Forecasting Accuracy: There’s Always Room for Improvement
May 24, 2012
As much as we’d prefer to pretend otherwise, there’s no such thing as a perfect sales forecast.
A forecast is, after all, a prediction — even if it is backed by quantitative and qualitative data. In fact, according to a 2010 Aberdeen Group report, even best-in-class organizations average just 80% forecasting accuracy 30 days out, and 84% immediately prior to close. While such stats theoretically let you and your reps off the hook for delivering 100 percent accurate forecasts every single time, it certainly doesn’t mean you shouldn’t try.
In fact, until you’re consistently coming within 5 percent of your forecast, you should always be focusing on the continuous rapid improvement of your accuracy. Ultimately, doing so will lead to greater justification of scaling in headcount and of scaling in capital.
And let’s face it: At the expansion stage, scaling these two precious resources should be the top priority. So, let’s dig a little deeper and discuss a few ways you can continually improve your forecasting accuracy and, as a result, better position your business for growth. First up, you’ll have to debunk one mother of a cliché.
Under-Promising and Over-delivering is INACCURATE, and Won’t Help Your Business Scale
It’s easy to understand the motivation behind sandbagging forecasts, fudging numbers, and underestimating potential. It can help sales reps feel like they’re protecting themselves. If they underperform, they’ll still hit their forecast. If they close all the deals they really should, they’ll look like a sales superstar.
Isolated cases of under-promising and over-delivering may not always be a major cause for concern on their own, but repeated instances have the potential to amount to a bigger problem. Consistent inaccuracy can make it more difficult for a management team to make the right decisions regarding budgeting and growth. At the highest level, it can even impact a company’s valuation and attractiveness to outside investors.
Put Everything on the Table: Surprises (Even Good Ones) = Inaccuracy
When kicking off a forecast meeting, the most important thing a VP of sales can do is make one point very clear to his or her reps: “I don’t like surprises. I won’t accept surprises. Whether you are up or down, I want to know the truth.”
Because their job security is often tied to their ability to meet their quotas, sales reps can sometimes feel compelled to lie. That’s as big a problem for the company as it is for each of them, individually. After all, management can’t make effective decisions without reliable information, and sales reps can’t ask for help if they don’t feel comfortable mentioning they’re under quota.
To avoid that situation, sales managers should meet with reps every week to ask them pointed questions about their forecasted opportunities. Managers should also take the opportunity to reiterate how important it is for reps to be open and honest. Explaining why it is important should help the cause.
Again, the goal is to stress accuracy. It should be made absolutely clear that pipe-dream or sandbagged forecasts are much more damaging than underwhelming forecasts that are honest. Reps who understand how accurate forecasts benefit both them and the company are much more likely to deliver reliable estimates.
What Resources From Your Own Organization Can You Use to Improve Accuracy?
One of the best resources that sales managers or reps at expansion-stage companies can leverage to improve forecasting is executive sponsorship. The reason is simple: An executive can help push deals along and keep them on track to close with more authority than any single rep.
So, who are the members of your organization who might serve as an effective executive sponsor? Here are four to consider, although this list may vary considerably depending on the size of your company and the willingness and personality of specific executives within your organization:
- CEO: If a customer is concerned with the business strategy, stability, scalability, and/or financials, the CEO can bring credibility and validation to the table.
- Head of Product Development: If a customer is trying to better understand the product strategy, this sponsor can provide much-needed clarity.
- Head of Customer Service: If a customer needs reassurance that they will get the necessary support to launch your product/service efficiently within their organization, who better to provide it than the person most responsible for that guarantee?
- CFO: If a customer wants to be certain that your company is in good financial standings, the CFO can be an authoritative source — without giving away sensitive information.
The key is to understand the customer’s needs and, for that matter, your sales rep’s potential shortcomings. If you get the sense that a deal might die because the customer lacks faith in something, don’t be afraid to call in the big guns to address it.