Today's blog post is by Dustin Ruge, an award-winning sales and marketing professional with more than 20 years of successful sales and sales-management experience. He is the author of The Successful Sales Manager.
"Forecasting is the art of saying what will happen and then explaining why it didn't!" —Anonymous
"Those who have knowledge don't predict. Those who predict don’t have knowledge."—Lao Tzu
Most sales managers will spend 37 percent of their time forecasting sales, according to Sales Benchmark Index data. This means sales managers spend more time around a crystal ball and less time doing all the things they could be doing to help improve the sales team’s performance.
Forecasting anything, including sales, is problematic by nature. I remember watching an interview of an economic forecasting specialist (yes, these people really do exist) who was asked how he was able to predict the future of economic events with any level of certainty. His response to that question was, “If weather people can do such a good job of predicting the weather, why can’t we be able to do the same thing for the economy?” So there you have it! Sales managers are in good company.
Here are six guidelines you can use as a sales manager to better help you manage the forecasting process:
1.) Know the difference between a sales forecast and a sales pipeline.
A sales pipeline is a view of all your potential sales opportunities at all stages. Your sales forecast, on the other hand, is a much smaller segment of your sales pipeline, with stages from close to closing that occur within a defined time frame (typically a day, week, month, or quarter). The problems we face as sales managers is that our salespeople will too often focus on their forecasted sales opportunities at the expense of their pipeline and future sales potential. Sales managers further reinforce this problem by managing salespeople in such a way that they focus on short-term forecasted opportunities to make a number, thereby encouraging bad sales habits that can be hard to break. By reinforcing successful sales habits that strike a strong and consistent balance between both pipeline and forecasted opportunities, you can better grow the long-term health of a business.
2.) Make your salespeople be salespeople and not fortune-tellers.
A recent survey of sales managers showed that only 23 percent of them trust their salespeople’s forecasts. Your salespeople should be responsible for selling, and you as a sales manager should forecast for them. The motivations and downsides to having a salesperson provide a forecast are far different from a sales manager’s. Your responsibility as a sales manager is to help provide sales guidance so your organization can help support it. The salesperson has other motivations, which are often focused on one thing: him- or herself.
You can read a lot into the forecasts and pipelines provided by your salespeople, but make sure the read is interpreted at your level before it gets any higher. If somebody is out looking for a new job while working for you, don’t be surprised if that person’s pipeline suddenly drops and forecasted sales artificially increase in the process. If you have an underperforming salesperson who has been warned about lack of prospecting, don’t be surprised when new pipeline opportunities are magically created while his or her prospecting habits remain unchanged. If you have new salespeople, they may be very excited and have high sales expectations but lack sales experience with your company, which is often reflected in their lofty forecasts that many will fail to initially achieve.
3.) Measure your pipeline in sales steps/stages and not by guessing.
The worst thing you can ask a salesperson to do is provide a probability to close at all steps in a sales pipeline. By doing this, you are once again asking salespeople to become fortune-tellers and preventing a true read and efficient flow from a pipeline to a forecast. Always stick to sales steps first, and involve probabilities only when you reach the last step before closing.
4.) Forecast sales by activity and not by hoping.
In sales, timely and active follow-up is critical, especially since many salespeople fail miserably at it. Great salespeople control the sales process and are always moving to the next steps needed to close business. Those next steps are critical in understanding what is truly expected to come through the door when your sales forecasts are due, and therefore they should be the basis of your forecasts.
5.) Measure and learn from your results.
We are all human, and humans make mistakes. If we learn from them, the mistakes we made in the past help us make better decisions in the future. Because of this, it is important that you analyze and learn from past forecasting results so you can get a better read on how to move forward.
6.) Do not substitute insight and action with automation.
Only 65 percent of companies recently surveyed indicated that they have a defined sales process. Of those, 15 percent use a sales process provided by their customer relationship management (CRM) vendor. In short, one out of 10 companies uses a sales process provided by a CRM system. Yes, there are a lot of great sales management automation tools in use today. The problem is, even the best CRM systems are still perceived by most salespeople as providing less incremental value to them personally. Because of this, salespeople continue to reluctantly use them, and typically, they do so at only a minimum level of required interaction.
The potential benefits provided by CRM systems today are still far greater for the companies than to the salespeople who have to feed them. The result we commonly see from this is bad forecasting and pipeline management – garbage in and garbage out. Because of this, you should not fully rely on sales automation to give you a truly accurate read on your sales potential. Moreover, doing so breaks a cardinal sales-management rule: never allow your salespeople to directly forecast their sales. CRM systems should not be an excuse for poor sales management, and they should replace only those functions that cannot be better accomplished through alternative means.