Sales organisations are under increasing pressure, often both from internal and external stakeholders, to provide more accurate sales forecasts of top line-revenue. Aberdeen research reported by over 4,500 respondents for the 2008 Aberdeen report, has revealed that the top two pressures companies face are organic revenue growth, and profitability/margin growth. Despite this, our research shows that while the ability to forecast top-line revenue represents an adopted practice by 83% of companies, the average accuracy with which they anticipate results is only 68%.
This implies a potential miscalculation of business outcomes by nearly one-third across all organisations of business by nearly one-third that forecast revenue.
(Sales Analytics: Hitting the Forecast Bulls-Eye Aberdeen Group – July 2008)
What drives a sales executive to produce a sales forecast that is required by management? What drives a sales manager to review the sales forecasts and make his or her own interpretation, independent of the sales executive, as to what seems to be realistic?
The sales forecast report, from the sales force, is one of the most important documents used in the management of a business. Senior management uses it to forecast cash flow, resource allocation, production, and stock control. It should reflect clearly and objectively the various sales opportunities with which the sales executive is dealing.
The sales forecast should also be a by-product of the sales executive’s working routine. The reality can be very different. The sales executive can see it as something he or she must do to comply with the requirements of the job if no other added benefits are perceived in producing a sales forecast. In this case, invariably the production of the sales forecast is left until the last minute. The focus is on getting it done and getting back to selling rather than reviewing each of the sales opportunities and passing on qualitative information.
To make matters worse, there could be the situation where a sales executive is below his or her sales target and knows what will happen if another sales forecast is given and is below target. Without malice the sales executive starts scouring all the calls and all the visits that have been made. Before long, an opportunity in its early stages is developed into a full blown firm opportunity by the simple process of the sales executive interpreting initial signals as being positive and then quantifying in his or her own mind the customer’s requirements.
You could say that there is an element of forecasting phantom opportunities. Phantom opportunities come and phantom opportunities go. The sales forecast remains high but how much of it is real?
Have you heard the one about the Managing Director that was called away at a moment’s notice and the decision was delayed to the next month? Come the next month, nobody was available because they were all busy trying to develop next year’s business plan. The following month was the end of the quarter and because they wanted to ensure that the sales targets were met, everybody was focussed on sales.
This opportunity has been in the sales forecast as coming to fruition in the current month for the last three months. How many other opportunities are stuck, if not slipping? Because of the pressure to maintain the sales forecast as high as possible, it remains in, but is it a real opportunity or is the timeframe for the opportunity wrong?
The sales forecast indicates which opportunities are being worked on, but how does one know when was the last time the sales executive actually reviewed the opportunities so that all were within the sales criteria by which the decision is taken to pursue them?
One may ask, does the company have a clear process by which sales opportunities are judged to be worth pursuing? Is this process only carried out when an enquiry is received or is it being carried out every so often to ensure that the opportunity still fits the requirements?
Sales executives are individuals with good interpersonal skills that allow them to work with many people to gain a greater understanding of the sales environment in which they are operating. Some are very bullish, others pragmatic and others are cautious. If one was to ask a sales executive with a bullish approach to sales what he or she thought was meant when an opportunity had reached 50% probability of success, the response could be that a full presentation of the proposal had been made, all senior management had been contacted, that budget approval was imminent with the short list of two suppliers being announced very shortly.
On the other hand, a sales executive with a cautious approach could view an account with a 50% probability of success as one where the initial presentation had been carried out, the decision making process firmly established, a proposal had been sent but as yet there was no response and no shortlist had been drawn up.
The issue here is that not only is the interpretation of the progress within each of the sales criteria being viewed differently, but also, depending upon the salesperson involved, different criteria can be used to judge the progress towards the sale.
When a new sales executive is faced with taking over existing opportunities from someone who has left or moved on in the organisation, he or she can only rely upon the customer file and the sales forecast. If the customer file is not maintained then the sales forecast takes on an even greater importance. The new sales executive has to begin once again reviewing all the accounts to try and establish how much progress into the sales cycle had been achieved.
What is the role of sales management in the sales forecasting process? Is it one where management applies its experience to review and modify the sales forecast to make it more “realistic”? One may ask, what is the purpose of having a sales executive who is dealing with the customer if his or her understanding of the opportunity is going to be modified to suit the sales targets which the sales manager must meet?
This does happen and it leads to resentment by the sales executive because he or she feels that they are wasting their time in producing the sales forecast. If one is not careful, the sales team could develop into an ‘us and them’ group where the sales executive believes he knows what is best and will inform management of the opportunities he or she thinks they should know about.
The trend is that the competition is getting stronger and the resources available are getting less and less. How does one focus on the major opportunities? Can the sales manager rely on the factor of success indicated against each opportunity by the various sales executives? Does he or she know what it is based on? Can future sales planning be based upon the information from the various sales forecasts that are produced throughout the year?
