Is there such thing as an “accurate sales forecast”?

March 28, 2009

Sales forecasts by nature are inaccurate otherwise they would not be forecasts anymore. Obviously, as we’ll see later, it’s important to consider what level of inaccuracy is tolerable for the organization and the enterprise as a whole.

Thomas F. Wallace and Robert A. Stahl, in their book Sales Forecasting – A New Approach, consider that focusing on “reasoned and more reasonable forecasts” is a much better objective than just “blindly strive for higher forecast accuracy”. Insisting on reasoned and reasonable forecasts allow to optimize the forecast process and reduce forecast error. Tom Wallace actually tries not to use the terms Accuracy and Sales Forecast in the same sentence.

It’s a given that no one can forecast with 100 percent accuracy. Yet we can say with 100 percent accuracy that a poor forecast will negatively impact a company. Of course, you’ll never completely eliminate the uncertainty in forecasts, but you can reduce it to a manageable level. By collecting proven facts and testing any major assumptions in a forecast before you conduct the forecast, you can greatly reduce the guesswork and increase the accuracy of your forecast.

Problems arise not only when forecasts are too high, but also when they are too low. Believe it or not, I have seen Sales Managers whose desire to avoid hassles with their superiors was so big, that they imposed “forecast optimism” to their sales reps. They did not accept any deviation of the forecast from the business plan. Sales representatives, showing up with forecasts not meeting this requirement, were asked to add fictive opportunities to their forecast and were told “I am sure with a bit of effort you will be able to turn this opportunity into a “real” one”. When the forecast is too low, although the final results could be considered as an “overachievement”, they usually raise skepticism about the sales manager’s ability to control their team. Trends between past forecasts and actual performance need to be established and fed back to the forecaster to correct their optimism or pessimism in future forecasting.

There are of course a number of reasons for slight deviations between projections and actual performance. Perhaps because external factors, such as trends or new legislation, weren’t taken into consideration or new internal tools or methods were recently introduced in the forecasting process, or because a sales rep has left, territories have changed etc…

However, according to many experts, significant discrepancies, such as a deviation of 15 percent or more in a month, or a cumulative deviation of 10 percent in a year, signals a need for much more detailed analysis to determine what has occurred. Just as weather forecasters depend on precise terminology and accurate meteorology on which to base their forecast, so do sales managers.

Forecast meetings often tend to be centered on questions to find out why things have not turned out as forecast. Such meetings tend to be a waste of time.

Don’t get me wrong; I am all for accountability, that is what qualification of leads and opportunities is all about, but the essential questions of any sales forecast should be:

  • Where is the customer in the buying process?
  • Why do I expect the customer to buy?
  • Why would the customer buy our solution, product or service?
  • When do I expect the customer to buy what for how much?

Basically, a customer-centric approach, with clear and well defined buying milestones which outcome sales rep are able to identify and explain, can dramatically reduce the level of inaccuracy of a sales forecast.

Obviously, as we’ll see later it’s also important to understand what the pipeline will produce based on “history”, but an improved sales forecast definitely relies on a precise control of the pipeline and how accurately graded the opportunities are.

In order to draw any conclusions about what the pipeline will produce based on history, there must first be a precise qualitative and quantitative definition of what each milestone means. If the definitions are based on opinions, the result will be imprecise. If they are based on facts, they will be precise because a certain set of facts (the environment) produces consistent results.

A possible sequence of customer buying milestones could be:

1. Customer has assigned a contact person who will help us to better understand the customers problem,

2. Customer has secured the necessary funds for a solution to the problem we try help to solve or we are directly connected to the person who has the authority and is willing to make funds available,

3. Customer has expressed that we have presented a viable approach to solve his/her problem.

4. Customer agrees that the value we provide outweighs the total cost of our solution,

5. Customer has declared that our Terms and Conditions are acceptable.

6. Customer has signed contract.

Sales forecasting is, after all, a prediction of what customers will do. Why not involve customers in the forecasting process, especially existing customers? If there is a strong relationship with your customers and you are bringing real value to the relationship, don’t hesitate to have a discussion about the future. You might not be comfortable asking the direct question, “How much do you expect to spend?” But there are some non-committing questions that will help you increase the confidence level of your forecast:

  • “When will you satisfy all your decision criteria and be able to make the decision?”
  • “At this point in time, what do you see as my company’s chances of winning?”
  • “Are there any new factors that would delay your decision?”
  • “Have there been any recent personnel changes or reorganizations that will impact your decision?”
  • “How do you view my company as compared with our competition?”
  • “Is the current economic environment causing changes in your plans to buy?”

You probably agree with me that there are always opportunities that do not make it to next stage in the funnel. Therefore, those milestones also show the points where the funnel leaks. This approach usually helps sales managers to hold more meaningful discussions with sales people. They start asking questions such as: “What is the most critical factor for the opportunity to reach the next mile stone, and how can I help?” Instead of arguing why the deal has not been closed as forecasted. A Sales Funnel segmented by customer milestones turns out to be a good help for coaching sales people.

Now, after we’ve made sure that the pipeline is precisely controlled and the opportunities accurately graded, we can start thinking about what the pipeline will produce based on “history”.

For sales revenue volume forecasting, ‘history’ means “What has been the percent of opportunities that actually closed once they have made it to a particular milestone? or “What are the historical chances of an opportunity ultimately closing at each step of the process?”

Tracking the experience of a particular sales process over time will give the answer. When the revenue will happen, i.e., when the opportunity will close, is again based on history. Specifically, “When will the ‘typical’ opportunity at milestone E close?” At D?, etc.

Now you have all you need to construct a “reasoned and more reasonable forecasts” based sales forecast.



