Industry Market Trends
How to Improve the Accuracy of Sales Forecasting
September 10, 2013
An accurate sales forecast helps businesses manage inventories, identify market trends, determine staffing levels, and set business goals. So what do companies have to do to get sale forecasts right?At its core, sales are based on communications between the salesperson and the buyer. Forecasting, however, goes up several layers of the sales organizational ladder. "People are funny and wonderful animals and predictability is not one of our strong suits," said Matt Bertuzzi, head of marketing and operations at the Bridge Group, an inside sales consulting firm. "That's the reason people struggle with forecasting, because there is a lot of variability." Bertuzzi explained to IMT that sales forecasting involves several degrees of trust. If the buyer tells the seller, yes we're going to buy this month, that's one degree of trust. Then there's how much the seller can trust the buyer's authority to make decisions for his employer. That's two degrees. A third degree of trust pertains to whether a sales manager can rely on the forecast of his salesperson, based on past performance, or whether he should override the salesperson's forecast. If the CFO uses a trend analysis that sometimes overrides the sales manager, that would add a fourth degree. "And that's just for a direct sales organization," Bertuzzi said. Is it better for everyone to override each other until the organization achieves a single source of truth? Or should businesses use some sort of averaging? An "averaged crowd-sourced override" is more accurate than one person overriding another and that person overriding the next, according to Bertuzzi. And because of individual bias, it's easier to predict more accurately as a group. "The salesperson who is going to be your best forecaster is the salesperson who knows the most about his customer," said Roger Bostdorff, president of B2B Sales Boost, a business advisory company. An experienced rep should be able to give you a pretty good forecast, he said. Surprises notwithstanding, he or she should be able to identify when or if the transaction is going to occur. Bostdorff told IMT that salespeople have to be willing to ask the tough questions, make sure they've qualified the customer, and are not being given lip service. Sales reps "must stop wasting time with 'tire kickers' and invest their time with people who have a need and have the money to invest in solving it," he said. There's a critical question sales managers should try to get every rep to ask of the decision maker, Bostdorff said: "What do I have to do to get you to be a customer of mine?" A rep earns the right to ask that question by listening to what the customer wants to get accomplished, why he needs it accomplished, and then equate the 'why' to dollars if at all possible, he explained. "If you don't ask that question, you're shooting in the dark." The sales manager should also ask the salesperson how the customer responded to this question. Being more buyer-centric is one key, Bertuzzi said. A salesperson's forecast should spin off an understanding of what the buyer is going through, what milestones they are achieving and what gates they are hitting. He also argued that businesses need to differentiate between actions the buyer takes and actions the seller takes. "'Proposals Sent' is what I did as the sales rep. But 'Had proposal review meeting' is what the buyer did with me. One tells you something and one tells you something valuable," Bertuzzi said. "The more managers work with their salespeople on [forecasting], the better it makes them look," said Josiene Feigon, president of TeleSmart Communications and author of the "Smart Sales Manager" guide. "There are a lot of managers that don't spend that much time with their people and then they get surprised at the end," Feigon told IMT Translating those conversations into reliable data is hard work. Using CRM software can help, according to Mac McIntosh, a B2B marketing consultant. McIntosh suggests that a sales manager use a "carrot or stick" method to incentivize sales people by using such CRM systems as SalesForce. "Some sales people see the CRM as a 'big brother,' so paying a higher commission on a sale that was included in the software is one method," he advised. On the other hand, a company can penalize by not paying commission on any sales that are not documented in the CRM system. Bertuzzi advised against using new CRM forecasting systems that categorize leads based on the likelihood of sales: 25, 50, 75, and 100. "Those numbers don't mean anything," he said, noting that very few companies will complete the analysis and say, "Of our deals that hit 75 percent, we win 60 percent of them." There are tools, he said, that allow you to see what your funnel really looks like -- business intelligence apps like Good Data or Insight Squared. But perhaps first-line sales managers would be better spending their time coaching staff than pushing data. Bertuzzi said a good forecast should free up time for sales managers to mentor their sales people.