The 200% Sales Forecast – How Indirect Channels Can Cause Problems

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210% Forecast

If selling directly to end-users can be complex, how about selling through manufacturers or trading companies?  The best way to understand this is to look at an example.

Let us assume your company manufactures optical inspection equipment. A French pharmaceutical manufacturer intends to extend their manufacturing plant and sends enquiries to three plant architects/engineers/construction companies (prime contractors), one each in France, Germany, and Switzerland. All three are asked to offer the design and construction of the complete facility including an automatic optical inspection system, your product. They send out requests for quotations to various equipment manufacturers, including your company. Since you have sales organizations (or reps) in all three countries, the enquiries go directly to the responsible sales persons and are followed up individually by of them, each without being aware of the other’s activities. What follows?

The most obvious problem is the forecast. Let’s say the sales persons in France and Switzerland have extremely good relationships with the prime contractors. Since your product is a perfect match for the application, they both put an 80% probability into their monthly forecasts. The sales person in Germany is up against a competitor who also has a good relationship with the prime contractor. Hence, the German sales person states a somewhat lower probability of let’s say 40%. All three send their forecasts to the central sales administrator where the numbers are put together in order to calculate the total forecast for the company. In this case, the total probability for these projects sums up to 200% probability of winning this particular opportunity! This means, if the price of the inspection system is $100,000 USD, you will see a total forecast of $200,000 USD.

The problem is that all three sales persons may be right in their assessment of their chances for being successful with their particular client. What they missed, though, is the fact, that their client may not be successful. The end customer intends to build only one plant, not three! Only one prime contractor can win.

This is a quite common situation for capital goods manufacturers, and forecasting is not the only problem. The lack of coordination between individual sales channels can lead to even more damage. All three sales people may offer different solutions, depending on the information they got and on their personal preferences. What happens if the end customer has received different specs for your equipment from the three competing prime contractors? This can cause serious damage to your reputation and to your relationships with the end customer and the prime contractors.

The two ingredients to preventing this adverse development are good management backed by good technology. Good management means clear guidelines about how to act. People have to work together in a team and they have to align their actions. Ideally, there is a key account management organization in place that coordinates the sales activities, particularly the quotes. There should be no different solutions offered for the same project.

If the organization doesn’t have a KAM group, one of the sales persons, probably the one closest to the end customer, should take the lead. To make this work requires modern technology. Otherwise, how would sales people know they are working on the same project? How would managers know whether their sales people are acting as a team or pursuing their individual interests instead? And last but not least, how would the team members eventually keep each other informed and coordinate their work?

Modern technology allows us to maintain transparency, keep information up to date, and enable sales people to collaborate across wide spread territories. Along with good management practice, even complex sales situations can be managed successfully.

I’ll have some more on these tools – what to look for, how to specify, how to select – in a later article.

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