One of the biggest struggles business owners continually share is trying to get an accurate sales forecast. There are so many important factors for forecasting accurately. Most owners simply haven’t thought deep enough around this, the most important process within their business.
Contributors to Inaccurate Forecasting
A strong disruptor for accurate forecasting continues to be weak or undisciplined prospecting practices. When a sales organization fails to generate enough opportunity, they often increase the intensity on the few deals they do have. That increased pressure can drive away some customers who don’t appreciate the focus. This almost always creates a lose-lose situation and obviously lowers your sales forecast accuracy.
Without the proper sales activity your sales forecast will most likely be far from accurate. A 20% or below forecast accuracy is typically what I find when engaging a new sales organization. When I tell dealer principals this number, they always want to argue and claim that their forecast accuracy is much higher. When we lift the hood, I find that they are mostly quoting lease renewal forecast results and not sales overall. When you blend the two, or just look at net new business only, you will see what I mean.
The Lease Renewal Factor
Let’s look at the lease portfolio and renewal process a little deeper. Many sales leaders automatically throw their lease renewals into the sales funnel and include them in their forecast. The assumption is that they’ll renew, JUST BECAUSE they’re an existing lease customer. Our research indicates that NO ONE automatically wins 100% of their lease portfolio and thus, this obviously creates a negative impact to your forecast accuracy, no matter how large or small. I continually find anywhere from ten to twenty-five percent of current lease customers leave and go with a competitor. You can argue the percentage, but whatever percentage you’re losing, it must be calculated into your forecast, accurately.
If you’ll allow me to chase an off topic rabbit for a second, here’s a recommendation for driving better lease renewal forecast accuracy. In order to drive the highest forecast accuracy within your lease portfolio you should develop a “love them to renewal” team to focus on the leases with 18 months or less remaining.
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Chasing Lease Renewals: Often lease renewal timing is left up to the sales team and there are no definitions around the proper approach and timing as to when a lease can be renewed. Today, it seems that the strategy for driving lease renewals can be as simple as a sales rep needs more sales or the buyout for their lease has dropped to a small enough number that they can roll the deal, nothing more. This is not good! If you build a proper “love them to renewal team” process, you can allow your leases to mature to a proper stage and then renew them, when it drives the maximum profit for your company and benefit for your client. Otherwise, the renewals are driven to fulfill quota or income requirements and typically drive way less profit and benefit.
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Back to the topic of this article; a disciplined sales team typically has a structure and an understanding around what is and isn’t forecastable. It’s easier for them because the necessary definitions are in place and a more accurate forecast is the result. Without the proper instruction, sales reps will add many conversations and possibilities to your sales forecast that simply shouldn’t be in your funnel.
Defining Sales Opportunity
Let’s look deeper at my comment about “definition,” meaning that the sales team has been given clear and concise parameters around the birth of an opportunity and at what stage information changes from sales activity and approach to an actual sales opportunity that will move through your sales process.
The chart below shows the entire sales process including forecastable and non-forecastable concerns. The activity to the left of the red line is about the identification and qualification of your next sales opportunity. Very seldom would you include any concern from the left side of the red line in your forecast. However, many sales organizations DO include (in error), these unqualified concerns into their forecast and thus create a forecast that has little possibility of coming true. Chasing unqualified concerns wastes valuable time and money and diverts attention from real sales opportunities.
Nonetheless when I look into the sales forecasts of almost every dealership we engage, these unqualified concerns seem to hold up to 60% or more of their current forecast numbers. Steps on the left side of the red line are activity-based steps and should be devoted to the qualification process consisting of outreach efforts such as phone calls, introductory emails and follow-ups, all driving a value swap and discovery process to move those concerns to a qualified state.
Once you’ve qualified a prospect, their needs and their willingness to engage your solutions and value, you can then advance your deal to the right side of the red line and through your sales process for forecasting. The illustration above is just an example of a total sales process and these specific steps may not fit your company. However, if you haven’t defined your sales process you need to do it right away.
Remember, to assure the highest forecast accuracy your sales team must understand the play between activity and opportunities. Let’s take a closer look at the activity qualification process, which should be owned by your sales leader who is ultimately responsible for delivering a reliable forecast to you.
The Activity Qualification Process
This process is not a quick conversation asking each rep, “What do you have coming in this month?” The responsibility to drive forecast belongs at the sales leader’s desk, which in some cases could be the owner. Sales reps should be taught both sides of the red line (First Illustration) and not allowed to just stick deals into the forecast without proper vetting.
This second illustration is completely devoted to the left side of the red line and as you can see, it consists of vigorous activities all focused on qualifying individual concerns to a Go/No Go decision point where some will be recycled back to follow up scheduling and some will advance to forecast. Remember, in order for a concern to move into the forecast, your vetting must come out with the view that it’s as good for you and your company as it is for your prospect or client. Keep activity, activity! Only move your concerns into your forecast when they’re qualified to do so.
I strongly recommend the use of a CRM tool and that you don’t let your sales team blow that off. Your sales leader should be the master of your CRM and should push all communication regarding qualification and opportunity advancement through that tool.
Creating an accurate forecast doesn’t just happen; reviewing activity every week at a scheduled mandatory sales meeting assures you that everyone’s aligned with your activity requirements and that they are producing prospects that ultimately feed your sales funnel and budget demands with a high accuracy. Some sales reps call this micro managing; I call it the methodology that produces an accurate forecast, and ultimately makes them a lot of money!
