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How To Forecast Sales Part 1

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You’ve got a goal this year. A number. A target.

Will you hit it? Will your team?

It’s what you want to know. It’s what your CFO wants to know. It’s what your partners or investors want to know.

Forecasting is not as sexy as closing a big deal, but it’s nice if you like predictability.
It’s one of the biggest concerns CEOs and presidents share with me. It sounds like this:

“I don’t know what’s going to close.” “Our results are up and down.” “We have a hard time making investment decisions in the business because we don’t know what’s coming in.” “We have investors who want to see stability.”

Sound familiar?

You’re not alone. Owners and execs want to be as clear as possible on what’s going to happen with sales numbers. Without clarity on the revenue number, you can’t plan.

Today, we’re going to cover 1 of 4 parts in developing a clear view on your forecast.

But first, a word about your options on forecasting….

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There’s a whole industry out there – mostly tech tools –  promising to give you a clear picture on your forecast.

They’re proud of their products, too, and they price accordingly.

Here’s the primary problem with them: they’re asking technology to do the job of the salesperson and the sales manager. If those two are getting the right information the right way and logging it, those tools are great: they make forecasting easy, but it probably already was close enough to the pin.

If the manager and rep AREN’T getting you that information, you just lit money on fire. No tool will fix a behavior issue, despite the promises of Silicon Valley.

Instead, we’re going to dive into the elements of getting clarity on your sales numbers, and it won’t be mind-blowing. It will  be a clinic on the fundamentals of sales.

Think of it like this. In a few weeks, you’ll be watching the Olympics, and marveling at how great all those swimmers and sprinters look. You might think, “I need to get in shape.”

If a trainer tries to tell you an app is the solution to your problem, they’re probably not the right trainer. If they DO tell you it’s about eating clean, getting great sleep, giving up booze, the right mix of resistance training and cardio, you’re probably dealing with someone who can help you.

If you want to put in the work.  Are you ready to put in the work on your forecast?
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If you’re looking at the growth potential for a business, you want to start with the unit economics. How much margin does each sale produce? It’s a fundamental practice.

In the case of forecasting, we want to look at how each sale (especially on higher ticket products or services) is managed. It’s our building block.

It’s about the process.

And most sales processes I have seen since 2008 are not just inadequate, but they mislead both sales and finance into believing there’s more “there” than there really is.

When I ask companies about their sales process, it’s usually designed as a series of events, that go something like this:

  • Create a lead through digital marketing, events, or cold calling
  • Gather some basic information
  • Demo or present
  • Propose/try to close
  • Deal with objections (you may call it, “negotiate” in your process)

Heck, some CRMs come out of the box with some format like this. They’re even assigned certain percentages, which are largely arbitrary, and not based on any sort of regression model.

So what and who cares? What’s wrong with this?

First, these processes aren’t designed to GET information. They’re built around events, and those events ASSUME a certain level of information is gathered. In truth, though, it’s not. They lack key milestones that would provide sales and finance what they need to make a call on pursuing the deal, and forecasting it.

Second, these processes, even if they have some of these milestones (they never have all of them, or even most of the right ones), don’t have them in the right order.

Here’s an example, and it resonates with 100% of honest salespeople I meet: salespeople find a prospect who shows some evidence of a need (Thank you, BANT). They then proceed to educate the prospect on their solution and how it’ll solve their problem.

Simple enough, right?

Not so fast, my friend.
The rep, having presented a solution he or she feels is appropriate for the “need” finds out one of the following (choose your own adventure) LATER:

  • It’s not that pressing
  • There’s no budget
  • Someone else makes the call on this product
  • They want it, but next year
  • Or… something else

You’re reading this and thinking, “Well, they didn’t qualify them.” Fair enough. But rarely do sales processes ask for proper qualification.

So there are a lot of opportunities in the pipeline that “look good” to someone who hopes they’ll close. Why? Because a prospect said, “You guys look good.” “We like your product/service.” “That was a great demo or proposal.”

And it’s now forecast at 60 or 70 or 80%.

But in reality, nowhere close to that likely to close.

Want proof? If you have a CRM, do a check on your historical close rates by stage in the CRM. Is the percentage likelihood assigned to that stage the same as the actual closing rate? Prove to me that it is and lunch is on me.

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So what do we do?

You need a sales process that meets the following criteria:

  • It has the right stages
  • WIth the right milestones that both sales and finance need
  • In the right order
  • And everyone follows it

First – I stage opportunities with Suspect (lead), Prospect, Qualified, and Closeable. For some industries, we have 1-2 more stages, but never more. These are NOT events.

We don’t do Discovery → Demo → Present → Negotiate. Those are events.

We want stages where information is gathered – on both sides – that either advances or kills the opportunity.

Second, the milestones have to be in the stages. Here are some of the most crucial I have all my clients include, along with the rough order I put them in:

  • Need
  • Compelling reason to buy
  • A commitment to solve the issue
  • A willingness to spend more to get it done right
  • Access to the people who make the decision
  • A clear understanding of how the purchase is made, and the criteria

The Needs and reasons for buying are very different. As is a commitment to solve the problem. These all need to be thoroughly discussed with prospects. If so, it builds the sellers conviction in the deal, and raises the likelihood of a sale being made.

Most of the time, however, the salesperson is guessing as to what’s going to happen.  But saying, “We have a good shot at this. They like us. I feel good.”

And finance, when hearing what sales “actually” knows about the deal is thinking….
Because they know that it’s a longshot.

When sales reps are finding the right information, and in the right order (sequence matters), they get clarity. And they can pass it on.

Finally, everyone has to follow it. When I work with sales teams, so many want to “be themselves,” and “do it their way.”

I’m all for personality, if it helps win business. But I’m not for running backs, offensive linemen and quarterbacks all running different plays in football, and i”m not for different salespeople selling the same products or services running different processes.

One, it’s hard to manage.

Two, it makes forecasting impossible because the forecast is a roll up.

Yes, salespeople can use their flair, style, personality. I’m fine with that. They do need to get certain information in a certain order and be able to clearly articulate what they uncovered.  Do that, and they can be as unique as they want.

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Imagine this.

You’re looking at a pipeline report. You see the deals and the stages they’re in. You’re asking yourself, “How will we do this month/quarter/year?”

But you don’t just see them in the stages.

You know that each stage has requirements for deals to pass through. So you’re confident that the sales team has gathered all the right information.

They know that there’s not just a need, but a reason to buy. It’s been articulated. They know timelines, who cares about the problem, and that there’s commitment to solving it. They also know how decisions will be made.

What’s more, every rep on your team is aligned on this process. Some are better at it than others, but no one is winging it, or wandering off the reservation.

They’re all locked in on running a great process.

How do you feel about your ability to forecast now?

Better, right?

In our next article, we’ll dig into pipeline reviews and how to inspect deals. Just because there’s fancy software out there promising to leverage AI to predict close rates doesn’t mean it works.

You or your managers still have to inspect what’s happening on phone calls, Zoom meetings, and in the field. We’ll show you how.

 

 

Adam Boyd