The sales forecast is the most important document you can produce on a regular basis. And, for most companies, is the lifeblood of the organization. For an unfunded company, it often is the guide to whether the company can even make payroll. But, many companies still do not produce one. Or, if they do, it is questionable whether it is believable or not.
Many really early stage organizations don’t produce a sales forecast because they don’t have a sufficient level of sales opportunities to track. It is depressing to look at a sales forecast with 3 or 4 opportunities on it with progress on none of them. If your organization is in this situation, you really need a stronger lead generation program. The sales forecast is providing meaningful data. You need leads.
The sales forecast can help answer many critical questions for the organization like:
- Do you have sufficient activity to realistically achieve monthly revenue targets?
- Which sales person has the best activity?
- Where in the sales process are we losing deals?
- What marketing programs are generating the most and best activity?
But many organizations delude themselves with an overly optimistic sales forecast. Most confuse a total sales activity report with a sales forecast. They will list all possible leads that they have worked on and not focus on what will realistically close in the next 3-4 months. There are many areas where your sales forecast can lack credibility. Here are some of the major ones:
- Don’t have a sales forecast – Well, if you don’t have a sales forecast, that is problem #1.
- You don’t update the sales forecast weekly – If your company is doing the right things, sales activity should change (get better) from week-to-week. Progress should be made on accounts. If you find that you have no need to update your sales forecast weekly, it may be telling you that your sales efforts are not making sufficient progress.
- Don’t have a formalized sales process – If you don’t have a formal sales process with defined steps, it is extremely difficult to accurately forecast sales. How do you know what needs to be done to complete a sale and how long that is going to take?
- Have a sales process but don’t know conversion rates and times from any step to close – If you are not tracking historical success rates from any stage in the sales process to close AND how long, on average that takes, then your sales forecast is probably an optimistic guess and not based on metrics.
- Have accounts forecasted in current month that are only in the demo or discovery stage – Too many organizations have opportunities forecasted on their sales forecast to close in the current month where they are still in the discovery or demo stage. This is, in almost all cases, never going to happen in a typical B2B SaaS company. The contract process, itself probably takes 30 days to complete. Yet companies put this garbage in the sales forecast all the time.
- Your probabilities in the sales forecast are not tied to the stage the deal is in – Many organizations arbitrarily list probability of close based upon a salesperson’s guess. The best way to assign a probability to a sales opportunity is to use the historical rate of close from that stage (and also use the average time it takes from that stage to close).
- There are deals on the forecast under 50% probability – Sales forecasts are not activity listings. Only deals of a certain probability or higher belong in the sales forecast. In order for an opportunity to be properly qualified, it should probably require a probability of above 50% or higher. In addition, opportunities forecasted for the current month should be limited to deals that are in a stage that has an 80% or higher probability.
- Always focus on the top of the funnel but never discuss what happened to accounts forecasted last month that are no longer on sales forecast – Unfortunately, most companies’ sales forecasting rarely involves loss analysis. People simply do not like to discuss losses and reasons for losses. However, a good and credible sales forecast will highlight opportunities that were historically forecasted but didn’t close. This is a lost business section. There is valuable information in that analysis, but companies ignore this valuable data all the time. But the reverse of this is normally true in that most organizations want to talk about the new opportunities that they’ve just identified. Focusing on new leads but not discussing lost opportunities promotes the idea that you have a leak in your sales funnel that you are ignoring. Pouring more water into a leaky funnel does not produce better results.
- Can’t explain the specifics of the individual opportunities – For instance, what the decision criteria is, who the decision maker is, when they need to be live, why they need to buy anything, why they need to buy from you and why they need to buy now.
- Can’t explain what it takes to close deal on the sales forecast (what still needs to get done to get this signed) – If you can’t articulate precisely what needs to happen to get a deal to close, it should not be on your sales forecast. Hope is not a strategy. People need to be able to explain precisely what needs to happen and when.
- Track record at closing deals on prior forecasts is not good – This means that deals keep moving from month to month without closing. if your track record at sales forecasting is not good, then you probably are going to repeat that trend going forward and your sales forecast loses credibility.
- The sales forecast is not tied to the financial forecast – The sales forecast needs to be directly linked to the financial forecast. Many organizations project financials but fail to see if the sales forecast supports those revenue projections. This always spells disaster.
Fixing the issues above will increase the usefulness and the credibility of your sales forecast and improve your ability to achieve your revenue targets.
For more information on how to improve sales forecasting credibility and improve the analysis contained within, contact Arbor Dakota below. Arbor Dakota is committed to helping CEO’s grow their great ideas into great companies.