It was the night before new years and all through the house, not a creature was stirring… unless it’s sales trying to make their year-end forecast. Or perhaps they’ve given up and are trying to figure out how they got into this position.
The sales forecast is the single most visible metric in corporate business today. Profits may be more important, but the sales forecast is more visible.
Sales forecasting in many companies is essentially a negotiation process. The CEO negotiates with the board. He gives them a number he thinks they might buy and hopes to hell the VP of Sales, by some miracle, can make. When the VP of Sales gives a number to the CEO, he low-balls it, because he knows the CEO will over-extend them with the board. He gives his people targets he knows will be really difficult to make, but with good intention, because he wants them to stretch and to be in sales you must be optimistic. Sales people and marketing people negotiate with the VP of Sales. It often has little to do with reality, even though it’s guised in bottom up process.
I know this sounds cynical. But go talk to the VP of Manufacturing or Services; he’s busy dividing everything he hears by two so he doesn’t get stuck with excess inventory or too high a headcount.
In many, but not all, organizations the whole forecasting process pretty much sucks.
A key symptom is multiple forecast numbers. There’s the one that everybody thinks they can make, but no one has the courage to fight for, and then there’s the one that gets imposed because no one trusts that people will really do what they say. The problem is that there are multiple forecasts; the actual one, the stretch one, the one you told the boss, the backup, the worst case, and the other one.
Everyone knows there are multiple forecasts, that’s why the VP of Mfg is hedging his bets. But no one knows which one is the real one.
So what would happen if everyone trusted each other and had just one forecast. The one everyone thought would be challenging, but was realistic? Make this year’s New Year’s Resolution to trust your people and have just one forecast. It’s surprising how hard a team will work when they are fighting for the same thing. On the other hand you can have multiple forecasts and look for someone to blame.
The first thing the CEO tells the board when the sales forecast numbers are bad after he sites the economy is… “You know, I just may have a problem with ‘Sales’.” (Translate VP of Sales.) This buys him another nine months. But its not the reason the VP of Sales is the most fired position. It’s because he succumbed to multiple forecasts. As a result he communicated mistrust to his organization. That results in lack of performance.
God bless those souls that make their forecasts… those out on the front lines. It’s not easy. It’s hard work. Those that succeed have a team behind them. And one forecast.
Excellent Blog Lee! I agree whole heartedly on the concepts you mention and the reality of forecasting in many many corporations.
There are some answers to this problem in addition to trusting your people.
Here are some thoughts on providing an accurate forecast to yourself (sales person, manager, executive).
Challenge:
Our pipeline is more like a “sewer line”.
Providing more objective pipeline forecasts
By defining a mutually agreed upon ‘evaluation plan’ with prospects or customers about what they and you need to know to buy your products and services provides clarity to opportunities in the pipeline. These ‘evaluation plans’ include decision points or milestones that when completed in a mutually satisfactory manner, can result in moving an opportunity towards a successful conclusion for both parties.
This ‘evaluation plan’, when negotiated with objective measurement of each decision point or milestone, allows the determination of a statistically valid assessment of the quality of the individual sales territory pipeline. The cumulative sales pipeline of all individuals allows sales managers an ability to determine not only the current month’s revenue forecast, but also the quality of the sales pipeline with sufficient notification to allow corrective action.
Accordingly, senior management is then allowed the capability to determine the size, quality, and needed corrective action to ensure successful revenue generation on a continuing basis.
Unfortunately, though few organizations have ‘objective’ milestones to measure sales opportunities, thus, they are forced to come up with multiple views of the forecast:
Stretch, Expected, Most Likely,…….and on and on!
You are spot on when talking about using objective criteria for forecasting as well as a mutually defined ‘evaluation plan’. I also find very few sales organizations use either of these approachs. The question is why?
One possibility is that it’s difficult to work through a mutual plan if one is not listening to the customer, but telling them what they need. Of course not many will admit to this behavior