There are many different types of forecasting: you’ve got weather forecasting, sports forecasting, financial forecasting, demand forecasting, election forecasting and of course, sales forecasting. The common denominator; they all take a stab at predicting what the future might hold. And just as it’s important for a professional punter to analyze horse course, track, pedigree and form data to predict the most likely outcome of a race, the importance of sales forecasting or I should say, the importance of “accurate” sales forecasting is too great to be ignored.
That’s because it’s tied into so many different aspects of the business. It impacts financial planning, marketing budget, stock value, investment portfolios, manufacturing, item purchase and even the operations department.
Get your forecasts wrong and it won’t be just the board of directors you’ll be hearing from…
But all of that aside, the importance of sales forecasting can be seen closer to home, within your sales team. The sales quotas you set – either weekly, monthly or quarterly – are determined by your ability to forecast accurately.
So if you’re one to shun it to the side in favor of more glamorous exploits such as analyzing sales reports or combing through some recommended sales pipeline management best practices this is for you!
Importance of Sales Forecasting with Oscar Macia
Before we dive straight into the Q&A I should probably give you a little background on the man himself.
He founded the personal mobile CRM app, ForceManager, in 2011 with the mission to transform the way field sales teams sell on the road – making the process leaner and easier for the sales rep, while providing greater visibility and real-time data to their managers.
He brings over 20 years of sales managerial experience to the table with a specialist degree in nuclear engineering.
Anyway, with the formalities out of the way let’s get stuck in, shall we?
So Oscar, what would you say is the importance of sales forecasting?
For me sales forecasts are the metaphorical set of goal posts that the whole team are gunning for.
And if there are no goal posts, you’ve got no game, right?
I like the football metaphor because as sales managers we (should) set our team’s sales quota based on data using the forecast. They need something tangible to aim at and to be measured against.
It also help sales reps to understand which deals they need to focus on for specific weeks/months/quarters, depending on the sales cycle and process. If it looks as if they are coming in short of quota they may have to turn their attention to other accounts in the pipeline or change strategy, again depending on the situation.
Similarly for managers and the C-Suite the importance of sales forecasting is in understanding how the company/reps are performing and if certain actions need to be taken if the forecast is coming in a lot shorter than expected.
But I don’t think it has to be all negative. If you can see that you’re forecasted to hit (x) numbers of sales during the current quarter which brings you bang in on target, then it might be worth looking further ahead at the upcoming quarter.
Also, if you think about it the importance of sales forecasting can be seen before you’ve even started a business.
Unless you are extremely wealthy, when starting a business you are going to need the support of a bank. And banks like numbers. They especially like numbers and linear graphs that show positive increases in sales figures, drawn from a sales forecast.
I know from speaking to you before the interview that you mentioned accuracy as key. Why is it so important when forecasting?
Accuracy is incredibly important for all companies as it directly affects the stock share price.
If the forecast is accurate, holding with market expectations the stock will go up and vice versa; a poor forecast could cause the stock to drop. It impacts the flotation line, particularly when you work in an industry such as software where you don’t have tangible things to sell.
In fact, I’ve worked at companies where all they thought about was stock price; it was the main objective of our forecasting. I even remember a specific CEO who would literally dissect my team’s sales forecasts, question us about specific numbers we came up with and tell us to go away and improve them, because the stock option price depended so much on the forecast.
Could you give us an example from your personal experience?
Of course! Personally there have been more than a few, but I believe the best example I can give is the 2007 financial crash.
Every man and his dog forecasted that mortgage-backed securities were a solid, long-term and most importantly, low-risk investment.
Well that turned out to be slightly inaccurate…and we are still seeing the effects of bad forecasting now.
What about a sales specific example showing the importance of sales forecasting and some of the problems when you get it wrong?
It can have a particularly heavy cost on price.
For example, let’s say you worked in the bicycle manufacturing and assembly industry. Each bike you build contains a set number of different parts:
- 2 x Brake levers
- 2 x Pedals
- 1 x 1m Wire
- 4 x Cables
- 1 x Seat
- 1 x Seat post
- 1 x Frame
I understand that bikes are made up of a lot more components but for this example I think it will suffice!
