By Craig Klein, CEO of SalesNexus
Forecast, projection, sales goal, or annual quote…. Whatever you want to call it, you know what it is but, do you have one? Is it just a number you dream about hitting?
Very few businesses create a revenue projection they can live by. One reason is that it’s tough. Those who have tried know that projections are nearly always wrong and when they’re wildly wrong it makes the entire exercise seem pointless.
We recently hosted a webinar on sales pipeline management and sales forecasting featuring Jim Wilkinson, the Strategic CFO, and I learned a few things about forecasting. Coming from the sales side of the house, I’ve always seen forecasts as mainly about forecasting revenue, setting sales quotas and managing sales people.
Jim opened my eyes to the importance of forecasting from a financial and financing point of view. What Jim pointed out is that bankers need to see forecasts based on real measurements in order to invest in a business. And most business’ projections are wrong because they’re unable to forecast sales accurately.
Bad Sales Forecasts Lead to Low Profits
If the sales forecast is off, then all the projections of expenses, capital requirements, manpower and everything else will be wrong too. This damages profits every time. If sales forecasts are higher than actual results, then expenses will be too high relative to revenues and profits down. If sales forecasts are too conservative, then the business will be under resourced when sales opportunities outstrip expectations and some will be missed.
So, a good accurate forecast of sales revenue enables good sales management, management of resources and investments to maximize profits and facilitates access to additional capital to accelerate growth.
Yet a good projection of future revenue is so elusive! Why?
During our webinar, the Strategic CFO, Mr. Wilkinson pointed out that most CEOs present their banker with a projection, which is just a simple extrapolation of the previous year’s sales (last year by 15 percent or so…). After all, what else do you have to go on other than past performance?
Are there other factors that can be used to accurately predict sales? Absolutely! You just have to start measuring them.
What to Measure to Forecast Sales
Every business has a series of “leading indicators” of sales or steps in the sales process that precede every sale. Unfortunately, it’s very rare that these factors or indicators are tracked or measured.
The good news is that it’s not difficult to track these things. What are the most crucial “leading indicators” a business should track?
New leads or opportunities are the most obvious. Whether it’s call-ins, leads through the website or visitors to a retail location or some combination of these “initial contacts” or “leads,” they define the universe of potential near term sales.
Then there are the steps in the buying or sales process. In most B2B businesses, defining the objective criteria that make a “qualified” sales opportunity is crucial and often most challenging. It’s crucial because a business can have more leads than it can handle and still miss revenue forecasts. Because the leads can be converted to customers, comparing the volume of leads to the number of truly qualified leads quickly identifies this problem. A business that relies on out bound prospecting like cold calling, trade shows, referrals or networking can find that sales people are very productive at connecting with leads but, not very qualified ones.
Then once a lead is qualified, what are the steps that the buyer follows toward the purchase? Proposal? Demo? Presentation? In a retail or e-commerce environment, things that are generally thought of as negative can frequently correlate well with future sales. Such things are abandoned shopping carts, support inquiries, even returns.
By simply noting the number of these events each day, week or month and then comparing that to sales in the same period or sometimes in future periods, over time, a benchmark for each will reveal itself such as the percentage of leads that are qualified and the percentage of qualified leads that eventually purchase. From these benchmarks future sales can be reliably predicted, resources planned and bankers wowed!
Of course, getting your team to document all these facts can seem daunting. Don’t let a lack of technology stand in the way of starting to track things. A CRM or sales automation solution can automate data capture and make generating reports easy. But, you need a good forecast to run your business. You’ll be able to manage sales and sales people more effectively but, also you’ll have the confidence to set objectives and goals for the rest of your business and make strategic investments required to reach that elusive next level!
Craig is the founder of SalesNexus.com, a leading provider of CRM, Email Marketing and Lead Generation solutions to business 2 business sales teams.
