Chapter 21
Being Realistic with Forecasts
IN THIS CHAPTER
Understanding the fundamentals of forecasting new business
Letting your CRM do the hard work for you
Making sure your forecasts are accurate and qualified
You may have seen posters and T-shirts that proclaim “Managing Director: We do precision guesswork based on unreliable data provided by those of questionable knowledge.” Although this statement is funny on its face, there’s more than a grain of truth in it. Actually, it makes me cringe because I’ve been one of those new business salespeople who provided unreliable data!
This chapter is all about forecasting as it’s used in winning new business and its role alongside budgets and targets. Here’s a brief definition to these terms:
- Forecasting is the operational numbers. Simply stated, they are the numbers that count the most because they deal with reality on the streets and not a wish list in the boardroom. By operational numbers, I mean the revenue forecast that you see as being achieved in practice from each of your live deals, and not a plucked-out-of-the-air planning number based on a standard project. The operational numbers may be higher or lower than the expected norm, but the point is that they have to be forecast as being realistic and achievable. The numbers themselves include revenue and profitability as a minimum and, depending on your business, may also include things like number of licenses or other specific measurements that your company needs to know about.
- Budgets are the figures that the company bases its financial projections and profit and loss (P&L) plans on, looking at the big picture typically for the next 12 months. New business salespeople have little or no involvement at this stage because it tends to be done at board level and handed down the management chain of command.
- Targets are the new business salesperson’s driving force, dictated by sales management and usually set in stone for the year. They do sometimes change as the year progresses, and that is usually only in an upward direction based on other pressures being brought to bear. Targets are what commission plans are based on and, for the new business salesperson, are very important and meaningful figures.
Forecasting is a key part of the new business role, so take it seriously. Don’t forecast in isolation, and do take responsibility for it. You’ll always have an element of guesswork involved when forecasting, but the new business sales role involves helping to eliminate as much of the guesswork as possible. You have tools at your disposal to help achieve this, which I explore in this chapter.
Introducing the Basics of Forecasting
The budgets and targets are set, and the year is underway. You likely have to produce forecasts on a monthly basis showing the new business wins and revenue that you’re projecting. If not, then you may wonder what your sales managers are actually doing — forecasting is that important to the role. The following sections describe the importance of taking responsibility for accurate forecasting numbers and the fundamentals of the forecasting process.
You need to be aware of and avoid the mindset of “it’s just a forecast; it doesn’t matter.” Your forecasts do matter; they matter a lot for reasons that I explore in this chapter. Sometimes they seem like a waste of valuable selling time, but you need to avoid this way of thinking. That’s often easier to say than to achieve — believe me, I’ve been there!
Taking responsibility
You’ve most likely heard the apocryphal story of the Great War coded signal passed from the trenches back to Command HQ via a series of intermediaries, where the original message of “send reinforcements, we’re going to advance” got altered along the way to “send three and fourpence, we’re going to a dance.” Needless to say, the requested reinforcements never arrived.
The point is that messages can subtly change as they pass from level to level, not always deliberately, but they end up with a slightly different spin on them so that by the time senior management gets them, they can portray a different message from the one originally intended. In the field of forecasting, this can cause all sorts of problems, and you need to take responsibility to ensure that your actual figures are the ones senior management uses to make decisions. When forecasts are proved to be incorrect, you can be sure that the finger of blame points firmly in the new business salesperson’s direction unless you’re proactive here.
A forecast isn’t a wish list, nor is it a best-case scenario. It’s intended to be a true reflection of the sales and revenue that you believe will be delivered in the forecast period. You need to base your figures on reality. If a deal isn’t going to close in this period, don’t forecast it. Take responsibility and set expectations accordingly. Errors at the source, your figures, are magnified as the data moves through levels of management, so make sure that your submissions are true and accurate. (I discuss accurate forecasts in more detail later in this chapter.)
Generally, everyone in the chain of command has a go at working with your figures and is likely to defend this task as adding value. You may see it more akin to interference. I’ve seen situations where the forecast finally submitted bears little resemblance to the figures the new business sales team provided. In this case, it’s important to push back and to maintain a sense of realism. They are your figures, so be prepared to defend them. There’s nothing wrong with people checking them, and you should expect that, but you shouldn’t expect massive changes, especially if they have your name attached to them.
Understanding the forecasting process
The forecasting process differs between companies. In your role as forecaster, you should understand both what you’re expected to provide and how it will be used. Make sure you know who will see your forecast and how it fits into management planning.
At its most basic, forecasting is taking the most likely outcome of each new business opportunity closing in the current period and, considering the most likely invoiceable value, adding value to this number based on your unique understanding of the dynamics of each sales cycle. It is really only new business salespeople who can provide these accurate forecasts because they are the ones who are driving the process and have the on-the-ground view.
My rule of thumb for accurate forecasting is this: If it’s not qualified, then it’s not going to happen, so don’t forecast it. Add to this the fact that the better your qualification, the more accurate your forecast is going to be. Keeping these rules in mind will help you deliver accurate, achievable forecasts. See Chapters 9 and 19 for more about qualification.
How much time should forecasting take? By utilizing a good CRM system, as I discuss in the next section, the time shouldn’t be an issue, but you need to be prospecting, selling, and following up for as much time as you can, and anything that gets in the way of those key tasks needs to be managed carefully.
