When I talk to the CEOs of B2B companies, there is one particular operational challenge that causes them the most frequent stress and anxiety: delivering accurate sales forecasts.
This issue stands out simply because the implications of poor forecast accuracy are so huge. The pressure from investors and markets for revenue predictability is immense, and is often seen as a proxy for overall leadership competence. Accurate revenue forecasting underpins all elements of business planning including, most critically, managing cash flow.
Reliable sales forecasts have proven a stubbornly difficult goal for most B2B companies to consistently achieve. For too many CEOs and sales leaders, delivering a confident forecast is an exercise in mixing a limited set of reliable data with a generous helping of judgement, instinct, gut feel and hope.
The root cause of the problem is the disconnect between the forecast and the individual deals that it depends on. Those with forecasting responsibility invariably lack detailed, first-hand knowledge of deal status and are relying heavily on judgements down the chain of command. Simplistic forecasting calculations based on the pipeline “funnel” fail in all but the simplest of cases, as they don’t allow for the huge variation in the journey taken by very different deal cycles that are often long-running, multi-stakeholder and complex.
To bridge this forecasting gap, we need a reliable link between the forecast and the true status of our deals. The objective of this link is to enable an evidence-based forecast, not based on theoretical equations but instead on an aggregation of objective, up-to-date assessments of each unique deal.
So, how do you achieve this?
- Deal Assessments: establish a regular cadence of high-quality, structured deal assessments. Assessments should be completed by marking deal milestones, which are the criteria most indicative of win probability based on historical experience. The milestones are part of either an industry-standard or custom sales methodology which is adopted across your business to ensure consistency and objectivity. Those closest to the deal complete the assessments, to maximise accuracy.
- Evidence Based Forecast: build this evidence-based deal assessment right into the forecast cycle. The most powerful part of this is calculating a weighted Milestone Forecast, which aggregates individual win probability based on your deal assessments. This is the best forecast estimate you’ve never had! Our customers have consistently seen Milestone-Weighted Forecast landing closer to actual results than any other forecasting method they’ve tried.
- Systemise the Process: establish a robust, disciplined forecasting system with multilevel approval and historical forecast tracking. This makes forecast accuracy everybody’s job and reinforces a culture of data driven sales conversations and decision making. This systemisation will build sales strategy skills and forecast accuracy in parallel over time.
There’s an added bonus to bridging the forecasting gap – it creates a flywheel effect on performance. By exposing the deal assessment and status updates to the rigour and cadence of the forecast cycle, sales teams get a regular nudge on how they can improve deal probability. Over time, this will increase your win rate. So you’ll end up with better sales results, predicted with greater precision. Who wouldn’t want that?
