Sales forecasting can play a crucial role in the success of a sales organisation, with research compiled by Hubspot showing that companies with accurate forecasts are 10 percent more likely to achieve year-on-year revenue growth, as well as being over seven percent more likely to achieve quota.

Meanwhile, the CSO Insights 2018 Sales Operations Optimization Study highlights a link between formal forecasting and improved win rates. In this article, we take a closer look at the relationship between forecasting and win rates, with a particular focus on the way an organisation’s forecasting approach impacts upon results.

The Need to Improve Accuracy

One of the key findings of the aforementioned 2018 Sales Operations Optimization Study was forecast accuracy being identified as the third most important area requiring improvement over the next two years. Indeed, 48.9 percent of respondents cited it as a high priority, with a further 36.5 percent citing it as a medium priority.

Accurate forecasting is a key priority for sales leaders for a variety of different reasons. It could, for instance, assist with sales coaching by helping to identify salespeople who most need help. However, chief among the reasons is the fact that it allows organisations to spot issues with sales effectiveness while there is still time to do something about it, allowing businesses to either address the problems or limit the damage caused by them.

Obviously, the quality of a company’s forecasting abilities also has a close link with win rates. Over the course of the CSO Insights study, respondents were asked to assess their current forecasting methods.

Among those that said their forecasting was either in need of improvement, or in need of major redesign, average win rates were 48.9 percent. By contrast, those that reported their forecasting was either meeting their expectations or exceeding their expectations achieved average win rates of 59.7 percent.

Understanding Forecasting Approaches

When we talk about forecasting approaches, it is important to define what we mean. In order to highlight the link between more rigorous approaches and improved forecasting accuracy, CSO Insights broke down the approaches of participants in the 2018 Sales Operations Optimization Study into four different categories.

The most informal of these approaches was labelled a ‘Subjective’ approach and it relies heavily on ‘gut feelings’. The next step up is a ‘Casual’ approach, which includes some review elements. A more rigorous approach involved a ‘Consistent’ review process, while the most rigorous approach of all was a formalised, ‘Structured’ forecasting approach, with consistent measurement in place, as well as accuracy targets.

During the study, participants were asked which approach most closely resembles the approach they currently adopt in relation to forecasting and the results were as follows:

As the graphic shows, having a review process in place was the most common approach and more than half of respondents had either a ‘Consistent’ or ‘Structured’ approach, which suggests that most companies do already take a fairly rigorous attitude. Nevertheless, the number with the most formal approach was just 16.4 percent.

Impact of Approach on Win Rates

In general, the study found that the more formalised, robust and structured an organisation’s approach to forecasting was, the higher the win rates were. The average win rate among those with a ‘Subjective’ or ‘Casual’ approach was just 49.9 percent, while the average win rate for those with ‘Structured’ approaches was 62.5 percent.

It was also found that approach elements that contributed to more positive and predictable results included: increased involvement from sales leadership; structure and consistency in process; less subjectivity; decreased fear; and the use of measurements and analytics tools to shape strategy.

All of this research highlights the benefits of adopting a more formal approach to forecasting, with less guesswork and less reliance on instincts. Although there is always likely to be an element of unpredictability within sales, those with a rigorous approach to forecasting only lose a third of their forecast deals, while those organisations with the most informal approach lose more than half of their forecast deals.

With that being said, while improving win rates is typically a great sign, there are limitations to this and high win rates do not always indicate optimal sales effectiveness.

For example, the pursuit of high win rates could theoretically lead to being too selective and only pursuing the most assured sales opportunities. For this reason, sales coaching should emphasise the need to pursue risky, high value sales opportunities, and forecasting processes should be designed with this need in mind.

Conclusion

Forecasting came under the spotlight in the CSO Insights 2018 Sales Operations Optimization Study and among the key findings was the impact that approach can have on win rates. As a general rule, win rates increase in line with approaches to forecasting becoming more formalised, structured and measured.

The topic of forecasting, along with several other sales operations topics, will be covered in more detail at upcoming Miller Heiman Group events. You can find out more about these events and register to attend by clicking

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