When and How To Adjust Your Sales Forecast

When and How to Adjust Your Sales Forecast

You might put a lot of energy into your sales goals for the new year, but let’s be honest: A few months into the year, those goals often don’t hold up. Reps don’t make quotas, clients leave, the economy doesn’t behave — you name it, it can get between you and your goals.

That doesn’t mean you’re not still committed to your forecast; it just means you’re going to have to make some adjustments.

If you want your sales team to be successful, you’ll need to evaluate its progress every few months and adjust reps’ behavior to keep your business pointed at its revenue goals.

When to evaluate your sales forecast

Sales forecasts can be annual, quarterly, monthly, biweekly — they can even happen two or three times a week. How often you adjust those forecasts depends on what your sales cycle looks like.

If a sales cycle is six to 12 months, a manager might not look at the team’s sales forecast very often. But if the sales cycle is less than six months, a manager should examine the forecast more often because there will be more new developments in the pipeline more frequently.

For some businesses with an extremely short sales cycle, the process of adjustment may seem more or less continuous.

“If most deals are transactional, then a monthly adjustment should suffice,”  business consultant Victor Antonio, host of Spike’s show Life or Debt, said. “If the deals have a longer sales cycle, then I would recommend a quarterly adjustment or assessment.”

While the mechanics of evaluating and adjusting a sales forecast is the same for both large corporations and small businesses, small businesses may want to evaluate their sales forecasts much more often than large ones, which are likely to be evaluating forecasts on a quarterly basis.

“If you’re a really small business, you’re living month to month on cash flow requirements,” Ken Thoreson, of Acumen Management Group, said. “Depending upon the type of business, you’re on top of your sales forecast weekly and monthly because you are managing cash flow and delivery capability.”

Matt Heinz of Heinz Marketing recommends that managers examine their sales cycles and decide how often they need to evaluate and adjust their sales forecasts to ensure they remain accurate.

“I think it’s important to look at what makes the most sense, and map that to your end goal,” Heinz said. “For example, how often do you need to do it to ensure that, not only you have an accurate forecast of what’s going to happen, but also have as much time as possible to make adjustments?”

What to look at when you’re looking at your forecast

A business can evaluate its sales forecast in several ways, and if the numbers are off, many of those evaluations will begin with the sales team.

Managers may want to know if they’ve calculated the sales team’s conversion numbers correctly. Are sales reps generating the number of leads that they’d been expected to produce?  Are they making the right number of calls and delivering the expected number of proposals? Have reps been sufficiently trained? Is marketing generating the number of leads it was supposed to generate?

“Based up on that, we could either take a stick and beat them over the head or we simply manage them more effectively to make sure they’re making the number of calls, or that marketing is more effective in generating more leads,” Thoreson said. “There are a hundred things a sales manager could do if the sales forecast is off.”

Those adjustments may include contacting more leads to buoy a diminishing pipeline, or making sure that an overperforming sales team has the support it needs to deliver on their promises to clients.

Antonio said a forecast evaluation should also include a look at the products offered by an organization, and the performance of those products on the market. “For any size business offering only one product, they need only focus on the number of clients they have and the number of new clients they can acquire,” he said.

Businesses that offer more than one product will be focused on more complicated metrics, however.

“Every company should have a way of capturing data on what products are being sold and to whom,” Antonio said. “For example, I would create a 2-by-2 matrix and plug in the data to give me a better sense of where my market growth lies.”

Existing Product New Products
New Clients How many new clients are buying our existing products How many new clients are buying our new products
Existing Clients How many existing clients are buying our existing products How many existing clients are buying our new products

“If existing clients are still buying the existing products, then we need to know why we can’t sell them our new products,” he said. “If new clients are migrating toward the new products, this is a good indication that we’re in touch with their needs.”

If sales are down and outside factors like the economy are to blame, management will need to look beyond the sales team, Thoreson said.

One of his clients, for example, has a business which has been dramatically affected by the price of oil.

“They’re looking at adjusting the sales numbers to be fair to the salespeople because they don’t want to lose salespeople,” Thoreson, said. “We still want to make them do well and fight for every opportunity, but they recognize the revenue curve is going to be impacted. In that particular case, it’s communicated back to the salespeople that we’re going to lower our objectives this year and here is the new compensation plan around that.”

Sales goals ≠ sales forecasts

Heinz said many small businesses tend to have goals, rather than forecasts — and there’s a difference.

An annual sales goal is what your business wants to achieve in a year. A sales forecast is a realistic prediction, based on your organization’s sales history, of what you expect your team to achieve. It’s a look at what’s in your pipeline, and what you can expect from those deals based on your team’s conversion rate.

(Antonio is quick to point out that a forecast and a pipeline are not the same thing — you might have $100,000 worth of potential business in your pipeline, but it’s not a forecast until you decide how much of that business is likely to close.)

A sales goal is just that: a goal. A sales forecast is a road map that will help an organization to achieve a goal.

“You know, a lot of small businesses don’t have a sales forecast,” Heinz said. “I think having a forecast helps you understand what you need to achieve that forecast. It also is critical to ensure that you have the resources to support and execute on that business once you win it.”

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AJ O'Connell

A.J. O’Connell is an author and journalist, and serves as a field reporter for Pipedrive. Elsewhere, her work has appeared on several trailblazing websites, including The Next Web, The Mary Sue, The Establishment, The Billfold and SkilledUp. Read more of her work at ajoconnell.com.