So if you forecast to sell (x) number of bikes for the upcoming quarter or year you would need to ensure you had enough stock components in order be able to meet the demand build rate.
The stock department would have to be noted in order to know how much to buy in, calculate the rate they’d need to be built and assembled at as well as the hours and man power required to complete the project on time.
So if you in-accurately forecast the number of bikes you expect to sell for the upcoming quarter it has a serious, costly domino effect on the rest of the business; all that unnecessary stock and overbooked man hours are going to hit the business where it hurts, via its pocket.
Are there any other areas the importance of sales forecasting can be seen?
As a sales manager it’s also going to affect your image throughout the company. Now this might seem like a minor detail to some.
“Why should I care what people think of me?”
But if you start to pick up a reputation for unreliability, over embellishment and trustworthiness it’s going to make working cross departmentally a challenge as well as affect how you are viewed by your field sales team.
I had a guy that was always underperforming but was also pretty accurate with his forecasting. Now I’d rather have somebody like that than somebody that blew hot and cold with their sales results, i.e. one month they may supersede their targets then the following month miss them by a mile.
This is because depending on the forecast you can take appropriate action.
Let’s take our accurate underperformer as an example.
Say this rep forecast to hit 60% of their target. You can go through their funnel deal by deal to see why they expect to fall 40% short.
You may find when doing this that there are some deals that can in fact be closed by querying your sales team:
- Is there another decision maker we can engage with?
- Do you think we could perhaps speed this deal up at all?
- Are there any deals where help from a more senior role may smooth things over?
- Are there any upside deals that can be pushed in from the upcoming quarter?
But all this is only possible with the build up of a little trust and a rep that consistently misfires with their inaccurate forecasting cannot be trusted.
And finally Oscar, do you have any advice for new field managers to the importance of sales forecasting?
I’d recommend maintaining or completing a weekly checklist saved in onenote or evernote (any mobile application with a similar function) of some of the key deals.
You need to be checking up on these.
Don’t leave it a whole month as anything could happen in that time. Close it or follow up with the sales rep to find out what’s going on.
It’s also vital that when using one of the quantitative methods of sales forecasting or in other words, one that uses historical sales data, that that data is accurate.
This is so, so important that I can’t stress it enough.
You could be using the most sophisticated forecasting technique in the world, with a team of I don’t’ know, 10 of the world’s finest dedicated data scientists. Yet if that data is unreliable, out-of-date or worst of all, completely missing, you might as well wet your finger, raise it to the air and see which the way wind is blowing.
Fortunately there are mobile CRM applications that through their simplicity and ease-of-use, encourage field reps to upload data in real-time, while on the move. From my experience a massive barrier to entry are the awkward CRM systems that are rejected by sales teams. If they’re not designed to be used on the road the chances are it isn’t being used by your team
My final bit of advice is to be picky. Ask a lot of questions of your sales team. Don’t let them be vague when you’re looking for specific information or want to go into a deal in more detail.
- Who are you talking with?
- Is it a decision maker or someone wishing to show off?
- Do they have authority over budget?
- Why are they not buying?
- What reasons have you for pushing them back to Q3?
As you probably well know reps aren’t always the most forthcoming when pressured for a little more clarity on certain matters.
It could just be that they are a little too positive with their forecasting or maybe even naive. Field sales reps new to the job tend to take the customers word at face value when told they’ll “definitely” be buying within set time parameters.
As someone they look up to you’ll have to learn the fundamentals of how to be a good sales manager and deal with individuals on a one-to-one basis.
In conclusion it’s clear that the importance of sales forecasting reaches far beyond the confines of the sales floor. Marketing, operations, C-Suite, manufacturing and even the stock price are all the mercy of a sales forecast. Learning how to do a sales forecast and especially how to do it accurately, therefore, should be the be priority of any budding field sales manager!