Why your sales team stinks at forecasting revenue
According to a CSO Insights 2016 study of 1,200 sales organizations, on average, a sales person who forecasts a deal to close will win that deal only 45.8% of the time. In contrast, the odds of winning at roulette on a “pass” bet are 49.29%!
So, sales teams stand a better chance of winning at roulette than they do at closing a forecasted deal. If that isn’t scary enough, when I ask clients and prospects to estimate their close rates (without looking at their data), they believe their win rate on forecasted deals to be 60%, or greater.
So, how can we improve the forecast accuracy of sales teams?
Believe it or not, the answer doesn’t lie in increased focus on forecasting or a different set of forecasting rules. The answer lies in the sales pipeline of opportunities that underpin the forecast.
To gather the insights required to solve forecast accuracy, we must first be honest with ourselves about the forecast and pipeline.
Here are some underlying truths about forecast and the underlying pipeline:
1. The preponderance of deals in most sales opportunity pipelines are truly unqualified.
2. Because sales pipelines are full of weak, semi-qualified deals, a sales person who is under pressure to forecast “the number” must choose from deals that are not truly in the late stages of closing.
3. Managers who are also under pressure from their senior leaders to produce numbers have little choice but to direct the sales person’s time and energy on pulling in and delivering these weakly-forecasted opportunities.
And so, the majority of sales teams stink at forecasting.
It’s time for we, the sales profession (sales people, management and leadership) to regain control of the process that has lead to such disastrous forecast accuracy. We owe it to ourselves to do 3 things.
Firstly, we have to review and re-define the qualification criteria and sales pipeline stage definitions that are at the heart of weak pipelines and poor forecast accuracy. (Part 2 of this series)
Secondly, we must take stock of our teams’ pipelines. We must re-qualify every deal, reclassify the deal based on the new sales stage definitions, and clean out the rubbish. (In part 3 of this series, we will investigate how to do this)
And thirdly, we must completely flip-flop our sales cultures and conversations from an almost pure focus on forecast to near-complete focus on building a strong pipeline of well-qualified opportunities. (Part 4 of this series)
Let’s face it, our credibility and reputation as sales leadership professionals is at stake, here! A 45.8% close rate on forecasted deals is terrible and we owe it to ourselves to be honest with ourselves and fix forecast accuracy once and for all.
Parts 2, 3, and 4 of this series are intended to do just that! Stay tuned.
Question: Did the 45.8% close rate of forecasted deals surprise any of you? I know it surprised me. I would love your thoughts.
Matt Oess is a Strategy, Sales & Marketing partner in TechCXO’s Atlanta office. See Matt’s full bio or contact him: firstname.lastname@example.org.