Editor's note: This post originally appeared on the Your Sales Management Guru blog. It is republished here with permission.
"I can't get an accurate sales forecast." Just last week I heard this comment from a new client. Frankly, it is a common phase I have often heard from CFOs, presidents, and VPs of sales. But what’s the resolution?
Many consultants would drag out their “scorecards" or "methodology” to fix the issue.
But instead, let’s first learn to diagnose the signs and why sales forecasts fall short. This is what I generally see or hear when I begin to poke at the problem:
- The pipeline report lists all the closing dates at the end of the month.
- Beyond your current monthly pipeline values, future pipeline dollar values are not listed.
- The velocity of the sale or length of time a prospect has been in the funnel is 90 days longer than the average velocity for your business.
- Monthly forecasts by the sales team are always off by a wide margin. When asked, the sales team has no idea as to why they can’t predict accurately.
- The salespeople do have not a defined closing plan for active opportunities.
- The salespeople are closing on price instead of value.
What’s the action plan? First, as a sales leader, there are some obvious actions to take and some not so obvious.
The first action is to not ask for a forecast. What?! Yes, you did read that right. Remember that forecasts are like those from the weatherperson on TV -- they have just so-so odds of being accurate. We recommend asking for a commitment instead.
During the first sales meeting of the month when each salesperson “forecasts” their sales (let's say $100,000) the sales leader says, "Great! You hit $100,000 and I will give you a $500 bonus. Okay?" As expected the salesperson gets excited. The sales leader then repeats this conversation with each of the salespeople on their team. After all the reps have forecasted, the sales leader says, "Oh, by that way -- if you don’t hit your goal of $100,000, you'll owe me $500!" Now that you have their attention you allow to them make a new “commitment” vs. a forecast.
Second, we recommend that you begin to track each month’s commitment by salesperson. Do this for at least four months without the sales team knowing you are tracking their commitments, then record their actual sales for each month. By comparing those two numbers you can determine the forecast accuracy percentage by each salesperson and for your entire team. When you have sufficient data, share this information with the team and let them know you will continue to measure this metric. In sales management, what you pay attention to -- on an ongoing basis -- will begin to impact what your sales team pays attention to.
Third, it takes training. This happens during the weekly sales meeting, your monthly one-on-one business reviews, and in all coaching environments. This has to be an ongoing process and not simply discussed from time to time.
What we find is either the sales manager is not asking hard questions of the salesperson or the salesperson is not asking the prospect pertinent questions. We call these questions the "magic questions." They are part of our Sales Management Online Toolkit, but I want to share them with you to improve your process.
My recommendation for the sales manager to print these out, use them during the weekly sales meeting, and then make sure each salesperson has their own copy. Any week or day that an opportunity is discussed, it is critical the sales manager use these questions to drive them into the salesperson’s head!
By using these questions and making sure your salespeople can answer them, both you and your team will have more honest sales discussions.
- What is their decision process? Do you know every step?
- When do they want to be implemented or have our systems ready to go?
- Who is involved in the decision?
- Do they have a business need?
- Are they listening to you?
- Do they have funding?
- What are the next two steps?
- Who or what else are they considering?
- When is the next board meeting?
- What are they doing for you?
- Do you know your strengths and weaknesses?
- Do you know their decision criteria?
- Do you have an excellent closing strategy?
Make the commitment to get the "commitment" and your sales forecast will become much more predictable and accurate.