It’s hard to know when a deal will close and sales teams often come up short on their estimates - but you can't afford to keep getting caught out by mistakes with your forecasting.
According to our 2017 Global Sales Performance Review, the average global conversion rate is just 16%. Low performers saw an average conversion rate of under 5%.
Our research also reveals that salespeople spend an additional ten days closing deals than their initial sales forecasts had predicted (with those lower sales performers taking over 53 days to close their average deal).
With that in mind – and knowing that in sales we live or die by whether we can deliver what you promise – it’s so important to make your sales forecasting as accurate as you possibly can.
Every manager would love to nail their forecasts every time. It’s just not possible. Selling is not a science. Each and every sales cycle will be filled with to the brim with potential obstacles to throw you off your estimates.
So how do you make sure you have a strong forecasting game?
We have interviewed a panel of experienced expert sales managers across a variety of sectors to help you learn how to identify some key sales forecasting slip-ups.
We also want to give you the practical advice you need to avoid these forecasting mistakes in the future.
Mistake #1: Not Asking Your Prospects
Accurate data is crucial if you want consistent revenue forecasting for the coming months and years. But that's not the most important thing you need.
For Naveen, Sales Director at a leading clothing brand, accurate forecasting is about relying on one source above all others.
“It’s that constant contact with your customers to know what’s in their minds. And effectively, the more I do that, the more I know that I’m on their mind.”
You and your salespeople will get your best understanding of a lead’s potential to close by speaking to the contact directly.
Just ask. You'll get fairly accurate answers - and it opens up a dialogue where you can understand their objections or delays and work to solve these problems.
Paul, Business Development Director at a leading home improvement brand, echoes Naveen’s experience. Paul agrees that in this instance, you need to trust your experience and incorporate your gut feel when preparing accurate forecasting.
Just make sure you also mix in the data and learnings you have from past performance:
“Base it on reality, base it on the facts, base it on what you’re capable of doing, what your sales team are capable of selling, what your retail environment is able to sell. Because otherwise, it’s not a forecast, it’s just a guesstimate.”
It may also be a good idea to combine all of your data sources and get your sales team to collectively analyze the data so discrepancies can be ironed out before you prepare your forecast. Paul advocates for this team-based approach to forecasting:
“There will be four of us who actually sit and work on our forecasts and budgeting, and then we review it with all 16 of the team present, so that everyone is aware.”
Mistake #2: Don't Base Your Forecasts Entirely on Your Assumptions
Can an emotional assessment of the way sales are going ever be an effective way to forecast?
As Naveen mentioned already, there’s an important part for a gut feeling to play in the sales process.
Take Julia, Business & Development Manager at a leading global telecoms company:
“We have various account managers and salespeople – we rely on them to be intuitive and on top of their clients.”
But too much focus on this intuition can be dangerous.
Exclusively relying on hunches is a dangerous way to forecast, especially when you have easy access to measurable data from your past performance.
When sales forecasts are based on gut feelings, you’re less likely to close deals.
You’ll start to be out-performed by predictions based on data and trackable behavior. If you overestimate results based on genuine insights from your existing data - you can explain your decisions and point to the inconsistencies of selling. But if you over-promise based on a feeling, you’ll find it harder to cool the steam coming from your manager’s ears!
In sales, failure happens. You will under-perform.
But you need to use whatever is in your power to set an accurate expectation for your team and superiors.
How do you incorporate data to make a more accurate sales forecast?
We have one simple and reliable solution…
Incorporate past sales figures into your future forecasts, as a way to predict future performance.
Unless you’re starting a new business or introducing a completely new product or service - this is a valuable way to nudge your forecasting average closer to actual performance.
You’ll have historical data to help your team determine the conversion rate and how long it’ll take to close a deal.
For Laura, Senior Director at a leading events company, this allows her to keep an eye on the bigger picture despite any seasonal fluctuations:
“We collect all information and we keep track of what is the target we need to achieve.”
This gives her the edge she needs to more accurately predict future revenue.
Just remember to analyse your historical data and apply it to your current situation.
The month of January in 2018 had 23 business days, where April had just 21. Those 2 extra days will have a significant impact on any comparison
Seasonal events, extreme weather or even leave periods for your salespeople can throw out a forecast based exclusively on past performance
Raw numbers can still be misleading.
Take your data and factor in each month's specific circumstances.
