Colin’s Corner – Forecasting – let the reps do it.

Following on from the theme of my last post, I can safely say sales are the life blood of an organisation. Whatever its size, an organisation must sell in order to survive and the primary responsibility of its directors is to deliver growth and increased wealth to the shareholders. Shareholder return is delivered through dividend payments (from profit) and, more importantly, through an increase in share value.

It is the market that sets a company’s share value and the price is determined not only by profit, but also by confidence. It is not unknown for the share value of a company to increase even when they are making a loss. The reason for this is predictability – the directors achieve what they say they are going to achieve.

When predictability is so highly valued, making more money than forecast may be perceived as being as bad as not reaching stated targets. Companies often increase their forecasts if they are having a better year than expected because they don’t want their year-end figures to be higher than predicted. Conversely, organisations also downgrade their forecasts if things are not going as well as expected. Basically, the directors of the company need to demonstrate that they are in control. This is no different to sales people: they must also demonstrate control over their forecasts.

Each month and, more importantly, towards the end of the quarter, the sales professional puts forward his or her best guess as to where he or she will be in relation to their target when the quarter ends. As part of this prediction they may well also name one or two deals that they believe are crucial to them. These are often, if not always, the largest deals they have.
The data is then taken from the corporate pipeline and fed to the sales manager, who will manipulate it and feed it to the sales director or VP of sales. In turn, the head of sales will manipulate it further and feed the data, as a forecast, to the CFO and CEO. Even for a bad looking quarter, thanks to a chain of manipulation and wishful thinking, the figures at this stage will appear less grim than they really are. This allows the VP of sales to explain that with a fair wind they should just be able to turn it around and make the number.

However, when the quarter’s number is not made they can fall back on the fact that they said it was going to be tough and needed a fair wind. Hence the forecasting becomes difficult. The psychology of what’s happening is simple. People want to keep their jobs and believe that admitting that they’ll miss their quarterly target is not the best way to do that. It therefore makes the whole forecasting proposition difficult and the responsibility is taken away from the sales rep and put firmly in the hands of the managers – this is wrong. Sales reps must learn to live or die by their forecasts and once they have learnt how to do this, and the managers have learnt not to fiddle, then forecast accuracy increases and by definition more deals begin to close.

Building a sales plan: Execution Part D- Opportunities – Developing the Gold Rush(Not fool’s gold) »« Coffee Break Pt 1 Finale – Part 2