Chapter 6: Three uncomfortable truths about your forecast
Ahh the forecast call…
This is the Glengarry Glen Ross moment. This is “Coffee is for closers!” time. This is where greed actually is good.
Wrong. Try again Gordon. Look at it from the lens of a senior executive.
In their mind, the purpose of a forecast is to clarify the expected revenue outcomes of the company, for the sole result of making additional investments within the company.
Period. That’s it. Nothing more.
These additional investments include everything from greater headcount for new-hires, new office locations, stock dividends, and everything in-between. If done correctly, a chosen investment will lead to increased company growth, efficiency, employee satisfaction, and/or all the above.
But, here’s the catch – the less confident executives are on the accuracy and predictability of the forecast, the more they have to hedge the risk of uncertainty against possible investments within the business. This is the reason that forecast accuracy is so important.
It’s like a fighter jet trying to land on an aircraft carrier in high seas. Overshooting and undershooting the landing are both bad outcomes for all parties involved.
For example, take these two scenarios…
Thinking you have more money coming in at the end of the quarter to invest, and you don’t = Eliminates the opportunity to invest for growth, efficiency, etc.
In a startup, that means hiring a bunch of new engineers to build those new features you’ve been asking for, only to find out months later that those same engineers were laid off because the company couldn’t make payroll without the extra money they were counting on from last quarter.
On the flipside, thinking you have less money coming in at the end of the quarter to invest, and ending up with more = Eliminates the opportunity to make greater investments and capture that hard-earned value.
In a public company, that means the stock price could have doubled instead of only increasing by a few percentage points, if only the company was able to accurately predict their quarterly/annual revenues.
Make no mistake, having a predictable and accurate forecast is hard. There are very few companies that have this figured out.
But, the few that do have done something remarkable. They’ve fully realized and accepted three uncomfortable truths about forecasting.
Uncomfortable Truth #1
Forecast Accuracy = Forecast Honesty, regardless of plan
There is no one closer to a deal than the rep themselves, and therefore, no one better suited to accurately and honestly predict when it will close. As such, the accuracy of the forecast must be 100% owned by the Sales Rep and their respective manager. If the number is off, it’s their fault and no one else’s. Period.
A Sales rep’s fundamental job is to be able to qualify an opportunity and honestly predict when it will close. That close date must not be based on a “perfect scenario,” nor on what is needed to meet their quota, but only based on what the real status of the deal is in the mind of the customer.
Everything else breaks in the forecast process if reps and managers do not assume this parallel responsibility of accuracy and honesty of their predictions.
Uncomfortable Truth #2
Changing forecasted numbers doesn’t change results.
Now that you have sales reps owning forecast accuracy & honesty, what happens when that forecast doesn’t match up with the plan? Depends on the manager…
Unskilled managers will resort to tactics like bullying reps to increase their forecast numbers, and juicing up deal sizes above reality. While this feels productive, simply changing numbers on the forecast has zero impact on results at the end of the quarter. It also de-motivates reps from maintaining honestly in their forecast, which we’ve already established as paramount.
The best-of-the-best Managers already know this, and will do nothing (on the forecast call that is). They know that the only way to improve the results of the business is by focusing on pipeline, not on forecasted numbers.
Where forecasting is a lagging indicator, things like pipeline cover, pipeline quality, and pipeline engagement are all leading indicators. As Art Harding, CRO of People.ai, repeatedly states, “Pipeline cures all.”
Yet, as mentioned, once you’re on the forecast call the only option is to find ways to de-risk what’s there so you have a more reliable outcome.
Uncomfortable Truth #3
You cannot de-risk your Forecast without Engagement data
Let me ask you a question…What happens between the time that a deal gets created, and then eventually gets closed-won in your CRM system?
Someone has to talk to someone else, right? Your sales reps have to have engaged with the customer or prospect, via emails, meetings, and phone calls.
Without that activity, there is no deal that gets done.
So, the obvious next question is why any company would try to de-risk their forecast by NOT considering activity data? Stages, commit percentages, and all other means of manual field updates only give you half of the picture.
To truly change the risk profile of the forecast, you need to answer three sets of questions with engagement data.
- What is the current state?
Who have we talked to? When? In what department? At what seniority? Etc.
- What is our forward strategy?
What can be done to make this deal more likely to close? Who else do we need to engage? By when? Etc.
- Did we execute on that strategy?
Did we actually execute on the strategy we agreed upon? Did we actually book a meeting with that CXO in the next 2 weeks? Etc.
Now, I know what you’re thinking – I don’t have time for more sales rep storytelling. If only there was this magical software that could show me all my team’s engagement data. No narrative, just the facts. That’d be pretty cool right?
Keep reading, cowboy.