Three essential steps to more accurate sales forecasting

Transcription

1 Mentor Group White Paper Three essential steps to more accurate sales forecasting One of the key measures of the competency of senior sales professionals across the globe is their ability to forecast sales. And accurate sales forecasting is vital to maximising sales team performance levels and driving revenues. So it shouldn t be a gamble. However, the chances of winning at roulette (47.5%) are higher than the standard accuracy for sales forecasting (46.5%), according to research by CSO Insights, which surveyed 700 sales teams worldwide. So why are sales professionals struggling to get this key measurement right? One important factor is the over-reliance on sales automation and CRM systems. Sales leaders are quickly learning that the technology itself is not the answer to accurate sales forecasting in that it is only as good as the data available and the effort put into analysing it. With sales teams under increasing pressure to do more with fewer resources, it s tempting to believe technology is a panacea that will solve the sales forecasting conundrum. What s more, many such systems are implemented as IT projects rather than sales initiatives, leaving sales staff lacking the necessary insight to get the most from the technology and left wondering: What s in it for me. Given the appropriate system, a good sales pipeline and the right training, these tools can lead best practice adoption and markedly increase sales success. However, given the appropriate system, a good sales pipeline and the right training, these tools can lead best practice adoption and markedly increase sales success. The catalyst to bringing all the key elements together in the right way is the sales manager. The starting point is examining the sales pipeline in a logical, simple and consistent way by asking three questions: How clean is the data? How healthy is the data? How sufficient is the data? Doing this properly can transform sales forecast accuracy.

2 How clean is your data? This basic requisite of a pipeline forecast is too often overlooked, with data present that simply should not be there. One of the biggest culprits is sales leads that are no longer hot or are beyond the deadline for the original need namely, beyond the point of closure. Another would be opportunities that close at the end of a month, or the close value of which ends in a round number customers rarely write out a purchase order ending in exactly 00. Account activity should also be reviewed to discover how much contact has taken place between the sales team and the potential lead with regards to the opportunity. The level of activity is a key indicator in the forecasting process. Regular contact and interaction signals a stronger more dependable lead that is likely to close more quickly and with a better outcome. Regularly review and challenge sales data. Working globally with clients, experience shows that dealing effectively with these factors can significantly boost sales forecast accuracy. Working globally with clients, experience shows that dealing effectively with these factors can significantly boost sales forecast accuracy. To do this, sales leaders must regularly review and challenge the sales team on their data, and critically access the quality of each lead. Key questions when during such reviews could include: Has data been updated to reflect the current situation? How many people within the opportunity are we speaking to? Are the opportunity dates realistic? How have you qualified this opportunity? If not, what do you need to do to get the necessary information? What are the timescales to take the next appropriate actions? Are there duplicate opportunities? Regularly reviews with the sales team in this way will mean the process will become second nature and it will become second nature to manage the pipeline based on key performance indicators. Clean KPI should resemble the list below, split appropriately by region, territory, product group, etc: Best practice KPI examples for cleaner data: Total number of opportunities past their due date Total value (revenue/profit) of opportunities past their due date Total number of opportunities with no activity for more than 21 days Total of duplicated or incorrectly entered opportunities Opportunities ending in.00 Opportunities ending on the last day of the month

