In most businesses, risk is a well-understood factor and usually equally well mitigated. Many companies have a risk register and if you are an insurance company then your risk appetite defines how you conduct your business. Yet there is one form of risk that lurks unseen in many organisations because it is not identified as such. It manifests itself in other terminology or is obscured by the way that those who have created the risks describe it initially.
It is the risk in your sales forecast. Most sales managers don’t refer to it as such preferring instead to have categories of probability such as “upside” and “committed” and so on. These terms are usually defined by the sales team according to input from individual salespeople which in turn comes from often subjective assessments of the pipeline of opportunities they are working on at any given moment. The real issue here is that many of the assumptions inherent in the classification of each opportunity in the CRM system amount to little more than a “WAG” – a Wild Ass Guess.
Inevitably, these numbers get rolled up to a consolidated statement seen by senior management, who then base all kinds of business decisions on the information presented to them. But what if the forecasted numbers were grossly overstated? And an investment was approved by the board that then failed to materialise as the predicted sales don’t arrive? Or what if an investment was abandoned because the forecast for new business was too low and a great opportunity was missed?
Given the potential for decisions to be compromised in these and other ways as a result of sales forecasts that are simply not reliable, this should be causing executives and sales leaders many sleepless nights. But it appears not to be the case, as the anecdotal evidence at least is that the discipline of forecasting is still highly variable and driven by emotions as often as it is by data. This cannot continue. If your business is managed this way, it’s only a matter of time before a rogue forecast causes you some serious problems. So, what are you doing about it?
The first thing you should be doing is getting a lot more objectivity into your forecast. How to do that? Firstly, realise and accept that customers do not behave or act the way your existing process expects – which is in a linear, predictable progression. Secondly, recognise that unless you have a simple, repeatable and consistent backbone to how you forecast then you are factoring in avoidable risks – not just for your own performance, but for the organisation as a whole.
To deal with these two problems, Essential Sales Process was created, and it provides a simple, yet powerful approach to get the consistency, objectivity, and accuracy that most current methods do not provide across all the members of your sales team. The first step is to use checklists – simple, clear, verifiable data that you collect, record and manage to determine the status of any opportunity. Next, separate the aspects of the opportunity into more manageable “streams” so that each one can be worked on independently of the others thus allowing the team to assess the opportunity from more angles, but all with a consistent set of definitions. Finally, present this information in a clear visual format that gives managers “at a glance” views of where each opportunity is in the sales cycle.
You then determine what is forecasted, and to what degree of confidence, based on the accumulated information from multiple, cross-referenceable sources. Anything which does not meet the agreed criteria for inclusion is held back. Anything which goes forward is a known entity and the accuracy of the expectation of the business being concluded is well understood.
Of course, things can still change and when they do, you simply re-run those parts of the process until you have the information needed to get your opportunity back on track, or qualify it out. This means that opportunities that previously would have been included based on guesswork are now excluded based on data. The risk of an overstated forecast has been reduced and mitigated. That’s not just good business practice, it is essential sales process.