Companies need to focus on making the sales forecast accuracy. I have worked with numerous companies were a missed sales forecast is expected and has become the norm.
Most executives continuously ask salespeople and sales management about the "numbers." Still, most companies base the sales forecast on emotions versus factual data and plan that 100% of the deals will close.
1. Financial Planning and the CFO: All financial decisions are made based on your set budgets, which tie to the sales forecast and COGS(cost of goods sold). However, let's focus on topline revenue. When anticipating sales, you are responsible for the data needed to predict revenue and profit levels accurately. Additionally, when you have excellent and accurate forecasting information, it allows you to contemplate and bring out possibilities of increasing your revenue and profit. It is also important to remember that profit maximization and high revenue are the fuel of your company. As a result, an organization needs a sales forecast to attain high-level financial planning.
2. Price Stability in Services and Product Companies: Whether you are in a company that sells products and services, your sales forecast affects your pricing. We have all seen the selloff at any price at the end of the quarter. With an accurate sales forecast, you will maintain an appropriate inventory level, which will assist you in preventing the need for panic sales to clear excess merchandise in your business. With a well thought out plan, sales managed. I recently consulted with a company that sells at a 30% discount, under standard margins, to achieve its sales forecast. Still, it is crucial to understand what is happening in doing this. If you sell your $100K service for $70K, delivery, you will have less money to deliver the service, will need to sell 30% more to make up the top line. If your client does not get a $100k experience for $70K, they will find a new provider, or you will not be able to grow that account, resulting in a real downward spiral.
3. Accurate Inventory Control: Specifically about product sales, the more your sales forecast is valid, the better prepared your firm will be in managing its inventory, expertly helping them to know when their list needs new stock and when they have enough capital, in a sense, it helps to know where they are short of stock and in need of supply. In the long run, a stable inventory is highly capable of letting the firm knows how they can best manage their productions and product. One client's sales forecast was not accurate, as they had too much of the wrong product on hand, causing high stocking costs, financing fees, and unmet partners' quotas. The result was at the end of the quarter; Sales had a selloff that clients took advantage of. However, the product was not in stock, and therefore could not be delivered and did not take advantage of realizing the revenue in the quarter. Partners did not give them the best pricing because they did not meet quotas. Resulting in clients received products late, which cost the company a 5.6% negative revenue hit to deliver the product.
4. Lack of Internal Support: We all use internal company services, such as Marketing, legal proposal writers, presale, and so on. Establishing good forecasting allows you to have the high predictability of resources (although you always need more than you have) to manage your support the right way. Your accurate sales forecasting would influence the decision of having to either hiring more workforce or expanding your marketing strategy. Consequently, if you have a correct sales forecast, all temporary and permanent support matters will be understood and addressed. If there is a need for them to expand their headcount and support, they will know in advance. I have been in many meetings where we had to decide to cut a group due to missing the sales forecast. These are hard choices that had to be made over the years to balance the budget.
5. Missing Continuous Improvements: We all strive to work for growing companies. The primary goal of any business is to progress forward and advance shareholder value. You can only achieve through effective sales forecasting. Some may say that you can reduce the cost of delivery. However, you can't grow a company on delivery efficiency. At some point, you will drive all the efficiency and start to break the customer experience. Something I have seen occurs often. When you check and update the sales forecast, you will be aware of the area that needs more focus. You can improve All aspects of the business with better sales forecasting: good revenue fixes all the other problems. There is no way to deny that sales forecasting is an invaluable asset to a company. In creating an accurate one, you will grow and sustain a better business result. With one client, we have spent months to get his 40 salespeople company to understand how to build an accurate sales opportunity record so that it feeds into the sales forecast, contributing to its accuracy. The benefit of an accurate sales forecast demonstrates that if you are not trending in the direction, you will be able to address it early, making necessary adjustments at that time, instead of during the last week of the quarter.
So, How Do We Address the Sales Forecast Missing Issue?
We have developed several procedures and tools for making sure that first and foremost ensures that your sales forecast is accurate and able to meet the business results that the sales forecasts intended to achieve. It's essential to keep in mind that the sales forecast is only a baseline and will likely miss the mark if you plan for a 100% attainment to meet a 100% plan. You will always have customers pushing decisions out, and deals unexpectedly come into the quarter. However, for clients that I have worked with, the sales forecast plan is 90% accurate, and track it month after month with business intelligence dashboards. We need to stop asking questions about "numbers" and instead ask the real question: "How do we close more deals?"
I f you have a project or question that you would like to discuss please do not hesitate to reach out to me.