Last Monday, Geoffrey James over at the Sales Machine wrote an interesting blog about the value of sales forecasting, and conducted a poll eliciting votes on whether sales forecasts are more effort that they are worth. Last time I checked, the responses were pretty evenly balanced, with just a little more than half of the participants saying that sales forecasting was in fact not worth the effort.  You can read the full post here.  Because I believe accurate sales forecasting is fundamental to good business management I commented at length on the blog post.

I’ve added my comment below … but first here’s the ‘usual’ sequence of sales forecasting events that Geoffrey presented.

“Here is the six (6) step process that sales forecasts generally take:

• Step #1: The sales reps provide the forecast
• Step #2: The sales managers adjust the forecast
• Step #3: The sales VP re-adjust the forecast
• Step #4: The marketing VP does his own forecast
• Step #5: The head of manufacturing does his own forecast
• Step #6: The CEO makes up a new forecast”
  

Geoffrey then ask folks for their opinion, and as I said above, the respondents divided pretty equally into those who believed sales forecasting is a worthwhile activity, and those who believe it’s a waste of time and effort.

I’m not sure that the question “Is Sales Forecasting worth the effort?” is one that any business can really afford to ask.  It (sales forecasting) is something that you have to get right. Here’s the transcript of my contribution to the debate, which Geoffrey – in his own comment later – kindly acknowledged as being of value.

ddaly@thetasgroup.com

11/25/09 |

RE: Is Sales Forecasting Worth the Effort?

Hold on now!

Getting a accurate sales forecast is not optional to be able to run a business.

The question should not be “Is sales forecasting worth the effort?”, but rather “How do you make accurate sales forecasting easy?”

The challenge here is that the natural (and necessary) optimism of the sales person, and the human desire to please, usually results in inaccurate sales forecast.

But it does not have to be that way.

If you consider a scenario where the sales team follow a process that’s mapped to the customer’s buying process, then there are identifiable pieces of evidence that should inform the forecast. It seems asinine to me that sales people are asked to enter and update all the details of their deals, how it progresses, expected close date, current pipeline stage etc. into a CRM system, and then the sales person is asked to ‘guess’ whether and when the deal will close.

There’s not a lot of value being delivered to the sales person here.

Consider instead a system that learns about sales cycle, attributes of deals that close, length of time normally taken to progress through each stage, and guidance for the sales person (and sales manager) as to what might knock the deal off track. If those simple elements are tracked and managed, the system will have enough data to provide accurate forecasting for free.

Per Geoffrey’s post, way too much time is being spent by way too many people trying to solve a reporting problem, which should in fact be auto-generated based on objective (not subjective) automated assessment of the health of the deal, its place in the funnel, the typical remaining duration to close and a few other factors.

If you look in your CRM today, it’s likely that you’re going to see two things that are Darwinian in their stupidity. (i.e. they should not survive.)

1. You will most likely see deals that have a forecasted close date that is in the past. Not unless you can perform some pretty unnatural acts – that’s never going to happen. The CRM system should ‘know’ this.

2. Then you will see a forecast based on weighted value or closure probability of the deal. In other words, a $100,000 deal that is 60% likely to close is calculated as being worth $60,000 in forecast value. The truth however is that you never close 60% of a deal. You win it, or you lose it.

I won’t use this forum as a commercial, but the solution I use automatically removes these problems, learns about when deals close, and why they don’t, and automatically gives me sales forecasts that are more than 90% accurate 90 days out. My sales team don’t do anything to generate the forecast. I get it for free. But the forecast is accurate and I can use it to run my business.