There is hardly a leader on earth that doesn’t yearn for accurate, predictable sales pipeline forecasting. The good news is that there are three elements of sales forecasting, that when mastered, will give you the peace of mind that your sales forecasts will hit the mark.
At Sales Gravy, in our roles as sales acceleration consultants we regularly observe sales organizations and sales leaders making egregious sales pipeline forecasting errors. The result is frustration, loss of confidence, and when forecasts are missed too often, shortened careers.
A Check that Should Not Bounce
In this article I take on the math and methodology that drives accurate sales forecasting. Let’s begin, though, with a discussion of company culture, leaderships and mindset around sales pipeline forecasts.
For some organizations, when individual salespeople and their leaders miss forecasts there is no penalty. Since there is no penalty, the forecast is perpetually out of sync with reality. Many of these organizations have the bad habit of rewarding people who lie about their forecast.
Do Not Reward Lying
I remember a brand new vice president of sales who, through his poor leadership, rewarded and perpetuated lying. An early conversation with him that went like this:
Me:“Dan, that’s the best we can possibly do. The math just doesn’t support getting to a higher number this month. I don’t want to make a promise that I can’t keep.”
Dan:“Well, it’s not good enough! I need more from you than this. You need to go find it.”
Me:“Dan, I promise that I’m not holding anything back. With our current sales cycle and supply chain timelines we will not be able to give you more. If I promised you more it would be a lie.”
Dan:“Look Jeb, I don’t want to hear it. I need more from you. So give me a better forecast! You have until the end of the day to come up with an acceptable number.”
So, I did, as did the other sales leaders in our organization. We all missed.
Dan gave me a big pat on the back for giving him a number he wanted to hear. I learned fast that it was easier to make him happy than to tell the truth.
This went on for ten months until Dan was fired for missing his forecast every month. Senior leadership was not amused with Dan’s bounced checks.
Leaders Get the Behaviors They Reward
When it comes to predictable sales pipeline forecasting, you cannot be delusional and successful at the same time.
This is important: you get the behaviors you reward.
Therefore, the fastest track to inaccurate, un-predictable forecasts is the reward people for lying about their forecast.
Pair that with no penalty or a light penalty for missing forecast and you have a perfect storm of frustration.
A Line in the Sand
The best leaders I’ve ever worked for took a different tact. They rewarded the truth and severely penalized bounced checks.
Their philosophy was simple: When you give me a sales pipeline forecast, your are writing a check that better not bounce.
Likewise, if you sandbagged and way over delivered, there were penalties. The objective was truth and accuracy because this is the only path to trust and peace of mind.
What I loved most about these leaders was their belief that with the truth on the table up front, the future can be changed.
If you came in with a forecast that was below quota or budget, rather than beating you up, they’d sit down with you and build a plan for changing the future.
This was a whole lot easier at the beginning of the quarter than getting surprised at the end of the quarter (see Dan) and scrambling through a fire drill in a fruitless attempt to hit a flawed forecast.
Predictable Sales Pipeline Forecasting is a Mix of Math and Art
Let’s dispense with any pretext that there is any formula that will deliver a perfect forecast every time because, there is not. No matter how dialed in you are, sometimes you’ll miss and sometimes you’ll over perform.
Therefore the goal isn’t perfection. Instead, it is narrowing the variability of your forecast which, improves predictability.
Bad Sales Forecasting Math
As I discussed in my book Sales EQ, the vast majority of sales organizations derive their forecast from pipeline opportunity stage. These organizations have applied a percentage to each stage and use that percentage multiplied by the projected revenue of the deal to create a forecast.
For example: If a $10,000 opportunity is in the “Discovery” phase which has been determined to be 30% to closed/won in the CRM, then the forecast for that deal, at that point in time, is $3,000.
Sales organizations choose this flawed methodology because it is easy.
It requires no critical thinking and no courage on the part of sales leaders to dive into the pipeline and hold people accountable. Just plug the stages and percentages into the CRM and voilà, you have a sales pipeline forecast on the dashboard.
