We often ask sales leaders and professionals to “call the ball” 30, 60, 90 days in advance. Given the approaching close of the fiscal first quarter for many companies, sales forecasts – and most often, missed forecasts – have been a frequent topic over the past several weeks. Sales leaders and executives place significant effort into forecasting sales, and rightfully so, this information is used to manage the business across almost all types of businesses from CPG (can we build and ship enough products to avoid stock-outs?), to B2C consumer websites (do we have enough bandwidth to handle incoming traffic?), to professional services (do we have enough resources to deliver demand? Or too much?). It got me thinking about forecasting in other professions.
Meteorology is highly analogous to sales – there is a tremendous about of science (and some art) involved in making predictions, and the outcomes are ultimately clear for all to see (even if the cause of the outcome can remain unknown). How accurate are meteorologists? There have been numerous studies, one of which is summarized on the Freakanomics Blog where one experiment indicated that predicting precipitation the next day was about as accurate as a coin flip, and predicting rain more than three days out was at best only 20% accurate (see the graph below).
I found this quote interesting, “No meteorologist or television station kept records of what they predicted, nor compared their predictions to actual results over a long term. No meteorologist posts their accuracy statistics on their résumé. No station managers use accuracy statistics in the hiring or evaluation of their meteorologists.” For businesses that take forecasting seriously, this leads to a good addition to interview questions for new sales reps and leaders: “You’ve met your sales target in 3 out of the last 4 years, great, but how well did you forecast these results?”
How about our accuracy in sales? In their 2014 Sales Performance Optimization Study, CSO Insights found that only 46.4% of forecasted deals actually close. These are not pipeline deals, rather these are deals that sales teams are specifically committing to close by a certain date. So, not unlike our fellow prognosticators, we are performing no better than a flip of a coin.
How do we improve forecasting in sales? In our experience, most improvements come from focusing on more “scientific” approaches that help sales teams reconcile their hearts (“I really feel like we will win this opportunity…”) with their minds (“We are going to win based on this observable evidence.”). Not surprisingly, the same CSO Insights study reveals that a majority of those with poor forecasting results indicated that they need improvement in basic areas of sales process and management. These results have been reinforced in our recent conversations with sales leaders where we’ve discussed the following components necessary to achieve more accurate and consistent results:
- Common language – based on a consistent sales process and methods across the business. Sales teams must apply rigor in their ability to qualify opportunities, differentiate against competitors (including internal), etc. through a way of sales that is specific to the business.
- Common definitions – structure and standards for pipeline and forecast status (in other words, 50% probability of closing means the same criteria have been met no matter the team, region, country).
- Common coaching – to ensure that the quality is there and test the opportunities that comprise the forecast (again with standards).
- Common cadence – to roll up the sales forecast consistently across the business. With advanced CRM systems, companies, such as Cisco, essentially manage a real-time enterprise with continually updated forecasts.
Back to the TV meteorologists, “the focus is on charm, charisma, and presentation. Their words say they care about accuracy, but their actions say they do not. Yet, they wish to continue providing inaccurate seven-day forecasts that are no more than a semi-educated shot in the dark because a) their competitors do and b) they can get away with it since they think the public does not know how inaccurate they are.” In the profession of sales, this isn’t an attitude or approach that will make for a lengthy and prosperous career. If your team or organization’s accuracy resembles that of the 7-day weather forecast, it’s time to apply more science to your art.