What steps can you take to improve forecast accuracy? Here’s a sales forecasting technique I developed over the years that has proven itself. I implemented it within my organization at a large Internet Services company and significantly improved forecast accuracy. A Sales Operations group tracked the data and reported that a 60% accuracy level before I joined increased to over 90% accuracy during my time there.
My technique is based on the principle that an opportunity is either 100% fully qualified for the current Quarter and therefore may be included in the forecast or if it is not it should not be included. This approach is in contrast to statistical forecasting techniques. A statistical forecast assumes an opportunity will close because “x” % of the work to qualify it or “x” % of the steps in a sales cycle have been completed.
The reason statistical forecasting will fail you is because it assumes the best in regard to the remaining unqualified criteria or remaining steps in the sales cycle. i.e. It is based on probability not reality. Let’s break this down further to demonstrate the necessary level of detail required to forecast accurately. To fully qualify an opportunity for the current Quarter I believe you have to score 100% on all of the criteria you use to determine if an opportunity is qualified or not.
I have seen several different criteria used in qualification. One of the most common is Value Vision’s – Pain, Fit, Value, Power, and Plan. For example since there are five criteria each one would equal 20%. A statistical approach toward qualifying the opportunity would represent an 80% qualification if four the criteria were satisfied. However, what if the outstanding area of qualification is Plan? Or Power? In either case your 80% probable opportunity would slip beyond the current Quarter unless power told you they plan to buy by the end of the Quarter. I like to say that the only plan that matters is power’s plan.
A Sales Professional should understand all aspects of the buying plan and validate the information with other contacts within the Account. How is the project going to be approved? Who has to approve? How much will be purchased? When will the approval occur? What levels within the Account need to approve? How long does it take to obtain all the necessary approvals? How long does it take the Legal Approval and Procurement process to result in receipt of a signed contract and Purchase Order? Etc.
(When you hear companies announce Quarterly earnings, state a few large opportunities slipped beyond their Quarter, but have already closed, most likely it is because the above was not understood nor forecasted accurately.)
The key to ensure accurate forecasting is to filter out any opportunities that are not 100% qualified from your current Quarter forecast. Not from your total Sales Pipeline just from your Forecast. A typical sales forecast contains the following categories; Closed, Commit, and Upside. The forecast equals all of Closed plus all of Commit plus some of the opportunities in Upside. I recommend creating a new category and splitting your Upside in half. Your new categories would be Closed, Commit, Qualified Upside, and Un-Qualified Upside. Qualified Upside contains opportunities that have been fully qualified to close within the current Quarter and Un-Qualified Upside contains opportunities that are only partially qualified to close within the current Quarter. This may sound like semantics but I can assure you it makes a world of difference in the accuracy of your forecasting. Your new forecast equation would equal all of Closed plus all of Commit plus some of the opportunities in Qualified Upside and never any opportunities from Un-Qualified Upside unless they progressed into Qualified Upside as a result of full qualification.
Doing the above is also very helpful for focusing sales professionals to work those areas of the opportunity that remain un-qualified. You see a human factor comes into play here. Almost all sales professionals are driven by recognition and peer recognition means more to them than anything. As forecasts are created for a new quarter even struggling sales professionals will submit respectable forecasts. However, in many cases the opportunities contained within their forecast are not fully qualified or in some cases qualified at all. If those opportunities are allowed to enter a valid forecast it can be disastrous.
The creation of a second category Upside called Un-Qualified Upside allows struggling sales professionals as well as strong professionals to continue to work lower probability opportunities that are an important part of the overall sales pipeline. They just do not yet belong in the current Quarter’s forecast.
In summary, your forecast accuracy will improve if you do the following:
Establish a culture where honest and accurate information is respected and rewarded and everyone is accountable for accurate forecasts.
Eliminate psychological forecasts where sales reps commit their entire Quota in their forecast but do not have the qualified opportunities to back it up.
Make sure your forecast is based on a grass roots forecast and is a roll up of specific opportunities being forecasted.
Scrutinize each opportunity contained within the current Quarter’s forecast for 100% qualification against your criteria. If they don’t pass these opportunities should be reclassified as Un-Qualified Upside and remain as part of the total Sales Pipeline calculations but should not be used as part of the calculation of the current Quarter’s forecast until they progress to full qualification.
Remember the only plan that matters is Power’s plan. Make sure the forecast data your sales professionals are using is based on communication with the Decision Maker aka Power. Make sure they cross validate what they are being told with other individuals within the Account.
Good selling to you
