Use pipeline reviews, sales metrics to improve forecasts
How to Forecast Sales: 5 Tips to Boost Accuracy and Speed
It’s week 10. You’re on a forecast call, and your rep drops a bomb on you. That $600k deal that was a “sure thing” is now pushed into next quarter because the buyer is on vacation for the remainder of the quarter.
You frantically look to see if there’s something you can pull forward, but with only 2 weeks left in the quarter, there’s nothing that can be accelerated to close the gap.
That’s a forecasting miss.
I see it happen all the time — to the best sales teams out there.
Lucky for you, it’s not hard to learn how to forecast sales successfully and consistently.
We’re going to look at the top 3 reasons why your sales forecasting fails, and 5 ways to consistently improve your forecasting.
What’s Going Wrong?
Companies that predict revenue well get rewarded.
When your forecast is accurate, you can grow the business with confidence because you know how and where to invest. Accurate forecasting helps to insulate your company from the ups and downs of the market.
However, according to CSO Insights, teams miss their forecasts more than half the time.
That number should never be that high. If your forecasts are worse than a flip of a coin, you might as well take your sales budget to Vegas — you might actually get better odds there.
Why is something as important as forecasting so often wrong?
There are three main reasons that forecasting fails.
First, teams view forecasting as a single number for the entire quarter without taking into account the journey it takes to get there.
That’s a naive way to look at forecasting that will allow scores of mistakes to sneak in. The forecasting process is so much more than just calling a number. It requires careful inspection and execution throughout the quarter. Hitting your number at the end of the quarter doesn’t just happen.
Second, the forecasting process is often a huge waste of time for everyone. Hours are spent on forecast calls with a painstaking deal-by-deal review process that is disconnected from what’s really happening in the field. This takes valuable time away from what reps and managers should be spending their time on — selling. You need to develop a better system and work in automation to save time and reduce manual efforts.
Finally, sales forecasting is not seen as a team sport. Companies often consider forecasting to be the responsibility of sales. There may be little to no input (or committment) from the folks in Marketing or Customer Success who have data that is vital for an accurate forecast.
So how can you fix these 3 issues?
Let’s look at the 5 things you can start doing today to master sales forecasting.
5 Ways to Make Sales Forecasting Efficient and Accurate
1. Set a process
Some businesses forecast quarterly, some weekly. Some forecast by product lines, and some forecast new business and churn.
No matter how you forecast, there is one thing that makes or breaks it for most companies — consistency.
If your US team is forecasting on a quarterly basis with only managers submitting and your EMEA region is forecasting weekly and includes reps, then your sales ops team is probably spending hours and days trying to make sense of it all.
The solution is to define a repeatable process that works for every segment of your business, and then create a cadence that everyone can follow.
The exact process will depend on your org, but there are a few things that every forecast process should include.
- Review current quarter forecast and progress to ensure you’re on track
- Review and inspect your current quarter pipeline to see if anything is at-risk or needs more attention.
- Dive deep into deals that need the most attention and review your closing strategy.
- Discuss close plans for any deals pushed from last quarter.
- Inspect the next quarter (or quarters) pipeline generation and coverage to stay ahead of the game.
Once you have a consistent process you’ll find that forecasts come together more quickly and easily, and you should already begin to see an increase in forecast accuracy.
2. Define metrics
Having a consistent process is important, but unless your teams are all speaking the same language, it won’t help much.
You need everyone to be gathering and focusing on the same metrics.
Sit down with your teams and figure out which metrics matter for your business, and then set a plan to track those regularly.
Here are a few of the common sales forecasting metrics to track:
- Slip rate: The percentage of deals scheduled to close at a certain period that don’t.
- Linearity:The pace of deals closed over the course of a quarter.
- Win rate: The number of closed opportunities that were won.
- Pipeline generated: The amount of pipeline already generated for the quarter.
- NQ pipeline: The amount of pipeline already generated for next quarter.
- Quota: The sales goal set for a product line, division, or sales rep.
- Pipeline coverage: The assessment of pipeline size against quota to evaluate whether forecast goals can be met or exceeded.
- Conversion rate: The number of opportunities closed, including both closed-won and closed-lost opportunities
- ASP: The average sales price of all your closed-won deals.