I once had a new business role where the managing director insisted on spending a full day each month going over forecast numbers with a fine-tooth comb and having me with him while he did it. He then proceeded to hound me several other times during a month to spend time on his forecasting spreadsheet. In all seriousness, I used to spend 10 percent of my working month “doing the numbers” rather than “getting the business,” and 10 percent of the month on forecasting is way over the top for a new business salesperson. It should take no more than a couple of hours to check and revise your forecasts when aided by effective use of a CRM system. Forecasting should not be a once-a-month exercise, but a living set of numbers updated continually to reflect the changing sales cycles.
Eliminating Errors with a Good CRM
In Chapter 9, I outline the use of good customer relationship management (CRM) systems as a tool in winning new business. CRM systems are software systems that act as a central repository for all the information about clients, suspects, and prospects, recording and tracking each change as it happens and using the accumulated intelligence to produce accurate reports and sales forecasts based on real, hard data. If you use your CRM correctly, and assuming it’s fit for purpose, it will make your new business forecasting much easier, automating a good part of the process.
Take away the guesswork by relying on the sales data that you collect every day as part of your job. Computers never lie; they just interpret the information you provide them with, and CRM systems are no different. “Garbage in, garbage out” was one of my early lessons when training as a programmer many years ago, and it’s true. Feed the CRM with real, accurate sales data, and you’ll get real and accurate forecasts. Use the CRM system correctly, and it will provide most of the forecasting information for your submissions at the click of a button. Your forecast should be a dynamic entity, so instead of having to revisit it frequently during the month, let the CRM do the number crunching based on the sales data you update it with. Remember to add weighting data to opportunities to arrive at the most accurate level of forecast.
Of course, you need human interaction to compile, review, and amend the reports, but learn to deal with facts and realities and to avoid gut instinct, because it’s rarely right.
Understanding your prospect’s buying cycle, which will differ from your sales cycle, is also key to ensuring that you correctly interpret messages that you receive and guards against making rash forecasting errors based on misunderstandings. Earlier in this chapter, I say that forecasting is a moving target, and it is. But that is no excuse for inconsistency. Constantly refine your forecast data, or rather let your CRM do the hard work, as you constantly refine your prospect qualification. Apply the same rules throughout your forecasting to provide consistency and to be able to track forecast movement over time. Tracking over time will provide sales management with the insight that they need.
If your forecast is inconsistent with your qualification data, that’s a big red flag that something isn’t right.
Providing Accurate Forecasts
Accurate forecasts are essential. People use them to determine the need for resources and to allocate those resources for the next period of time, and any mismatch between forecast and actual data will have a domino effect on the provision of resources. Forecasts are also important for cash flow planning, which is an essential element in running a business, so you can see that a lot rides on the accuracy of your forecast data, and it’s much more than a tool to beat you up with.
Resourcing decisions are based on forecast numbers, so you need to be prepared to defend your numbers to ensure that you have the necessary resources in place to implement the deals as they come in. Don’t complain if you don’t have the necessary resources to implement your deals if your forecast was wrong — because it’s your fault it was wrong. That’s the bottom line with forecasting new business.
As a new business salesperson, you need to lead from the front. If you forecast new business, make sure you deliver it. Your business is counting on you, and this is why new business salespeople are so well rewarded in today’s corporate world. Justify your elevated position in the company, and justify your salary by being the rainmaker — the one who goes out and delivers new business deal after new business deal, all accurately forecasted and therefore correctly resourced to ensure successful implementation.
Beware of the following:
- Especially early in your new business sales career, you may be tempted to build up your numbers to impress your sales managers. You have come into a job and have been given a set of scary-looking sales numbers to achieve, so why not add a bit of poetic license to the forecast to show what a great job you’re doing? This will come back to bite you in a big way, so avoid doing it at all costs.
- Equally important is to report fully and not hold deals back to look good as you bring them in as unexpected extras. This runs a severe risk of your company not being correctly resourced to implement your unexpected deals and in turn risks the customers being disappointed as the implementation fails. Finding that a deal has been compromised by you playing forecasting games won’t stand you in good stead. You’ll be the villain and not the hero for bringing in “unexpected” deals that you deliberately misforecasted.
- Forecasts need to be backed by solid qualification data; nothing else is good enough. The days of seat-of-the-pants forecasting have gone forever. Understand the risk, mitigate against it, and be realistic. You can no longer get away with (nor should you be able to) a “judgment call” forecast because you “know” that something unqualified is going to convert. Regardless of whether it closes or not, you now lose both ways.
Management likely won’t take your forecast numbers as is, and you’re probably going to have to defend them. They’ll compare your numbers to their numbers and draw their own conclusions — high among them is that your numbers are wrong. If your qualification matches your numbers, then push back and fight your corner, equally when your numbers are increased. Own your forecast numbers and be prepared to defend them under pressure from your sales managers. If you know your numbers and your deals, then push back when challenged.
I’ve been in the position a number of times where I’ve been given some forecast numbers to achieve that bear little resemblance to my forecast, and I’ve fought my corner every time and made sure that my misgivings have been documented when I’ve been overruled. This is not playing politics; it’s protecting yourself and your belief in your qualification. I don’t recall a “revised” forecast that has been handed down to ever have been accurate when not based on solid qualification, which it rarely is. It’s strange that “revised” forecasts are always higher, too!
You’ll find that managers use both top-down and bottom-up approaches to assess your numbers, and you’d be forgiven for thinking that if sales managers spent as much time focused on competitors as they do on checking up on their own staff, that the business would do a lot better. You could do worse than to remind sales managers of the difference between forecasts and budgets (as I explain at the start of this chapter) and to introduce some realism into the forecasting process. Maybe giving them this chapter to read will do the trick.