Sales Forecasting Top 10 List

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Top 10

Top ten reasons your sale manager has you do a sales forecast:

  • 10. Provide management with accurate and reliable information that they can use to make plans to operate the company efficiently and profitably.
  • 9. Provide early warning of potential problems so he can alert management and make the necessary course adjustments.
  • 8. Identify problems so he can mentor the sales staff to improve their performance.
  • 7. Work with production and fulfillment to make sure orders are filled quickly and efficiently.
  • 6. Plan future sales staffing to implement the most effective allocation of sales resources.
  • 5. Get a heads-up on missing his goals so he can prepare excuses and assign blame.
  • 4. Modify the compensation schedule to reduce the commission on your upcoming deals.
  • 3. Re-align your territory to give your most lucrative account to his brother-in-law.
  • 2. Re-align your territory to give your most lucrative account to the boss’s daughter.
  • 1. Re-align your territory to move your most lucrative account in-house so he gets the commission.

OK, so maybe that’s a little distorted. But it does cover the reasons for a sales forecast.

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Bad Forecasting – My Best Excuse

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Oops The most original excuse I’ve ever heard for an inaccurate forecast: the hooker wrecked it. It’s absolutely true. First-person true. It was actually my excuse.

I had a deal done with a state government, ready to spike the ball. Then the Governor got caught with a prostitute and had to resign. The Lieutenant Governor, in an act of fiscal bravado, froze all state spending until he could review the state’s finances. Thus, the purchase order that had been approved and was ready for release was history, along with about 40% of that period’s sales.

That was a legitimate reason and it falls into the sales forecasting category of a massive and unpredictable event. The only other reason for bad forecasts is bad methodology.

For the sales manager, good forecasts rely on two factors – accuracy and consistency. He has to apply these two fundamentals across a herd of different personalities, motivations, expectations, capabilities, knowledge, experience, etc.

Accuracy and consistency are the vertical and horizontal axes of the sales graph. Accuracy is the individual sales person. He must know his opportunities, their value, and their close date. And he must record these diligently and honestly, updating them as the sales cycle evolves. Consistency is the sales team. They must all do the same thing using the same criteria. Joe’s 60% probability must be the same as Martha’s.

What is your forecast that this will actually happen, that your team will use the same criteria in their probabilities? It starts at about 70% for a single sales person (he’s tries to be consistent, but moods are capricious and perceptions shift), and consistency decreases rapidly with each new person you add to the mix.

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Forecasting – What’s In It For Me?

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Forecasting Crystal Ball The forecasting dream job — ticket sales for Cats. Every month looks the same. How many tickets will you sell? All of them.

Some forecasts are easy. Yours isn’t, or you wouldn’t be reading this. So why do you do it? Well, for starters, you have to. Someone with power over your paycheck told you to. But what do you get out of it?

Most sales people would say “nothing.” The only benefit they see is an estimate of how much commission they will earn, or how much closer to meeting their sales goals they will get, or how desperate they feel as the forecast period closes. And, following the rule of “you get what you pay for,” most forecasts are slapdash things that serve some other goal than to provide the enterprise with the vital information that it needs to plan and allocate and prepare. If there was a simple and effective way to forecast accurately, everyone would be a lot happier, except maybe the Guinness salesperson. His forecasts would go down.

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Forecasting Essentials

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Measure Success

This is not going to be a seminar on forecasting. If you want that, go here, and here, and here.

This is going to be a quick overview so we can move onto the most important question in sales forecasting – what’s in it for me?

To start, let’s decide what you are forecasting. Here are some either-ors.

  • Service vs Product. There really is no difference in the fundamentals of services vs products in forecasting, just a difference in the parameters you use.
  • Repetitive vs Unique. By this I mean are you selling the same thing to the same market every period, or is there a lot of variability in your customer list and your product or service? Forecasting sales of newspaper advertising is very different from selling laboratory supplies that include everything from disposable pipettes to electron microscopes.
  • Dollars vs Units. You would hope that this would simply be two sides of the same coin. They’re connected, right? Yes, but. Unless you have rigorous standard pricing and product types, things will change. What about government vs commercial price lists, product options, fluctuating exchange rates, etc?
  • Macro vs Micro. Are you forecasting an entire market, a large market segment, your company’s entire business, or just your geographic territory? Probably the latter, and drilling down like this negates some of the value of statistical-based forecasting because you have severely limited the available statistics to pretty much your own history.
  • Near-term vs Long-term. Don’t you love it when management asks for your 5-year forecast? Or as I like to call it, darts. The further out you get, the more statistics and averages become important. In the near-term, you should be able to do it on a specific opportunity-by-opportunity basis.
  • Volatile vs Stable. Another way of saying Repetitive vs. Unique, only in this case it’s your market, not your product, that fluctuates or not.
  • Direct vs Indirect. Another facet of Macro vs Micro. Do you start with an entire market and winnow it down to you (Indirect), or do you just do you (Direct)?

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Why I Hate Sales Forecasting

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Pretend with me for a moment.

In America, it’s April 14th, (April 29th in Canada and Brazil, May 30 in Germany, and June 29 in Papua New Guinea) and your income taxes are due tomorrow. You don’t want to do them, but you have to. They will be wrong, but you don’t know how wrong. You will cheat and hope you don’t get caught. There are expensive professionals and cheap software that will do it for you and give you someone to blame. And the audit is only slightly preferable to prison.

Quick – tell me the difference between this and doing your sales forecast.

Hint – you only have to do your taxes once a year.

Yes, forecasting. The very word itself makes you cringe. Like marriage counseling or colonoscopy. But it won’t go away, no matter how much you wish.

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