Houston, we have a problem: only 31% of businesses consider their sales forecasting to be effective in terms of accuracy and helping guide pipeline management.
If this number doesn’t surprise you, your business may very well be in the midst of experiencing the repercussions of generating inaccurate sales forecasting, which can be as serious as over-hiring or product shortage. On the flip side, the Sales Management Association found a correlation between businesses’ forecasting effectiveness and the achievement of their annual revenue objectives.
As a Sales Operations leader, you’ve probably read a million articles and guides offering advice around how to improve forecast accuracy. We’ve all heard these tips before — forecast more often, ditch your Excel spreadsheets, etc. But none of these strategies address the issue at the core of most forecasting fallacies: data. Let’s take a fresh, data-driven look at how you can more effectively predict and drive toward your sales forecasting.
Capture More Data
To effectively predict what will happen in the future, you need to understand what has happened in the past. This requires data – and lots of it. Of course, the only thing worse than having no data is having bad data. In fact, the second most important factor in developing an accurate forecast (after manager training only) is data accuracy, which results in a 34% increase in forecast effectiveness.
Therefore, the first step to eliminating forecasting fallacies is to improve the quantity and quality of your sales data. Here are a few ways to make it happen:
- Enterprise software should be as seamless as Viber, Google or Yelp. Ensure that your sales management software is intuitive and easy to use, particularly on mobile devices. This will inherently drive rep adoption and result in increased data capture.
- The ability to pass lead and contact information into your sales platform directly from other business systems like HubSpot or Zendesk helps eliminate data entry errors, as well as keeps all relevant contact information in one place.
- Think about it: just one transposed number or rogue keystroke and you have inaccurate data. Besides, your reps shouldn’t have to waste time logging every call or conversation they have in your CRM. Choose a tool that automates as much data collection as possible to maximize capture and minimize human error.
- Leveraging a sales platform that doesn’t force sales reps to bounce back and forth between systems to send emails, make calls or run reports is key to driving adoption. It also prevents data from becoming siloed in various systems across your organization.
Measure across Conversion Points
More often than not, very few metrics other than sales revenue are actually factored into sales forecasting, with less than 35% of organizations taking critical measures including new accounts or deal volume into consideration. What’s more, even when these factors are considered, they are often measured in an isolated fashion. What good does it do your business to know how many marketing leads are accepted by sales if you can’t measure the impact this ultimately has on your bottom line?
Think of it this way: sales revenue is the cumulative result of each of the key conversion points within your sales pipeline. To accurately predict this number, your forecasting needs to consistently measure performance across these key conversion points over time, such as leads worked, opportunities qualified, etc. This can be done using two new sets of sales metrics: yield measures and process measures.
Yield measures are used to understand how much value you are getting in return for your investments, enabling you to quantify the true ROI of your time, money and effort.
Process measures are used to understand how leads and opportunities flow through your sales process and pipeline, allowing you to pinpoint bottlenecks and inefficiencies that reveal ways to increase revenue.
This free white paper breaks these measures down into a series of formulas that together allow you to precisely quantify the impact of each stage of your pipeline on your overall performance. With the ability to calculate each of these conversion points and see exactly how it affects sales revenue, businesses can create much more accurate sales forecasting.
Determine Your Sales DNA
Once you are collecting data and measuring it consistently across key conversion points, you will begin to uncover key factors, or dimensions, impacting your sales performance. These include industry vertical, sales team, lead source, stage duration and much, much more. Identifying and isolating these dimensions uncovers underlying trends, patterns or variables that are not obvious when viewing sales revenue as a whole.
Of course, the combination of dimensions impacting performance is different for every business. As such, it can be thought of as your sales DNA. The ability to measure your sales DNA using a consistent set of process and yield measures will reveal the factors that are most significant and predictive in your sales outcomes. In turn, this uncovers quantifiable, actionable insights as to the individual levers that your team can pull to achieve a particular result.
For example, by consistently measuring its sales performance across key conversion points, a business may discover that leads coming from Channel A close at a faster rate than leads from Channel B. However, Channel B leads yield higher revenue when they do close. First, this type of granular insight enables the business to forecast more accurately based on the volume of projected leads from each channel. Second, if there is a sudden unexpected drop in leads from Channel A, the business has the visibility to either adjust its forecast accordingly, or to take the actions necessary to generate enough Channel A leads to reach its projected forecast.
The Science of Sales
Cutting to the core of forecasting fallacies requires taking a scientific approach to measuring and understanding sales performance. While this level of insight has previously been limited to the fastest growing companies with greater budgets and resources, technology is evolving and giving every company the opportunity to become a data-driven organization. For more tips to improve your sales operations, check out this eBook: 3 Keys to Unlocking a Scientific Sales Pipeline.
This post was contributed by Rachel Serpa of Base CRM, and is adapted from the eBook How to Eliminate Sales Forecasting Fallacies with a Data-Driven Approach.
Download your copy of our “Sales Problems” eBook today to launch into greater detail on how to overcome issues that deeply impact a sales organization, and what using the right sales tools can do to solve them.