Within the first two quarters of 2022, 129 S&P 500 companies revised their annual revenue or earnings per share forecasts, 50% higher than the same time period in 2021. It’s not hard to find reasons for this—shifting exchange rates, rising interest rates, persistent inflation, and the threat of a recession have all shifted expectations from the beginning of the year. In this complicated landscape, Chief Revenue Officers are tasked to make sense of it all and find a way to provide clarity to the organization through smarter sales forecasting methods.
The main challenge of forecasting in today’s landscape is the dramatic mismatch between the past and the future. Many organizations set their forecasts based on the previous year—but 2021 was an anomaly driven by a COVID economy, and it’s clear by now that it has little predictive value.
Like everything else in business, more complete data is valuable. Given the vast gap between 2021 and 2022, it’s more important than ever to use hard data to forecast, not just assume the future will be more of the same. But before you can forecast effectively, it’s important to know what data will be most useful. To this end, consider two main sets of factors.
Factors You Can’t Control
How often have you seen a potential sale sabotaged by a development out of your control? Like it or not, selling is an inexact science, and not all variables are in your control. But while you can’t predict the future, you can prepare for it. As you make your forecasts, be sure to allow for the following:
- Economic conditions changing
- Competitor markets shifting
- Consumer preferences evolving
- Technological innovations catching you off guard
- The Political climate shifting
- The supply chain tightening (or loosening)
You don’t need to know when these things will happen to know they probably will. Use your best research to predict what you can, but make your forecasts with a little bit of slack in either direction, and be prepared to readjust your forecast as things shift.
Factors You Can Control
Fortunately, as a sales leader, there’s a lot you can change to give yourself a better chance of an accurate forecast. As you make your forecast—and as you attempt to hit the number you’ve targeted—think about the following factors:
- Your go-to-market strategy and revenue-driving initiatives
- The effectiveness of your marketing efforts
- Engaging your channel partners (such as resellers, distributors, etc.)
- Alignment of product or service to current customer needs
- Your recruitment methodology and standards
- The culture of both your teams and broader company
- The Mindset of the management team
- Your customer retention activities
- The quality of your sales enablement resources
- The alignment between sales and other parts of your business
- Your Sales technology and its capabilities
- Your supply chain management
Supply chains have been a big hindrance to sales for many companies, so it’s comforting to see that it’s not all out of your control. There are several actions businesses can take to help soften the blows of disruption, including buyer-supplier relationship management.
Collect the right data to inform your sales forecasts.
Most organizations track the information above and collect it centrally through their sales & operations planning (S&OP) system. How to best manage your S&OP work is beyond the scope of this article (we outline our perspective here) but bottom line, it’s critical to have a system that brings these data points together with a minimum of effort. If you find it fundamentally difficult to put your hands on these data points, it’s often a faulty S&OP process that’s the culprit.
Or perhaps your sales forecasting process is reliant on data that isn’t fully reliable itself. If your actuals come in drastically different than your projections, it’s possible that some of your inputs are being generated in ways that don’t reflect reality. Adoption of your sales tracking systems is a common issue: If sales staff are using the systems they have, the more likely it is that your data is good.
Adoption isn’t the only issue that can affect the reliability of your data, however. The design of your systems can also skew forecasts. Consider whether your opportunity tracking reflects the reality of an opportunity. While we can quibble with how to set up fields, your opportunities should answer several questions clearly, in ways you can easily report on:
- How likely are we to win this? This is the number one piece of data most organizations aren’t reflecting correctly in their sales forecasts. As you plan for your opportunities, be sure you’re accurately reflecting the actual probability of making the sale.
- If we win, when will it happen? To get an accurate picture of your month-to-month sales—especially important for public companies—you need a likely date that you’ll close the deal by. While this can be hard to predict accurately, making a point of tracking it is critical.
- How much will we win for? An opportunity may be seven figures on paper, but if the seller knows that the client will negotiate it down to six, the likelihood and the date alone won’t paint the full picture. Give your sellers the opportunity to estimate the actual close amount and your forecast will benefit.
Adjust and readjust your pipeline often as possible.
Start with clean data and implement a robust pipeline vetting process and you’ve got all the fundamentals you need for a good forecast. When vetting data, start with your frontline managers, and move up the chain from there. Talk to the people managing the opportunities, with a particular focus on the large deals, and make sure they’re continually updating their opportunities to match the facts on the ground.
You also don’t only need to depend on people’s opinions. With granular data on your historical sales performance, you can identify your reps’ tendences to err on one side or other and adjust the forecast as appropriate. This can get surprisingly specific: Maybe you have a pessimistic sales rep who rarely marks win probability above 50 percent but still closes consistently. Or maybe someone on your sales team always expects deals to close within six months but takes an average of nine months to get to a signed contract. Either way, this is useful information that should shape your sales forecast—and information you can get access to with just a little bit of work.
Of course, because the economic landscape is changing so fast, you need data from now. What was true six months ago about your opportunities may no longer apply, so ensure that whatever calculations you’re making to inform your work, they take the newest data into account. This is another area where adoption comes into play. Not only do you need your reps to be using your systems consistently, you need them to be updating their data quickly, ensuring your system is pulling in the right data from the right places. With this accomplished, your forecasting will reflect the current moment, giving you a clearer vision of what your future may look like.
Good forecasting is worth the investment.
The benefits to forecasting don’t stop at predicting revenue and wins. While it’s useful to have that level of insight into your possible futures, a strong forecast also gives you a solid foundation for scenario planning. Imagine being able to look at your pipeline and chart multiple paths to your quota. Being able to see the implications of losing that big deal—whether you have pathways to make up your numbers and what those might be. And of course, you can use this information to see where your limited sales resources will be used most effectively.
The more variables you introduce, the more careful you need to be. Balancing the factors in and out of your control takes exacting work. On top of that, ineffective or unconnected technology can quickly cause a small data error to spiral out of control. Given how much hangs on your sales forecast, it’s critical to make sure your inputs and your calculations are as solid as you want your outputs to be. A modern company needs a modern forecasting system, one that’s integrable, capable of conducting scenario-based modeling, easily adjustable even at the most granular level, and supportive of data-informed collaboration.
Trustworthy forecasting leads to good strategies, motivated sellers, and effective selling. But only once that trustworthiness is achieved can businesses truly get their maximum benefit from their sales plan. If you’d like to learn more about how to take your company to its full sales forecasting potential, let’s talk.