How to Construct a Sales Forecast You Can Bank On
Sales forecasts are a valuable tool for businesses, driving decisions about production quantities and timeline, employment needs, pricing structure and cash flow. Yet, for such an important tool, too often business owners, sales managers and sales reps end up relying on gut feelings and guesswork.
A good CRM can get you closer, with a comprehensive view of your pipeline and data drill-downs about things like average age of deals, number of open deals and stage-to-stage conversions – but unless you’ve set up those pipeline stages accurately, your forecast won’t be accurate. And setting up those pipeline stages? Well, that requires a solid understanding of the buying process your customers are going through.
One of the first things Ken Thoreson, president of the sales management consulting firm Acumen Management Group, does when a client is in trouble is to look at the CRM pipeline reports. Along with using them as a snapshot of how the company’s sales process works, he also is looking for one little detail: the closing date. If he notices that the end date of every deal is scheduled for Jan. 31, Feb. 28 or March 31, he sees it as a sign that the salespeople are just guessing at a close date, and not basing it on an accurate understanding of their customers’ buying timeline.
Because the buying process is predefined by the buyer, the selling process needs to be aligned with how the buyer makes a decision to be considered accurate, said Thoreson. “If those are in alignment and the salesperson understands the buyer’s psychology, then they can forecast more accurately,” he said.
Having an accurate pipeline based on your prospects’ buying processes allows you to set aside gut feelings and guesswork in favor of measurable, repeatable results.
Flip your perspective
Getting the most accurate forecast out of your CRM’s pipeline metrics involves ensuring that each stage of the pipeline is dialed in to your customers’ buying processes, following a logical step-by-step sequence from lead to close. To get there, you need to walk a mile in your customers’ shoes.
Janice Mars, principal and founder of the sales consulting firm SalesLatitude, is an advocate of the buyer-centric approach. “I feel very strongly that instead of looking at your pipeline from the salesperson’s point of view – which is a very myopic, in-the-weeds point of view – it’s better to look at it from the customer’s point of view and test where the customer is in their buying cycle,” Mars said.
How do you know where they are? By asking the tough questions of your customers to sketch out an accurate version of their journey. Mars recommends shifting the conversation away from features and functions to talking about the customers’ business goals and priorities, such as what they’re trying to achieve with your solution, and why that’s important.
“It’s really just trying to understand the business from the customer’s point of view,” Mars said. “That not only helps you understand what business effects they’re trying to attain and their timeline, it also gives you clear guidance on how you can possibly help them get there.”
Take a look at your stages
When defining each stage, Mars identifies “verifiable outcomes” that detail where the customer is in their buying process – things like the buyer sharing clear business objectives, or the buyer co-authoring a request for purchase.
“If you do a sales process in the right way, those verified outcomes will be very black-and-white,” Mars said. “The customer’s either doing them or they’re not doing them.”
If a prospect asks for a proposal, Mars said, as an example, the salesperson may consider them at the proposal stage. But the problem comes if the salesperson hasn’t done the right amount of discovery and research to understand what the prospect wants to achieve with that request.
“A salesperson who has not asked the tough questions won’t know that, in the customer’s mind, he or she is trying to close the deal way too early in the sales pipeline,” she said. “The customer may be just kicking tires, but the seller thinks they are in the proposal stage. If that’s the case, then you have a disparity.”
Get the whole team on board
While sales managers are most often given the responsibility of coming up with an accurate forecast, the entire team needs to be involved. Thoreson recommended increased coaching to get salespeople to ask better lead-validating questions, and using group training meetings as a chance for salespeople on the team to challenge each other on their opportunities.
“The important part is that salespeople will focus on what gets managed,” he said. “If the sales managers are managing forecast accuracy, then salespeople will pay attention to it.”
While Thoreson emphasized the role the sales rep has in asking tougher discovery questions and knowing what stage the buyer truly is at, he also stressed the importance of going beyond the sales team.
“Marketing also has to be involved by finding the best prospect and aligning the best prospects to the product or services the company is selling,” he said.
With the whole team rallied around a sales pipeline that meticulously reflects your customers’ buying processes, you’ll have a better idea of how likely each deal is to close.
Otherwise, your forecast is just cloudy with a chance of sales.