PS: In their book Sales Forecasting Management –A Demand Management Approach, John T. Mentzer and Mark A. Moon give us an indication on how much time sales people in B2B sales organizations spend on forecasting. The average was 3 hours per month. If you are in this range you might not be so concerned about the efforts that go into forecasting.

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Ada Lovelace’s Day

March 24, 2009

Who was Ada?
Ada Lovelace was one of the world’s first computer programmers, and one of the first people to see computers as more than just a machine for doing sums. She wrote programmes for Charles Babbage’s Analytical Engine, a general-purpose computing machine, despite the fact that it was never built. She also wrote the very first description of a computer and of software.

For more information, check:

http://www.pledgebank.com/AdaLovelaceDay

I couldn’t resist to add my contribution to the pledge and write about the woman in technology whom I admire, Karen Greenfield, senior training program manager at SAP for her contribution to the promotion of New Technologies in learning, within her organization, Inside Sales.  I used to be a traditional trainer, strongly defending Instructor Led Training as the most efficient, if not only, way of training sales people. Like many former Subject Matter Experts, I believed that sharing “my “knowledge was the only way my trainees would learn. Through her projects on online learning Karen has highly contributed to open my eyes to the new “learning paradigm” and has converted me in a trainer and coach 2.0! Twitter, Bloglines, Delicious, podcasting, social networks are now part of my daily routine, at home and at work!


Deal or No Deal? Closing Techniques

March 22, 2009

I usually do my best to avoid conversations around closing techniques, for I believe that closing is a process that depends on excellence throughout the entire sales cycle, rather than a point in time where tips and tricks, and other manipulative tactics can get the prospect to say yes. As one of my former managers used to say: “The deal is actually closed before the deal happens.”

Anyway, last week, as I was discussing closing – surprise, surprise – with a sales rep, I thought that a conversation focused on those specific last steps of the process was not such a bad idea at the end.

Before we start, I couldn’t resist sharing with you this cool game which is the online version of a show I sometimes watch on TV, as it’s quite fun watching people make decisions, most of the time wrong, and I usually can’t help “PI-ing*” them to understand why they did or didn’t accept the deal.
http://www.ipengo.com/dealornodeal.html

· “PI-ing”: art of using Predictive Index to understand your own personality type, and other’s personality type, and adapting your communication style accordingly. Very useful skill to survive a dinner with your in-laws.

Ok, just promise me you will play at home only.

Now, food for thought:

I will never say it enough and, as obvious as it seems to be: Ask, Ask and Ask are the best closing techniques. Be the best listener you can. Hear your prospect’s pain; what can you do to solve it? And if there’s anything you can add to his equation, focus on that.

Imagination and creativity definitely help the closing steps. Good closers tend to find solutions. Weak closers tend to get stuck on positions.

Leverage the team.
If you’re co-selling, have you formally defined a “team strategy” for closing, with clear roles and responsibilities?
First, the collective amount of experience and knowledge, and internal exchange of information within a team usually help to produce more trade-offs and creative options. Second, a team feels more secure and powerful than solo negotiators. Third, a team feels less pressured to make too many concessions. And fourth, a team of negotiators brings a wider range of skills, experiences, and expertise than solo negotiators. Identify the strengths within the internal team to define who is doing what.
You can use methodologies such as the Predictive Index or extended DISC to find out your personality type, understand other’s type and adapt your communication style.

E-mail me at upskillcoach@gmail.com for more information.

Get formal commitments:
To avoid frequent sales problems such as last minute objections and competitive traps. Once you’ve gotten your target to agree in principle that you’re going to make this deal, move them as quickly as possible toward getting it into writing.

Create a sense of urgency:
Sometimes the person on the other end of the deal will be happy to close it – when they can get around to it. Timing may be much more important to you. So if necessary, you want to create a sense of urgency to get their commitment, and that may require some final concessions to refocus their attention.

Use “breaking news”:
Throughout the relationship-building and negotiating process and beyond, be funneling helpful new information to the other party. This might be for example one last success story or testimony from an existing customer that you’re keeping in your back pocket.

Use a “Linking Strategy”:
It enables you to link a requested concession to something you want so that the deal may close. A linkage close may be used in the situation when your prospect has made a final demand and they can’t move any further on the negotiation.
As the deal wouldn’t work due to the lack of incentive, look over the entire deal and assess what you would like to be changed in your favor to bring back the balance of the deal. Once this has been decided, link the issue to the concession the prospect is asking you to make.
Agree to concede on the point in contention if the prospect will meet the demand you had identified to bring back the balance of the deal.

Use your negotiation skills:
Negotiating can be defined as “working with other to achieve some beneficial result.” It is one of those skills that take a few hours to learn and a lifetime to master. It is not a genetic trait we’re born with, like athletic or artistic ability. No matter what education level or social position, you can always develop your negotiation skills. It just takes time, some learning, specific attention to practice those skills, and the humility to accept feedback and coaching.

There are three main parts to negotiation: communication style, personality type, goals. Each of these elements need to be balanced between the two people negotiating before anyone can reach a desirable outcome.
Do you know your personality type? Are you able to understand your counterpart’s personality type and adapt your communication style accordingly? Predictive Index will definitely help you to leverage your personal strengths and optimize your relationships.

Negotiation is not the art of manipulating another person. Negotiation is a type of collaboration, even if you need to convince the other person that it is in their best interest to work together. Manipulation is forcing your goals and opinions on another person.

“It ain’t over ’til the fat lady sings”.

The deal is done when the negotiation is over and the client is happy. Whatever the outcome is, use it as a learning opportunity to assess your effectiveness and whether there are any factors you would have done differently given a chance. This is a particularly useful tool as it will improve your process in the future.