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Cold Sweats About Your Sales Forecast?

Cold Sweats About Your Sales Forecast?

Full disclosure, I have missed every sales forecast. More than 130 quarters in sales and not once was I right.

Wait! What??? 

In reality, it’s rare that people hit their sales forecast exactly. Sometimes we are short and sometimes we overachieve, sometimes by a little and sometimes by a lot. Contrary to popular belief, it is not really a science and rather a tremendous amount of logic and experience properly applied.

“Yeah Mike, but public companies hit their EPS forecast to investors, right?”

Kind of. I have worked in public companies. There is a lot of maneuvering that happens before and during a quarter to hit guidance and the stock gets hammered when you miss by even a penny per share. When there is a miss, over or under, it works its way back to either the sales organization or delivery. Since we don’t manage delivery, let’s focus on sales.

We learn from our mistakes and failures. Years ago I had a big one that almost cost me my job. Here is what happened and here is what I learned from the experience.

I worked for a company where our Average Selling Price ( ASP ) was $28K, average sales cycle length was 73 days. Every quarter we would have 1-5 deals that were $100K or greater. Those deals when they closed created tremendous energy in the company and added to our valuation. We managed those deals as closely as if they were infants learning to walk. 

A few weeks before the end of our Q2, I sensed that three of those deals started to wobble. Buyers were getting stuck in their internal processes, summer doldrums were settling in. We weren’t losing the deals, but we were losing the process. I alerted the executive team that we had risk, however we didn’t revise the forecast. As we approached the last week it was clear the deals would slip and we were going to have a monstrous miss. Worse, we hadn’t alerted our BOD and to them it looked like I had no control over the process. In part that was true. I had taken too much faith with the prospects in part because our qualification process was ineffective. 

I was the leader and I owned the outcome. It stung worse than any deal I ever lost as an Individual Contributor.

Here is what I learned and you can too-

  • If you have $280K tied up in three deals where your ASP is $28K, you can’t have enough backfill if those deals slip or are lost. It would take 10 deals to replace them. That means you will need at least 40 SQLs ( presuming a 25% win rate). 
  • If your sale cycle time is 73 days, you need that backfill in process no later than the end of month 1 of your quarter. You can adjust accordingly based in your cycle times.
  • You must have a qualification process that validates a catalyst for a change (not pain), that there is a senior executive who owns the project and that there is a date to be in production that ties back to the quarter you expect to close your deal. Meaning, if you need 6 months to implement and the buy process will take 2 months, you need to forecast based on those two points. ( See also my writing about conversational qualifying ).
  • Do not forecast for 90% of your deals to close and NEVER for 100%. Forecast for 80% of your deals at the “Commit” stage to close. Commit does mean it will close, however the date may change for many reasons that are out of your control. Your finance team will call this “hedging”.

Have a forecast methodology that calculates a percent to close at different stages to get an increasingly accurate measure of where you will finish. As an example, you can use a variation of the following:

  • Worst ( Worst case scenario )= 80% of deals at “W” will close. These are deals where proposals have been accepted, or negotiations have started. These are your “Commit”
  • Expect = 40% of these deals will close. These are deals where demos are done. There are no technical impediments. A proposal is in process. Your Champion is giving you feedback that you are winning or should win the deal.
  • Best ( Best case scenario )= 20% of these deals will close. This is your universe of deals that are qualified and there is reasonable expectation of technical and financial fit.

The math looks like this-

100K at Worst = $80K closed/ won

200K at Expect= $80K closed/ won

500K at Best= $100K closed / won

Total forecast= $260K

It is your job and your team’s job to manage as tightly to the dates as possible, knowing that dates will slip no matter how much information and confirmation you have from your prospect.

Controlling your forecast is controlling your destiny. Otherwise you are guessing, wishing and hoping. That’s bad.

A final note to Sales and RevOps leaders. Humans impact forecast more than anything and for that reason I would caution you against investing in an AI solution to manage your forecast. Past performance can help predict an outcome, however it cannot solve for the infinite possibilities that exist when humans are involved. Getting forecast right may be the best job security you can have in today’s world.

 

About The Author

Mike Muhlfelder

The wisdom of age or just not shy with my personal perspective on selling. You decide. I am a dedicated sales leader with a passion for driving positive change in the B2B sales world, whether that is at the individual level or building/ rebuilding processes. Yes, I believe fully in AI and how it can benefit us but only if you fix the underlying processes before you add technology. If you don't agree with anything I have said or written, tell me. We start learning when we find out we are wrong.

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