Mistake #3: Using Outdated Tools
Naveen says he is making plans to upgrade to a more intuitive and user-friendly system. According to him, spreadsheets tend to proliferate, with different versions generated by different people who then work to different numbers.
This subsequent confusion from divergent reports can have significant consequences.
“We send out updates by Excel, it’s probably a bit prehistoric because there are loads of tabs and it’s quite a minefield, but at the moment that’s what we know,”
It’s a similar story for Paul who relies on a ‘1-31’ manual system, which is simply 31 drop files in a filing cabinet.
“If a client says, ‘I want five days to think about it,’ that file will go into the five-days-ahead folder.”
While this old-school approach may not be the most high-tech way of forecasting, it allows Paul to keep hard copies of design layouts - useful for showing his customers.
“I record things personally, manually, and then it will go into the system. I’m at an age where I grew up without computers.”
But what are the technological options you need to explore to optimize your sales forecast?
Sales managers need to invest in the right software and CRM.
You need to pay special attention to customizable features that allow for ongoing deals arranged by their likely close date next to deals already closed for easy comparison.
But there’s one thing even more important than the right technology…
No matter what system you use, you must make sure you have a simple sales process that allows your team to understand how to enter the right information at the right time. Julia wholeheartedly agrees:
“This has always been my bugbear because any system is only as good as the information that somebody puts in.”
You need to rely on your team to use your process. A simple, useful tool will help. Salespeople will rebel against complex, time-sucking reporting and admin. But you need a clear and effective sales process to make your team‘s data entry as easy as you possibly can.
Mistake #4: Failure to Adjust and Finetune
Your operating climate can be volatile.
Growing businesses need to move fast. Sales teams can find their goalposts quickly shift to reflect new playing fields, as our panelists know all too well.
Economic and political factors like currency market fluctuations, changes in government, Brexit and GDPR compliance are the type of uncontrollable variables that can throw your forecasts off track. One good way of keeping track of these factors is with the policy platform Apolitical and in particular its newsfeed on digital government.
There are also more business-centric factors impacting your sales. Your competition, market position, the cost of raw materials, and changes in consumer trends can all affect your approach.
The latest data you have today could be redundant tomorrow, so adjusting your forecasts accordingly is essential.
Our panelists advocate getting team members together regularly to review forecasts and projections. Whether that’s monthly, quarterly or annually depends on your capacity and timelines - but consistent reassessment can help you develop more sustainable results.
Your CRM platform can chip in and help with the task of correcting the course of your strategy.
Pipedrive allows you to accurately collate, track and gather information about prospects’ behaviors. You’ll find it easier to pick the right deals and activities to focus on, and the software’s Forecasting View also allows you to arrange closed deals by delivery or implementation date.
Mistake #5: Confusion About Common Metrics
You know that sales metrics are designed to track progress of business objectives, prepare for the future, and identify problems ahead of time.
The importance of your sales measurement and tracking is clear.
The risks of your team and senior management using different metrics and measurables are serious - you’ll end up with different numbers and different targets, which will result in significantly different forecasts between key stakeholders.
For Julia, getting this right is fundamentally linked to high performance:
“I collect all the data and pipeline information so I can put reports and KPIs together for the board of directors. So there definitely is a clear process that we follow.”
She advises sales managers and their team to agree on a small set of metrics and KPIs, which the entire team buys into collectively, as an example of good practice in sales forecasting.
The panelists also emphasize the importance of keeping your metric-driven team and senior management reading off the same page. Communicate your metrics effectively. Manage up and seek consensus with the C-suite and base your measurables on the significant business objectives the entire organization is currently working towards.
Quality Forecasting Needs a Killer Sales Process to Make it Worthwhile
We’ve seen the most common forecasting mistakes identified by our panelists. They all agree avoiding these traps will not guarantee 100% accuracy, but you will have a better chance at preparing all stakeholders for your future performance.
But remember - your team still needs to put the numbers on the board.
Without this, your accurate forecasts are unlikely to result in sustainable growth for your business.
Pipedrive can help you with the technological aspect of this sales success mix. There are simple forecasting tools embedded within our software allowing you to automate time-consuming reporting tasks (and giving you your own personal sales manager).
You can test the Pipedrive forecasting capabilities today with your own 14-day free trial. All you need is an email address and you can see how Pipedrive’s features work right now.