Not surprisingly, organizations that leverage the stages-based forecasting methodology rarely have accurate and predictable sales forecasts. Yet, they are consistently and predictably plagued by end-of-the-quarter fire drills in their attempts to make up for the inaccuracy inherent in this approach.
There is a better way. For sales organizations it requires that you develop a culture that expects accurate sales forecasts and that you train your leaders how to coach the pipeline and forecasting. Leaders will need to master a combination math, art, intuition, and managerial courage.
Good sales forecasting math begins with a focus on the PROBABILITY that the deal will CLOSE within a certain TIME FRAME.
The flawed stage-based forecasting model attempts to mimic this. Except, it doesn’t work because deal stage does not equate to the probability that a deal will close. It is simply a measure of a place in time NOT the viability of the deal itself.
A focus on win probability is how the game of sales should be played. It is the beginning and end of predictable sales forecasts.
Here is the rub though: If sales leaders are not intimately engaged with their people on deal strategy and consistently assessing the quality, qualifications, and viability of the deals in the pipeline they will never achieve sales forecast accuracy.
Listen as Jeb Discusses Sales Forecast Predictability on this Enterprise Sales Podcast Episode
The Three Elements of Predictable Sales Pipeline Forecasting
The good news, is that there are only three elements that drive sales forecast accuracy.
When each of these elements is as accurate as possible, you get predictable and accurate forecasts.When sales leaders master coaching these elements, they will keep their fingers firmly on the pulse of sales performance and forecast accuracy will improve almost immediately.
The value of pipeline opportunities is consistently over-estimated by optimistic salespeople.
But, this is who they are and it’s a good thing. Optimistic salespeople out-perform pessimistic salespeople.
Yet, optimism makes for poor deal value forecasting.
For this reason, sales leaders must provide regular and ongoing training and coaching on how to place value on deals. They must teach their salespeople the math.
Along with this, leaders must have the courage to step in and actively adjust the value of deals in the pipeline. Otherwise, deal values will be inflated and forecasts missed.
Likewise salespeople have a very bad habit of detaching from reality when estimating how quickly they’ll close a deal. I have rarely met a salesperson who doesn’t believe that THEY have SUPER POWERS and can get ink faster than the sales cycle indicates is possible.
This detachment from reality also causes salespeople to skip stages in the sales process or believe that they are, for example, in the presentation stage when, in fact, they’re in the qualification stage.
With sales forecasting, timing is everything. If you are not accurately predicting when deals will close you have no hope for predictable forecasts.
Setting accurate close dates is a bit of art and science. There are variables like deal size, scope, deal qualifiers, stakeholder array, urgency, economic and market conditions, and competitors. Certainly, for some deals it is much easier to predict cycle time than others.
Regardless, sales leaders must be intimately involved with assessing and setting close dates. The good news, is this forces and compels sales leaders to coach deal strategy.
I previously stated that Win Probability is a the heart of forecast accuracy. Each deal in the pipeline has between a zero and ninety-nine percent probability of closing during the forecast period.
The formula is simple:
1. Make a list the deals projected to close during the forecast period
2. Project an accurate value for each of those deals
3. Determine the win probability of each deal at the moment you are forecasting
Probability x Deal Value = Forecast
Determining win probability though is the true art of predictable sales pipeline forecasting.
It requires salespeople and their leaders to accurately assess deal qualification points, stage, access to decision makers, competitive entrenchment, momentum and even the level and intensity of stakeholder engagement.
Salespeople will typically inflate win probability and as such, leaders must check and balance their optimism.
This requires leaders to ask deeper questions about deals, leverage past experience, and pay close attention to their intuition. They must have the courage to constantly challenge sales rep (and their own) assumptions during regular pipeline reviews.
Predictable Sales Pipeline Forecasts and Better Salespeople
This three part model works and is exceptionally accurate under one condition: LEADERSHIP
It is not a set-it-and-forget-it sales management process. Leaders, across the sales organization, must demonstrate leadership and be engaged in the process.
This, though, has a positive side effect. When leaders get more engaged, they do more coaching. With more coaching, sales forecasts get more predictable and salespeople get better.