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Sales Forecasting – The Sales Manager’s Nightmare

September 15, 2010

Throughout my career, one of the most dreaded activities was sales forecasting. It is a dreaded but a necessary evil. Your sales people must be involved. Only they have firsthand knowledge of the account. If done properly, there are many aspects that cannot only help your business, but help the sales training process. It helps everyone determine strategies and directions for your top accounts. Don’t you want your salespeople thinking like business owners?

The strangest experience in forecasting was when I was with a German company and I projected only $100,000 in sales and actually had $600,000. They nearly killed me for selling too much. I thought they were crazy.

After some discussion, I started seeing their point. The effect on the company was enormous. If they would have known, they could have gotten new people. If they would have known, they could have gotten new equipment to produce product, and even more important projected their cash flow.

Sales forecasting is part science and part guesswork. There has to be a system in place to help the salesperson and sales management to forecast at least 80% of the sales in a simple succinct manner. Part of the problem is that some sales people are eternally optimistic, and others do not want to stick their necks out, so they forecast low. Without a system, you have no way of knowing and it becomes pure guesswork. At the same time, you do not want it taking too much time away from sales efforts. Or is that an excuse, hmmmm?

A CFO can really give you great forecasting tools. However, you will need to include subjective points like the following:

1. Historically what has your major accounts done?
2. If the account buys the same products next year, why will there be an increase or decrease?
3. Are there any new products in the pipeline?
4. What actions need to be taken before the sale is being made? Ie. Specifications, pilot plant testing, pricing acceptance, contract signing.
5. Who needs to help within in the organization and when?
6. If everything is successful, when can the first order be expected?
7. How much will that first order be?
8. What is the yearly potential?
9. What other new accounts do you expect and their volume?

No matter what expect a minimum of 10-20% deviation from their forecast. Anything more and they do not know their business. Use forecasting as a sales development and sales coaching tool.

5 Comments leave one →
  1. September 15, 2010 3:54 pm

    I agree, it’s an art at best. And, especially tricky in poor economic times! Who knows if anyone is going to buy ANYTHING?

    • September 29, 2010 8:57 am

      William, People will buy. It is just going to take longer, and the TRUST factor has become so much more important. I am finding that companies are looking for result based compensation plans and continuous guarantees. They want a return on their investment.

  2. September 16, 2010 9:09 am

    Great insights into some of the challenges of sales forecasting–especially appreciate your observations on the biases of sales people. As a vendor of sales forecasting solutions, we hear our customers struggle with this even after making it easier for their sales teams to systematically create their forecasts.

  3. October 13, 2010 12:43 pm

    Aaron,
    I would be interested in hearing more about your Sales Forecasting Solutions. If you can please e-mail me your website.

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