What are the biggest inhibitors to forecast accuracy?

Whew, Dave, where do I start?
At least with young companies, a management focus on metrics – efficiency – before having a really clear picture of things like exactly what is the profile of an ideal customer, what are your key value propositions, how are current customers benefiting, is a leading cause of poor forecasting. That’s because an emphasis on more comes way too early - more leads, more pipeline, more forecast - without a clear understanding for how to judge quality at each step. That’s a management issue, not a sales rep issue. I’ve seen time and again, especially in the young technology startup world, that companies jump to “execute” before they really have any right to. If you’re measuring “more forecast” then that’s what you’ll get. Measure QUALITY of forecast, which is a very different thing. There’s a bit of human nature you’re fighting against here because people like to measure stuff, so they pick things easy to measure.

That said, one of the greatest talents/skills for a top complex enterprise sales rep is the ability to qualify. This doesn’t mean cherry picking, but if you have folks who know how to work on the right deals, by default you’ll have a more realistic, accurate, predictable forecast. Think about the mindset of a good rep: yes, he’d love to have a pipeline and forecast bursting at the seams. But given a choice he’d MUCH rather work on opportunities where there is a meaningful challenge, goal, initiative, or pain that has some urgency and he knows he can help address, even if his forecast is thin. He’s just not going to want to spend time on things that will have a propensity to slip. A team of poor qualifiers equals a poor forecast.

Sales people should be incented to forecast quality (more accuracy) vs quantity (just more). This sounds easy enough, but is difficult in practice. Everyone wants more, more, more. Invariably a forecast’s quality and accuracy suffers.

There should be clear meaningful criteria for how an opportunity makes it into each stage of a forecast. Many times these criteria are not the traditional things we’d think about. Emphasize what the prospect has said, done, or committed to vs things the rep does or says: Has the prospect acknowledged a preliminary value case? What key initiatives (or painpoints) are we aligned to? Which of his KPIs are we impacting and how? What’s the time line for that initiative (not your deal)? Who at the prospect is putting their butt on the line, and where is the email proving it? Have they asked for a reference? Can you articulate the buying process in detail? Etc.

For better accuracy, forecasting should be ruthless.

- The easiest way for me to get good forecasts is to call all the forecasts that the sales team have given me and ask them if they intend buying on the 20th of the Month. Its amazing what I have heard. 'we are not even looking to buy' 'when we have seen everyone we will let you know' 'oh your guy is a good salesman, we are still looking at three other options' and in my opinion the best 'i would love to give your salesperson the order when are they coming back?'

The underlying problem with forecast accuracy is the integrity of the opportunity data that supports the forecast. This link is to a blog post just published called, "The Elephant in the Pipeline". http://blog.siriusdecisions.com/Blog/bid/63817/The-Elephant-in-the-Pipeline

- Joe Galvin

I'm a firm believer in qualifying every opportunity using a formal process that defines what is "good" and what is a waste of time. See my blog, What Did You Sell Today? at www.succinctsalesbook.blogspot.com.

Dave: First, 'forecast accuracy' is an oxymoron. I'm not being glib. The art of forecasting involves variables, probabilities, and understanding how they relate to one another in an environment where few things remain static. Sales forecasts are rarely--if ever-- "accurate," if your definition of accuracy is when a forecast matches actual revenue achievement for a given week, month, quarter, or year.

Unfortunately, many sales managers use the requirement of maintaining "accurate forecasts" as a club. They wrongly view selling as "deterministic," that is, "if you do these things in this order in this way, there's no reason the deal shouldn't close!" Malarkey. Stuff happens. Lots of it, and much of it outside of a salesperson's direct control.

There are ways to make forecasts closer to reality, but that involves something that few sales managers I've met truly understand. If sales managers don't understand the probabilities and forces that underpin sound forecasts, how can they mentor salespeople, let alone hold realistic expectations for what makes a forecast good, and what doesn't?

1. My first recommendation is to abandon thinking in terms of "forecast accuracy," because it's never going to happen. Thinking in terms of 'forecast congruency' acknowledges the key elements of what makes a forecast a forecast: probabilities and risks. Drill into probabilities and risks, quit telling your salespeople "don't being me your problems, just solutions!" and you'll encourage your sales force to truly think strategically, and not to have the "happy ears" that Alex describes.

2. Rigorously demand "situational awareness" in every account review. This requires much more than saying to a salesperson "tell me everything you know about MegaCorp." Situational awareness for sales is a framework that involves keen insight into what risks and opportunities are present in a selling/buying process at any given moment.

3. Understand the forces that are likely to be consequential to a prospect's business within the decision horizon. This is risk management 101: highest likelihood events, highest impact. Many salespeople and sales executives don't pay attention to forces at all. Instead, they stifle candor because recognizing emerging challenges is interpreted as defeatist. Fair observation, because it's confused with whining. But knowing when it shouldn't be confused takes a sharp manager. Responding to those risks takes leadership.

3. Create a sales risk model that aligns organizational risk capacity with risk exposure. Understanding how much risk your organization can accept will ensure that 1) leads and opportunities are consistently qualified throughout the buying cycle, but in particular in the beginning, 2) that your salespeople will be less likely to apply SWAG's and unsubstantiated intuition that quickly render forecasts meaningless.

4. Quit holding your sales force to achieving a pipeline value as Joe pointed out in his blog. What does that do to forecast accuracy? It certainly doesn't help, because any red-blooded salesperson will (understandably) game that number to look good in the eyes of management. Instead, management needs to think carefully about pipeline value and determine 1) what behaviors will this create among our sales team? 2) what is that multiplier costing us versus a lower multiplier? and 3) is that pipeline value congruent with our risk appetite (see #3 above).

5. Finally, salespeople who clearly understand the connection between their product or service with the prospect's ability to achieve their business strategy will be more accurate in forecasting. When a product or service is mission-critical to a prospect's strategy, it's logical that they're more likely to buy it. How many salespeople and sales managers ask questions about strategic fit and importance, and reflect that insight in a sales forecast?