This article originally appeared in the October 2021 issue of Security Business magazine. When sharing, don’t forget to mention Security Business magazine on LinkedIn and @SecBusinessMag on Twitter.
During one of my first exercises in sales management, I was asked to prepare a forecast for the upcoming quarter. Of course, as a salesperson in charge of a territory, I had to manage a pipeline, but this was different.
The forecast that I was charged with submitting was representing about 20% of the company’s sales. After it left my supervisor’s possession, it went to our CFO, and then to the street. We were a small public company, and the whole process freaked me out. So, I requested to meet with my supervisor.
After admitting that I was overwhelmed, my boss, Bob, leaned back in his chair, folded his hands into his lap and said: “Well Chris, you’ve got a heck of a problem, don’t you? If you give me too high of a number, I’ll have to fire you at the end of the quarter. Too low and I’ll fire you right now.” Of course, he was kidding … sort of.
After having some fun with his rookie 29-year-old sales manager, Bob spent the next hour or so completely focused on helping me with my forecasting exercise. That conversation was the beginning of my quest to master the art and science of forecasting, which has led to this list of forecasting best practices for managers:
1. Forecasting is not pipeline management. When I present the idea of forecasting, I often hear a response about a CRM system doing all the forecasting. A CRM system can report on a pipeline of opportunities, but a forecast is different in two ways:
- Salespeople create their forecasts and report them to management. Of course, they should use their pipeline data, but it is up to them to deliver the final numbers. A best practice is to have them report to management in the same way they would report to a bank.
- While a pipeline is open-ended and continually managed, a forecast focuses on a finite period. For most companies, I recommend quarterly forecasts. All opportunities, projected close dates, and probabilities need to consider the finite time frame.
2. Establish clear rules and definitions of the probabilities. Chaos could be defined as a forecasting exercise that includes more than two people projecting their sales by gut feel. From the beginning, make sure that the entire sales team clearly understands the definitions of the different probability stages for forecasting. A few ideas for probability definitions:
- Limit the stages to five or less, including 100% for closed-won.
- Every forecasting stage definition should include the words “during this quarter” – for example, an opportunity could be at 90% in the CRM system, but only 35% on the forecast. While this opportunity has a 90% probability of closing sometime soon, there is only a 35% chance that it will happen during this quarter.
- Ask these two questions for every forecasted opportunity: What is the compelling reason the account will choose us? What is the compelling reason the account will make their decision and issue an order this quarter? To be clear, the answers need to be compelling to the accounts, not to your company or salesperson.
3. Each salesperson should calculate a minimum and a maximum forecast. Some companies call these commits and upsides; others call them forecasts and projections. Whatever terms you use, ask your salespeople to calculate a minimum forecast number and a maximum forecast number. After three or four rounds of this exercise, you will be able to determine what will close by understanding these two extremes and the tendencies of each salesperson.
4. Use the forecast numbers all quarter. Do not stick the forecast reports in a folder and forget about them until next quarter. Use them! Use them in every one-on-one meeting. Use the aggregate in every executive and sales team meeting. Make sure everyone is aware of their forecast numbers and where they stand relative to those numbers.
Chris Peterson is the founder and president of Vector Firm (www.vectorfirm.com), a sales consulting and training company built specifically for the security industry. To request more info about the company, visit www.securityinfowatch.com/12361573.