Sales forecasting, simply put, is the process of estimating future sales.
But, sales forecasting is both an art and a science. If you go too low, your stakeholders will panic, and if you go too high, your sales teams are likely to massage the numbers and “sandbag deals.”
Furthermore, when you consider that a company’s leadership leverages sales forecasts to predict hiring needs, cash flow strategies, and resources, being off by a few percentage points could have a drastic organizational impact.
But, you have shiny new software that takes care of your sales forecasting for you.
So you’re all set, right? Wrong. You might be in even worse shape.
From fueling sales forecasts with bad data to sandbagging sales reps, here are four of the most common reasons your sales forecast is probably lying to you, along with some tips to keep the report more honest in the future.
1. Your Forecasts Are Fueled With Bad Data
I hate to be the one to tell you, but a large percentage of data in your CRM is out of date, inaccurate, or simply just missing.
Let’s face it: most salespeople don’t enter data, create new contact records, log meetings, and create opportunities into Salesforce.com. They’re working out of where they sell; Gmail, Outlook, calendars, phones, or where ever they can get a hold of their prospects.
This phenomenon, of salespeople not entering data in their CRM, is quite common in large organizations and is known as having, “low CRM adoption.” Depending on your company’s revenue, low CRM adoption could make a substantial difference in your sales forecasting and, potentially, your overall profitability.
Considering that most sales forecasting tools are fueled by activity data logged in Salesforce, companies that don’t leverage a solution such as People.ai won’t be capturing massive amounts of data and sales activities leading to the production of highly misleading sales forecasts.
2. Lack of Sales Process Formalization
Based on findings from the CSO 2018 Sales Operations Optimization Study, one in five companies reported that having “no formal sales methodology” was a barrier to accurate forecasting.
Is your company one of them?
Do you know how many stages there are in your sales process? How long does each stage take? Do your sales reps know what it takes to progress an opportunity through each stage?
Without a formalized sales process and defined sales pipeline stages, your sales projections will be guesses, at best.
A sales process needs to be structured, formalized, and consistent across the sales organization and based on stages, criteria, and milestones. As a sales leader, you need to clearly define what criteria and activities are needed to progress an opportunity and conduct ongoing deal level reviews with your sales reps to ensure not only progression, but consistency.
3. The Eternal Appeal of “Sandbagging”
Sales professionals live with uncertainty, which is one of the reasons that sales leaders are compensated so well. There are good times and bad times, and a great salesperson learns how to ride the waves.
One of the ways they do that is by managing their manager’s expectations. After a great month, it’s not uncommon for them to “sandbag” by hiding deals or pushing out close dates to give them a jump on the month ahead. This is not limited to salespeople, by any means. Sales managers, execs, and even board members might easily pursue the same strategy in the name of “conservative projections.”
The problem occurs when it severely skews the numbers down and kicks off other reactions, such as ramping up marketing spend, in an effort to pump up sales pipeline to solve a problem that doesn’t exist.
4. Overconfidence and Lack of Reality Testing
The opposite of sandbagging is “blue-skying,” where sales professionals allow their positive attitude to color their evaluation of prospects. This was the No. 1 most significant problem with sales forecasts identified in the CSO survey, with 47 percent of companies responding that sales teams are just too subjective in their close projections.
Blue-skying is the primary cause of The Bullwhip Effect, where minor changes in sales forecasts generate massive volatility in inventories, operations, and supply chain activities.
Affirmations are great in the mirror, but can be devastating in the annual report.
The solution to both blue-skying and sandbagging is twofold. One, is to create agreement throughout the organization on “purchase-ready” signals and compensation structured around minimizing sales cycles. Two, is to eliminate the ability to sandbag by providing full visibility into sales rep’s activity with a sales activity capturing tool such as People.ai.
Final Thoughts
The first rule of journalism is: “Consider the source.”
Before you accept information at face value, try to understand why people might be telling you that story. Is your source putting the best spin on things for personal gain? Are they making unfounded conclusions based on a mash-up of incompatible data sources? Is the full story not captured in your CRM? Are the numbers skewed downward to manage expectations? Make sure your data is clean, and the motivations are clear for everyone reporting to you about what kind of sales numbers are in the pipeline.
Ready to supercharge your sales forecasting tool?
With state of the art monitoring, account matching, and capturing of your company’s sales activities through the power of artificial intelligence, the People.ai solution grants sales and marketing leaders the ability to derive profound insights, highly accurate sales forecasts, and visibility into their team’s overall sales effectiveness.
Find out how People.ai helps sales and marketing leaders gain visibility into their teams, as well as increase the overall productivity of each sales rep by scheduling a demo of the People.ai solution today.