- Cycle time: The average time (typically in days) that it takes to win a deal.
- Churn rate: The percentage of customers that stop subscribing to a service.
- Accuracy: The variance of the projected forecast to the actual number for a given measurable period.
You may use all, some, or none of these metrics.The important point is that everyone, on all your teams, knows what numbers to track and what numbers the forecast is based on.
This not only speeds up and streamlines communication, but it also helps identify what the problem is when the forecast is incorrect.
3. Inspect the pipeline regularly
It’s important to keep track of your which deals are solid (likely to close), and which are at-risk.
The question is how.
To see how, let’s look at the difference between a good and a bad deal.
A good deal may look like this:
Steady contact and communication between the rep and the client. Emails are being sent, files exchanged, and meetings held.
The prospect is actively engaging with the rep via emails or with the brand via marketing automation tools.
Ideally there will already be a next meeting scheduled.
Alternatively, an at-risk deal might look like this:
There was some initial engagement, but since then it’s been radio silence with little to no response over email.
There is very little engagement with your marketing campaigns, and no next meeting is scheduled.
This may sound obvious but, too often, I see huge amounts of time being wasted on bad deals in the name of persistence. Persistence is good, but you need to know what deals are worth investing in and which are probably lost causes.
Time spent on deals that will NOT CLOSE is time you are not spending on deals that will.
The signals you’ll be looking at to determine sales activity and prospect engagement might include:
- Webinar registrations
- Content downloads
- Website chats
Remember to follow the 3 P’s:
- Preview: Inspect deal health religiously.
- Prioritize: Focus on the right deals and don’t put much stock in the bad ones.
- Pursue: Put in the time and activity to drive your deals forward.
In many companies, the actual process of sales forecasting is a mess.
It’s usually managed by a combination of spreadsheets, offline reports, manual processes, and 1:1 or group conversations that are not tracked anywhere.
CRM is an essential system of record for business, but it was not designed to help you navigate the modern revenue process. As a result, teams turn to that hodgepodge that can’t alert you if you’re running short on pipeline for next quarter. Or show you that the deal you’re chasing is a dead end. Or predict where you’ll finish the quarter by week 3 so you can turn it around.
This kind of patchwork system is just begging for mistakes to be made, and for things to be missed.
The solution is to automate as many of these processes as possible.
This will both save time and improve your data quality.
Automation will also make your reps love you.
The sales activity data and metrics I mentioned previously are critical to making an accurate forecast, but no sales rep wants to spend their time tracking every email, call, or attachment sent.
And who can blame them?
It’s a painstaking, time-consuming process that distracts from what they should be doing — selling.
5. Look beyond 90 days
I see so many go-to-market teams miss on forecasting because they’re not looking far enough out.
It’s the 90:10 mistake.
They are 90% focused on the current quarter and only 10% focused on out-quarters.
It’s great to be focused on executing the deals in front of you, but it shouldn’t come at the expense of the rest of the year.
If you’re not properly preparing, inspecting, and progressing the next quarter’s pipeline, you’ll soon find your headed for an iceberg, and you won’t have time to correct course
Unless you’re in a highly transactional business, what you do today impacts how you’re going to do 2–3 quarters from now.
Shift from 90:10 to 60:40.
Your focus should still be on closing the deals in front of you, but you can’t be blind to what’s coming up.
Make future quarters part of your regular cadence, and involve everyone. You should have Revenue Operations (Rev Ops), Sales, Marketing, SDRs, and Channel working together on building the pipeline.
Revenue is a team sport that requires all players to be on the same page and working toward a shared goal.
How Does Your Forecast Process Compare?
I’m a big believer that the forecast is the most important number in your company, and if you’re not constantly finding ways to improve the process, you could be doing yourself a disservice.
Take a look at your forecast process and ask yourself:
- Is it a defined and repeatable process?
- Do you have a set of metrics you track?
- Do you regularly inspect your pipeline for gaps?
- Are you automating your data collection?
- Are you looking at your out-quarter forecast to increase predictable revenue?
If you answered no to any of these questions, there is more work to be done. Find out where the gaps are, plug the holes, improve your forecast, and reap the benefits.