In a 2005 article for Entrepreneur, Tim Berry wrote that the sales forecast is the backbone of any business. “People measure a business and its growth by sales,” he continued. “And your sales forecast sets the standard for expenses, profits and growth.” Today, you’d be hard-pressed to find a sales leader who would disagree with this sentiment. But in the time since Entrepreneur ran Berry’s article, a few things have changed. Most notably, a growing number of organizations have begun empowering their salespeople to create their own monthly and quarterly forecasts.
There are a few benefits to this process. Datahug’s Mindy Kim says that sales forecasts generated by reps are often based on real deals. Kim also wrote that salespeople are more motivated to reevaluate their forecasts weekly when they have complete ownership over them. Still, this process isn’t entirely foolproof. A sales forecast that’s even slightly off could negatively impact your entire company’s yearly roadmap.
A quick Google search will return endless articles on sales forecasting mistakes to avoid. But as more salespeople take ownership over their forecasts, here are three that we think are especially important for leaders to know.
Clinging to Deals That are Lost
Bob Suh is the founder and CEO of OnCorps. In an article for the Harvard Business Review, Suh proclaimed that most sales teams are bad at forecasting. “Though AI and other advanced technologies have been applied to improve forecasting accuracy, sales leaders still get blindsided by forecasts that turn out to be embarrassingly overinflated,” he continued. “That’s because the root causes of most inaccuracies are not faulty algorithms but all-too-human behavior.”
Suh went on to highlight five of the most harmful human behaviors that lead to bad sales forecasts. In particular, his research suggests that salespeople tend to be afraid of admitting that a lost deal is lost. “Though most salespeople know deep down that a stale deal is really a lost deal, they often fear the moment they must admit to their team that it is lost,” he writes. “This inflates pipelines and prevents both leaders and teams from seeing the gaps in their forecasts.”
With this in mind, sales leaders must avoid accepting forecasts at their face value. Take the time to review sales forecasts with each rep. Although you might discover that some projections are a bit too optimistic, you’ll have a much clearer idea of what to expect in any given month or quarter.
Forecasting Based on Hunches
Considering that CRM software is projected to generate $80 billion in revenue by 2025, it’s clear that sales organizations of all sizes have embraced sophisticated sales technologies. But even though there’s a staggering amount of data available to sales leaders today, it’s not always safe to assume that everyone across your organization leverages it during the sales forecasting process.
In a blog post about sales forecasting mistakes, Salesforce’s UK team suggests that even with the insights available to them, far too many salespeople create their forecasts based on hunches. “Feelings really just add up to guesswork rather than measurable data,” they explain. “When sales forecasts are based on hunches, opportunities are far less likely to close as predicted.”
Sales technology is a major investment for any company, so it’s important to understand how leaders and individual contributors are using it to project their sales. As you review sales forecasts each month, hold each person accountable for supporting them with data. If they’re unable to, dig deeper to understand why the rep has a particular hunch, how that affected the forecast, and whether or not it should be adjusted.
Ignoring Your Previous Sales History
Aja Frost of HubSpot recently wrote an extensive guide on sales forecasting, in which she outlines the various internal and external factors that should influence any sales forecast. In particular, Frost points out that seasonality, economic, and product changes should be major considerations. “Your customers might be more likely to buy at certain times of the year,” she continues. “For instance, school districts typically assess new purchases in spring and decide what to buy in fall.”
But what if your product isn’t seasonal? What if your offering can (and should) be relevant to your customers throughout the year? Even the world’s largest companies have slower periods of sales activity. Now, imagine that a salesperson projects that their sales during a slower season are 20% higher than his or her typical average. That leader’s first reaction might be to celebrate that salesperson’s determination to improve their performance. But even though this persistence should be celebrated to some degree, ignoring previous sales history would be a critical mistake.