Most people start their day by grabbing the remote control, turning on the TV and checking that day's weather report. "There's a fifty percent chance of rain today," says the weatherman. Fifty percent? In other words, it may rain today or it may not. This is not exactly what I would call information that empowers me to make decisions on my day.
What if the weatherman on channel 2 says it will be "partly cloudy?" And, the weatherman on channel 4 makes the call for "mostly sunny." Weather forecasting is all open to interpretation which makes it difficult for the recipient of the data to make heads or tails of it.
When it comes to sales forecasting, most sales leaders use a percentage ranking system. However, there is often an element missing. Imagine you have ten sales people on your team. Each person has a deal forecasted at forty percent chance to close. Without a definition that corresponds with the percentage, there could be ten deals at totally different stages of the process reported at forty percent. In other words, the forecast data is completely meaningless as the percentages have no context.
To design an effective sales forecast methodology:
1. Analyze your sales process and document each step.
2. Based on historical sales success, correlate a percentage (or a percentage range) for each process step.
3. Assign a clear definition for each process step that corresponds with a percentage.
4. Train your sellers on the methodology and hold them accountable for correct forecasting.
5. Be sure your CRM is configured to support your forecasting methodology.
How important is forecasting accuracy? Ask the product seller who can't get an order through because there isn't enough product on hand. Or, the services sales person who can't get her deal done because there aren't enough people on the team to support it. Or even the sales leader who was fired because the company over purchased product based on the reported forecast.
While it may cause chuckles when the weathermen are inconsistent, there is nothing funny about sales management executives who cannot accurately forecast sales.