opportunities from last week’s forecast review
  • What progress was made?
  • What has changed?
• Review any new opportunities in the forecast
• Review the pipeline for next month/quarter

Your reps should at the very least be prepared to answer the following questions about their opportunities:

• What stage is it in and why?
• What is the next step and why?
• How much is it for and why?
• When is it going to close and why?

If you set the expectation that your reps will be accountable for this information and ask them these and other tough questions, your forecast review meetings should be productive and help keep your forecast on track. Over time, you will be able to start asking even tougher questions, and your reps will get better at forecasting and closing their deals.

Facts, Not Fiction

Because a solid forecast is based on facts, you have to keep your opportunities updated in the correct stage and document each and every milestone. No fudging numbers and no surprises — good or bad. Here are some tips to follow:

• Take a bottoms-up approach: gather data from each sales rep about the opportunities they’ll close at the end of the month, including best- and worst-case scenarios.
• Be as accurate as possible: It’s okay to give two, and sometimes even three, numbers (best case, commit, worst case). Doing so can help guide the company in the right direction. But remember, your commit number should be what you will close, not what you hope to close, and should be based on hard data not just gut feelings.
• Leverage technology: To make the forecasting process easier and less time consuming, use sales force automation tools like Salesforce.com, which help you track specific deals/opportunities, your overall pipeline, and your forecast. When used correctly, your sales manager can get the insight they need to better estimate future sales in a matter of a few clicks.

Related Content from OpenView:

For some great forecasting tips, check out OpenView’s eBook, “Sales Forecasts: A Question of Method, Not Magic.”