3 How healthy is your sales data? The healthiness of data depends on the key factors relevant to an individual organisation, but there are some universal areas, such as exploring the spread of opportunities across the pipeline. Opportunities travel down the various stages of the sales funnel until they are closed. A healthy pipeline will have enough opportunities in each stage. It s also important to check the mobility of the opportunities to make sure none are getting stuck at a particular stage. This can identify cold leads, and also potential skills gaps in the sales team with respect to pushing opportunities through one or more key stages. Assessing the healthiness of a sales pipeline: What are the next actions needed to move the opportunity to the next stage? How long has this opportunity been at this stage? How does this compare with the average? Are we applying and engaging the correct resources on the opportunity? Given the salesperson s previous forecasting, are the dates realistic? Is the average deal size increasing or decreasing Given the timescales, are milestones being met by the customer? Are the opportunities moving through the sales cycle? Have any opportunities been at the same stage for too long? Are we facing any internal challenges to this opportunity? Why is the opportunity split between segmented accounts? What actions are the salesperson taking to increase or identify new opportunities? Have any opportunities moved backwards? Focusing on these questions can significantly improve the sales manager s knowledge of the pipeline, aiding forecasting. Focusing on these questions can significantly improve the sales manager s knowledge of the pipeline, aiding forecasting. They should also be familiar with the following KPIs that drive healthy pipelines. Best practice KPIs for healthier data: % of opportunities in each stage of the sales cycle Average length of time opportunities are in each stage of the sales cycle Total opportunities with no activity for more than 14 days Average number of contacts per account Opportunities with less than three contacts Opportunities pushed Total number of opportunities by sales rep (manager only) Close ratio by sales rep (manager only) Opportunities by forecast category Total number of opportunities pushed more than three times Total number of opportunities pushed by more that three months Total number of opportunities downgraded to the last stage of the cycle

4 How sufficient is your sales data? Many organisations follow a 3x metric as a guide to ensuring the opportunities in their pipeline are sufficient to enable the sales team to hit their targets. This is, however, largely arbitrary, as the multiplier depends on the actual close ratio of the salesperson or team. If a salesperson is closing one in five deals on average, a 3x approach will not be sufficient. If they are closing one in every two, they are likely to exceed target and it s just as dangerous to under-forecast as to over-forecast. The best way to look at sufficiency is to: 1. Know your salesperson s or team s actual close ratio 2. Look at sufficiency at each stage of the pipeline, not just as a whole Point 2 is vital as salespeople require far more opportunities early in the pipeline that at the end. Questions sales managers could ask their teams to examine sufficiency: What is our loss/win ratio and why have we lost or received reduced share? Given the AM s forecast accuracy, average order value and number of opportunities, how does this measure against the yearly target? What are the risks in losing or getting reduced percentage of the order? Are the opportunities moving through the sales cycle? Have any opportunities been at the same stage for too long? How does this compare to the average? Given the forecasting accuracy, are the dates realistic and do we have enough opportunities? Used correctly, these questions can help sales managers drive the right sales behaviours and the following sufficiency KPIs: Best practice KPIs for sufficient data: Quarter to date against target Year to date against target Current pipeline against chosen multiplier Average deal size week on week (profit/revenue) Total number of opportunities closing in the first month of the next reporting period (potential upside) Opportunities against forecast category

5 Summary Technology is a tool, not a solution to improving sales forecast accuracy, and is only as good as the information it is analysing. Such data should be clean, healthy and sufficient, as described above. To get the most from CRM and sales automation systems, sales teams need to be trained to enter the correct data in the right way, and understand why it s beneficial to use the technology, so that have the necessary motivation. This will help to ensure the pipeline is clean and healthy, with sufficient opportunities. To achieve this, sales managers need to engage regularly with their sales teams and review their sales opportunities to ensure they are: Clean Healthy Sufficient Only then can sales leaders be confident of the accuracy of their forecasting. About Mentor Founded in 1996, Mentor Group is now recognised as a leading global people and performance company that focuses on Sales Transformation and Organisational Leadership. We create integrated coaching programmes that use no-nonsense tools and metrics, incorporate outstanding technology and are delivered by over 200 instructors and coaches considered to be the best in their field. We enjoy long-standing relationships with our clients and work with over 70 active businesses, including FTSE100 companies, such as BP, British Standards Institution, Cisco, Computacenter, Dell, IGT, Microsoft, Skype, Amazon, Vodafone and Aon. Currently, we are operating programmes in over 57 countries worldwide in 20 different languages. Over 20 years, we have retained 90% of our clients through continually developing their core competencies. To download more of our white papers please visit us at solutions@mentorgroup.co.uk or call 44(0)