Most organisations today experience at least one if not more of the symptoms outlined above. Successful sales teams are usually characterised by good sales and prospect management which is based on strong inherent processes being used, good communications within the team and with other departments within the organisation and above all they are proactive.
The word team is important, because some may say as long as the sales targets are met, is it really important as to who brings in the sales? Too many organisations have depended on a few individuals to bring in the sales. The problem arises once they leave. The emphasis has to be on the “team” and on “continuity”.
A sales executive will qualify his or her accounts if it is seen that it is possible to identify the major sales opportunities and thereby achieve his or her sales targets. Another incentive would be if the sales executive could produce all the sales reports required automatically from the information provided in qualifying the various sales opportunities. In other words, the sales forecast becomes a by-product of the sales qualification process.
To maintain consistency and quality of information, one would have to ensure that only those opportunities are included in the forecast which have been qualified by the sales executive and have passed the minimum requirement using a sales model provided by sales management. No opportunity should appear in a sales forecast unless it meets the minimum qualification requirements.
Sales models could be developed for different markets, products, and services. The models would not only be used to qualify each sales opportunity but also to act as an aide memoir for the sales executive to identify the next objective within the sales cycle which they should be striving to reach. The sales executive is now free to think about what he has to do to achieve each of the objectives rather than thinking about producing a sales forecast.
The use of the sales models to qualify each of the opportunities also diminishes the subjectivity that enters into the process dependant on the character of the sales executive. All executives use the same criteria and have the same milestones within each of the criteria to step through, no matter who they are.
The advantage of continually re-assessing the position within the sales cycle, for each of the opportunities, is that the sales executive can build up a picture as to how certain accounts have been won or lost, and what are the strengths and weaknesses in the sales approach which has been adopted. A continual evaluation of performance can be maintained and the appropriate action taken to ensure that the sales target will be met. These factors alone begin to put consistency into the sales forecast.
The sales management team armed with this information can keep an eye on how many opportunities are being worked on and when they were last reviewed. Also, the wealth of historic information can be used for trend analysis to see how sales are developed and how various groupings perform, whether they are products or people. The same information will be useful for the development of future sales plans.
To encourage the sales executive to carry out the qualification process, it must be simple, take very little time mechanically but may take some time mentally. If the sales executive begins to rely on the process as part of his everyday routine, then it will work. This can only be achieved if management encourages it from the top down and if it is seen as an open process by which there is no hidden agenda of entrapment but an agenda of wanting to succeed. The process should make the sales manager a “coach” rather than a “gate keeper”.
The ownership of the sales information should be with the sales executive and when a change is required by the sales manager, this should be carried out by the sales executive after there has been a dialogue between the two and the case has been proved. If the sales manager shows the sales executive where he is going wrong this time, maybe he has alerted the sales executive to something that he has been doing wrong for a long time but he has not been aware. The chances are, if the same sales situation arose, the sales executive will deal with the issue without reference to the sales manager. This is what coaching should be about.
This continual monitoring of each of the sales opportunities will also alert the sales executive and manager to issues which could arise in the future. The appropriate action could be taken to prevent the situation from becoming serious or alternatives could be identified so that the executive could be ready and armed as to what to do next according to how things developed.
If we were to put everything in place that has been highlighted above, the sales forecast would have more credence, without the normal cross-examination taking place every week or month. We would now be nearer sales fact than fiction and with the continual enhancement of the sales processes and the sales models in use, a greater accuracy and consistency in information would be achieved.
A successful sales team focuses on the major sales opportunities; is proactive because it can identify any critical issues which could develop; can see ahead of others the sales trends in markets and products; can assess quickly any weaknesses in sales techniques; and can comfortably predict future sales performance.
Why? Because the sales forecast is developed on a strong base of qualified information and not guesswork. It is more fact than fiction. These processes can be inherently built into systems so that the sales executive and sales manager are automatically conforming to what is required by the company without them realising it and, at the same time, minimising the scope for human fallibility and changeableness.
SymVolli, SymVolli Limited's own powerful sales performance management system, provides a range of tools to help sales people and sales managers record, rate and monitor the progress of potential orders and contracts. The software provides a simple interface which makes it easy for anyone to use. Each user provides information on every prospect, which builds into a consistent picture of the potential of the business, the likelihood of winning it, and takes into account previous experience with the customer, competitive influences and market conditions. Through the reporting procedure, company managers can track the progress of the order, any changes in circumstances and build a realistic global picture of business waiting to be placed.
Working with a process will lead to consistency and accuracy in forecasting sales, facts that a business can rely on.
George Petri, Managing Director, SymVolli