What's not too hot, not too cold and never just right? "Goldilocks" sales forecasts. When salespeople worry about projecting the perfect numbers — not too high (or management will expect too much) and not too low (or risk disappointment) — sales forecasting becomes a tedious administrative task with ineffective results. Managers wary of salespeople gaming the system cease to trust the forecasts anyway, so the whole exercise loses its purpose.
Besides wasting resources, the process is also a missed opportunity. An effective, modern sales forecast can serve as a valuable tool, presenting an accurate and dynamic snapshot of an organization's future sales. Creating this tool poses a formidable challenge, not because of the reams of data that must be analyzed properly, but because of the years of misconceptions and negative connotations entrenched in employees' beliefs and the organization's culture.
1) Predictions, not premonitions: Take the guesswork out of lead classification with predictive modeling
Asking your sales staff for their opinion on the likelihood a project in the pipeline will sell yield inaccurate, usually inflated results. While Salesforce.com places the "opportunity to deal" conversion at 6 percent, the American Marketing Association noted most reps would overestimate this number due to the well-documented effect that innate overconfidence has on marketing management decisions.
A more objective pipeline classification system starts with defining a "milestone-driven pipeline process," putting everyone on the same page about a prospect's progress in the buying journey. Focus on the buyer's perspective, not the steps taken by sales, wrote Forbes contributor Scott Edinger. Only once you have achieved this understanding can technology help. Otherwise any IT solutions are simply amplifying incongruities.
"An effective, modern sales forecast can serve as a valuable tool, presenting an accurate and dynamic snapshot of an organization's future sales."
By integrating a high-powered analytics engine with a CRM system, companies can codify their prospects and pipeline based on demonstrated customer behavior, historical data, and predictive models. These objective predictions inform the improved forecast.
2) Reflect reality: Turn your forecast into a dynamic, living document
Despite the constant state of change in today's business environment, sales forecasts remain static in the vast majority of organizations. By the time they're released, they're already out of date. Effective sales forecasts are not just quarterly reporting tools; they're constantly updated to reflect the realities of the changing business environment.
With a powerful predictive analytics tool in place to classify leads, half the work of creating a dynamic tool is already done — the technology is already in place to generate real-time forecasts. The challenge lies in convincing decision-makers to evolve their view of the forecast and the way salespeople approach managing their pipeline within the CRM. To enable dynamic forecasting, they must continually update prospects and sales projects in the CRM. Companies must encourage consistent CRM updates through easy mobile access and motivation to build good habits.
3) Incentivize accuracy: Align sales staff and management
Even with the help of automation, accurate sales forecasts still require some input from the people on the front lines. To increase the utility of this input, you need to incentivize accuracy, not only tie compensation to meeting a forecasted quota.
One innovative solution suggests tying compensation, in part, to salespeople's ability to forecast their sales. Developed in the 1970s by IBM, a forecast-focused compensation plan still incentivizes selling as much as possible, but employees optimize their commission structure by generating an accurate guess about how much they'll be able to sell throughout the period, according to Harvard Business Review.
"The sales force compensation plan is an important driver of sales success," note authors Andris A. Zoltners, Prabhakant Sinha and Sally Lorimer of ZS Associates in "The Complete Guide to Sales Force Incentive Compensation," which helped repopularize this model.
An effective sales forecasting process pairs powerful analytics and automation with an evolved approach to harnessing information. When successful companies forecast, they're not generating paperwork; they're producing a strategic, dynamic roadmap that helps create a winning company strategy.
Ready to succeed in moving from average to stellar forecasting? We can help. Contact a Baker Tilly Sales Effectiveness Advisor to get started.