Sales forecasting is of great importance to almost any sales organisation, because it enables business leaders to formulate an understanding of how their organisation will perform in the coming weeks and months. This, in turn, allows them to make important decisions with at least some idea of what the future holds.
Unfortunately, there is one major issue with sales forecasting: many businesses are not very good at it at all. This means that future projections are unreliable and important decisions may be made against a false backdrop. So what can your business do to improve the accuracy of its sales pipeline forecast?
Technology and CPQ Solutions
One of the biggest reasons why businesses get their forecasting badly wrong is because they base it on guesswork. While there is always going to be an element of that with forecasting, because no deal is guaranteed until it is completed, accuracy can be significantly improved by making intelligent use of technology.
In particular, CPQ software solutions can help to streamline the sales process and make it easier to assess deals as they progress. Meanwhile, various AI (Augmented Intelligence) and sales management analytics tools can help sales teams to build a much more accurate picture of which deals are likely to close, based on existing and historic data, rather than conjecture.
“Quote-to-cash systems allow you to track the status of deals as they move through (or stall out) in the customer approval process,” explains Jim Dickie in a blog post for CSO Insights, MHG’s research arm. “The solutions exist to take on the problem of poor pipeline/forecast management, yet far too many companies are not using them.”
Reconsider Sales Incentives
In many sales organisations, such an emphasis is placed on reps having a solid-looking pipeline at the end of the month that many will effectively engineer a pipeline that looks good, but is actually very low on realistic deals. For all intents and purposes, they are being incentivised to ‘work’ the system.
Where this occurs, you need to seriously reconsider the incentives you offer sales staff, so that they are more results driven, rather than being driven by speculation. In fact, your team should be encouraged to spend little time on low probability opportunities in their pipeline and spend the extra time seeking new customers instead.
Not only will this make your sales department more effective, it will have the additional benefit of making forecasting easier, because low probability opportunities are weeded out early on. In the early stages, sales coaching should be provided, where senior staff can help to identify which opportunities are high and low probability.
Maintaining a Healthy Pipeline
Finally, a significant part of achieving sales effectiveness involves your sales reps maintaining a healthy pipeline, which leaves them on course to meet their targets. In order to do this, however, it is absolutely essential that they understand that the potential sales in their pipeline will need to exceed that target.
“It is a good assumption that 25% of the opportunities in a sales pipeline won’t close for reasons outside the sales professional’s control,” says sales expert Lee Bartlett. “If only 75 percent are genuine opportunities, you need a pipeline of 133.33% to hit target. This assumes a 100% closing rate by the salesperson, which isn’t realistic.”
Bartlett suggests that, in order to sufficiently maintain a pipeline, sales reps should be able to identify at least 200 percent of their target. However, it is important that this 200 percent figure is not artificially inflated with low probability deals. As stated, these should be dealt with early on and removed from the pipeline if necessary.
Important decisions with long-term implications need to be made with at least a reasonable idea of what the future holds, which is why forecasting is so important. However, most organisations fail to make the most of the technology available to them, offer counter-productive incentives and do not understand how to maintain their pipeline.