Would you confidently share your sales department forecast with your banker? Most business leaders view the idea of a “bankable forecast” as the epitome of an oxymoron.
Projected sales forecast data is almost always discounted before sharing it with anyone outside the company. Informal executive surveys indicate 50 percent is a commonly used discount factor.
One executive was so frustrated with the perpetual roller-coaster sales forecast data that he threatened to move the annual sales meeting to Havana, and drive the sales staff to Gitmo to get the real data out of the reps!
A management challenge
Executives are pleased when the forecast numbers are increasing. Sales reps learn quickly their lives are more enjoyable when leadership is optimistic; a little upside bias in the forecast numbers has perks.
Managing these behaviors is a leadership challenge for the chief revenue officer (CRO), the position in any business whose responsibilities include generating the required revenue to fund the business, deliver a profit and grow the company.
At its foundation, forecast accuracy is the report card of your sales qualifying process. Inaccurate sales forecasting always signals that the qualifying steps in your sales process are ineffective or incomplete.
Here are four steps to having a reliable, bankable sales forecast:
1. Define what CAN go on the forecast.
The first step is to define clearly what constitutes a forecast-worthy opportunity. The typical sales pipeline includes a combination of suspects, prospects and current customers. Customers are always forecast-worthy because you want to grow that business while keeping the competition out.
Prospects should be defined as new business opportunities only when your sales qualifying process has confirmed two critical components: 1, there is “emotional traction” between what you offer (your differentiating value) and the prospect’s requirements. 2, the prospect has, or can get, the funds needed to do the transaction.
Only when you have these confirmed from the suspect, should you add them to your sales forecast. If either of these two qualifying requirements is missing, you do not have a prospect, you still have a suspect. Allowing suspects to fill in your sales forecast pipeline is a primary source of forecast “bloat.”
2. Build an audit trail.
After segmenting suspects, prospects and customers in the forecast pipeline, start with the new business prospects. Sales rep job descriptions should include the Critical Qualifying Questions (CQQs) reps need to address with each prospect as part of the forecast process.
These CQQs can be added to your customer relationship management tool and organized under the four M’s of qualifying to determine:
• Prospect Motivation to select your products or services.
• Money available fits your pricing platform.
• Decision Methodology (how, who, when) is defined and acceptable.
• All other Market options have been considered and eliminated.
A structured sales qualifying process built around your critical qualifying questions enables forecast audits on an objective basis. Assign a fixed forecast percentage to each of the four M’s to ensure everyone is using the same probability template.
For example, if you value each of the 4M’s at 25 percent, a 50 percent forecast indicates the sales rep is reporting two M’s favorably qualified. A management review of the rep’s qualifying interview with the prospect will indicate the overall level of performance.
If the audit indicates the qualify is light for the percentage claimed, the rep gets a do-over assignment and the current forecast percentage is reduced. The better forecast models do not add new prospects (they stay as suspects) until the Motivation and Money M’s are successfully qualified.
3. Use an up or out model.
One ongoing forecast frustration is the large-opportunity prospect that has become welded to the forecast without advancing. There are always reasons why prospects don’t move.
Confusion about timing is a qualifying issue that typically falls under the Money M (funding availability) or the decision Methodology M (waiting for more bids, analyzing a make or buy strategy, etc.). Delays in closing means the opportunity needs to be re-qualified to remain on the forecast.
The four M’s approach provides a clear roadmap for moving each prospect through an objective qualifying process. The sales rep goal is to move those forecast opportunities up or out so time and resources are not wasted on virtual prospects that show up as forecast bloat. Remember, qualified prospects close!
4. Give incentives for forecast accuracy.
Performance incentives are one of the most underutilized tools available to chief revenue officers. Forecasting accuracy is a performance variable that can be measured just like other sales metrics. Depending on your sales cycles, there are numerous options for defining forecast performance measurement.
One popular approach uses the sales rep’s new business close forecast at the start of a quarter and compares it to end-of-quarter results. Variables include incentives for number of new accounts closed, new order revenue totals and average new order value.
Once you identify the performance incentive rewards, capable reps never want to leave incentive earnings on the table. Behaviors adjust, qualifying skills improve and forecasts become more accurate.
Executive teams occasionally argue that sales reps are responsible for submitting accurate forecasts and should not have to be given incentives for something that is a required part of their job description.
However, sales reps are dealing with the most independent and complex variable driving any business—the market. Once executive teams realize how overall performance can improve with a bankable forecast, the incentive idea becomes a valuable addition to the sales performance compensation plan.
The role of the chief revenue officer can seem overwhelming in many ways. To make the job easier, incorporate these four ideas outlined above. Making these changes establishes the new bar for bankable forecast accountability.
Contact: Carl Moe is the author of Chief Revenue Officer/B2B Success Model and founder of CRO Roundtable, an executive peer group in the Twin Cities for growth-oriented chief revenue officers: 952.232.6720; cmoe@CRORoundTable.com; www.CRORoundTable.com.
