An effective sales forecasting model allows business leaders to make strategic decisions when it comes to people management, goal setting, allocating resources, and overall business growth. This makes it an essential business function that companies of all sizes need.
While sales teams have traditionally based their forecasts on historical data and trends, recently that’s not an option. The events of these past few months have prompted sales teams to think about the evolution of their forecast models.
Here are some best practices from Jeremey Donovan of Salesloft and Karen Rhorer of Atrium to help you create an effective forecast.
1) Know your team’s capacity for production
Aside from knowing your processes and getting a good idea of how customers behave, you need to have a good grip of what a typical sales cycle looks like for your team. Knowing every rep – when they start, their average ramp curve, etc – will help you predict future sales revenue.
Not every deal that you close is actually in your pipeline in a given period. Having your own capacity and production model will allow you to prepare different sub approaches in case extra deals come in and some stuff gets pulled forward in the forecast.
https://youtube.com/watch?v=UqWF8y3059c
2) Set realistic benchmarks for forecasting accuracy.
Your range of forecast accuracy depends on the size of your business. A 1% forecast accuracy may mean differently for a small scale business than it normally would for a huge enterprise. Moreover, the degrees of uncertainty that goes into forecasting becomes bigger as your team gets smaller as one deal coming in or not would greatly swing your forecast.
Factors such as the CRM you’re using, the amount of data you’re gathering, seasonal demands, and global economic conditions impact the accuracy of your forecasts as well. Make sure you’re putting these things into consideration when setting benchmarks for your forecasts.
https://youtube.com/watch?v=4BGhF8vv8cc
3) Create a cadence for cleaning up your pipeline
Keeping your data fresh is crucial to achieving accuracy in your sales forecasts. You need that visibility on which stage certain deals are in your pipeline and an estimate of whether a deal is going to close or not.
Develop a mechanism for cleaning your pipeline as often and as consistently as possible. For example, many companies establish a weekly cadence for reviewing your pipeline to keep your data as fresh and up to date.
https://youtube.com/watch?v=UxNnCVjQXms
4) Encourage your team to commit to forecasting
In order to continually improve your forecasting model, you need your team’s input. It’s important to encourage your team to get into forecasting and keep them accountable for their projections.
A good practice to follow is to set a monthly rollup where you ask managers or reps to put in their forecast for the month. You can revisit this at the end of every month and see how they did. If the numbers are way off, you can evaluate which part of the sales process was problematic, which factors impacted how certain deals turned out, and what mistakes can be prevented in the future.
Integrate forecasting into your 1:1s and build action plans for each rep according to key takeaways from their deals. This will help them see the value of forecasting and encourage them to commit to it.
https://youtube.com/watch?v=t0t8IPK7hNY
5) Experiment with different variables until you find the forecasting mix that fits your business
There is no universal formula for sales forecasting. As mentioned above, certain methodologies work differently for different businesses. But if you’re still building your own forecasting model, you can examine the variables and make your adjustments based on your team’s capacity and performance and how you’d like the data to be presented.
https://youtube.com/watch?v=RqhSX2XcllQ
6) Be transparent when presenting your forecasting data
No matter how much monitoring you do to track your sales data, sometimes you won’t have all the information you need to make an accurate forecast. This is where you go back to the basics and break out whatever data you have at your disposal. You look at how many opportunities you are creating and evaluate deals per rep, dollars per deal, then refine your assumptions as you gather more information.
When you present this data to a board or C-level, be transparent and let them know what information you’re working with and how you came up with your forecast. Layout all the assumptions that you have and what you’re doing to test those assumptions.
https://youtube.com/watch?v=o2qdRO4F4K0
The whole process of forecasting really takes a lot of work and requires a lot of resources. But as soon as you discover the model that works for you, you will see how accurate sales forecasting can do wonders for your business.
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The post How to Create an Effective Sales Forecasting Model appeared first on CloserIQ.
