As we enter the second quarter of 2019, many companies on calendar fiscal years are asking their sales departments for revenue forecasts that reach out to the end of the year. In this four-part series, we’ll provide suggestions on how to improve the accuracy of revenue forecasts and the issues that can influence it.
Part 1: Want Forecast Accuracy? Get to Know Your Client Base.
Recently we’ve seen many of the sales executives we work with investing in data-driven tools and process redesign. These investments are intended to capture new sales data or report on existing sales data in new ways, such as, for instance, using trendline analysis of individual or team sales results. This approach is perhaps not surprising; after years of being burned by overly optimistic guidance from reps or their managers, many sales executives have decided there’s less risk in using powerful new data analysis tools to leverage historical facts as the basis for forecasts of future sales results.
But while we agree that forecast accuracy can never be achieved without facts and data, only the right facts and data will drive the improvements sales executives seek; otherwise, you’ll soon find yourself drowning in metrics and data points that are of little use in improving the accuracy of revenue forecasts, whatever the time horizon you are looking at.
So, where to start, and what to learn?
We recommend you start with an in-depth understanding of your client base. Knowing as much about them and their attitudes, beliefs and motivations both before and during your sales engagement will provide valuable insights that should inform your sales process and shape the expectations you should have regarding the type of sales cycle you’ll be engaged in and the timing of that sales cycle. Here are a few examples of things you should know about your client:
- How critical is your product to their success?
- What drives demand? Is the client acting or reacting?
- Is there a possibility for repeat or follow-on sales?
- Will they buy with capital or expense dollars?
- What’s the risk profile related to your product?
- What can they gain from buying?
- What can they lose from buying?
- How compelling is the financial case for buying?
- What is the buyer’s attitude toward sales and sales people?
- What is their likely buying process?
- How structured is it?
- How long is the typical buying cycle?
- Does it fluctuate widely from deal to deal?
- What causes these fluctuations?
- Who will be involved in giving you the work?
- What is the level of client senior executive visibility into the transaction?
While the answers to these questions can’t all be easily incorporated into a Salesforce.com checklist, they are very likely going to shape your sales engagement in meaningful ways. For example, one of our clients provides corporations services focused on reducing the cost of their legal discovery process. Buyers in these cases are likely to be reacting, with a great deal of money (and, equally important, personal and organizational risk) on the line and very little time to decide who to buy from. The buyers are often lawyers who have a distaste for being sold to by salespeople. While procurement may be involved, their participation is likely to be focused more on security and confidentiality than on price. These factors are all important data points for any vendor seeking to sell to these corporations and the successful vendor will execute a sales process that is designed to leverage this information in a way that increases the chances of success while also creating a database of dependable information critical to accurate sales forecasting.
In Part 2 of this series, we’ll discuss ways in which your sales process can influence sales forecast accuracy.