Why Sales Forecasts are Still Inaccurate
Forecasting is an old problem
During World War II, a group of Army officers, led by economist Kenneth Arrow, were assigned the task of forecasting the weather a month in advance. Concluding that their numbers were no better than those picked out of a hat, they asked to be reassigned.
The reply they received said, “The Commanding General is well aware that the forecasts are no good. However, he needs them for planning purposes.”
Now let’s translate that to sales. The forecast is no good, but we need it to run the company.
Despite tons of money spent on CRM software, and hours of time dedicated to business pipeline reviews, the forecast is still not accurate. Why?
The fundamental flaw in all forecasting is that we are asking salespeople to report on their own performance. It’s a bit like the US Congress asking pro baseball players if they use steroids. If we ask salespeople to report that they are failing, we are kidding ourselves. On the other end of the spectrum, the top reps are probably sand-bagging.
Most organizations and sales managers ask for a forecast and apply a lot of pressure in the process.
For example, a Sales VP told me the other day that his people could not properly project their business. I asked what he had tried to improve forecast accuracy. He said, “Last December I asked them all to commit to what they were going to close in the following 90 days.” I asked if that approach worked and he said, “No. They didn’t make the number they had committed to and they were THEIR numbers!” I asked him what they said when he walked them through a structured analysis of each deal in progress. He said, “I don’t do that.”
Please stop and think about that for a moment.
If you hired a golf coach who said, “Steve, the problem with your game is that the ball doesn’t go in the hole early enough and often enough,” what would you think of that golf coach?
You can’t manage and coach based on OUTCOMES. If you want to change an outcome you have to address the underlying behaviors. When we beat them up with their own numbers, we aren’t adding any value and we are probably damaging their self-esteem.
The result is a subjective and inaccurate forecast.
Uniform milestones and CRM
So, then we try a ‘uniform milestone’ grading scheme in an attempt to remove the subjectivity by establishing clear guidelines for what it means to be “at 80%.”
This is better, but still more subjective than objective.
These approaches fail because they try to solve the problem with tons of paperwork or lots of annoying buttons in a CRM system. Reps gather all the information and then PUT IT IN A FILE OR IN A CRM SYSTEM. They look at it as busy work and they do just what it takes to keep their boss off their backs.
State of the Art
The state of the art approach is to use a written Mutual Action Plan. It is a recap of the verbal agreement between the salesperson and the customer that outlines all of the key qualification conversations. It spells out the due diligence process that will lead to the ultimate ‘yes’ or ‘no.’
The purpose of this document is to make sure you don’t develop a proposal unless you are certain you have captured the full set of requirements and that they are seriously considering buying from you.
“The greatest enemy of communication is the illusion of it.” – Pierre Martineau.
The MAP requires the rep to ask the tough questions. (Please note, the real problem is that reps don’t ask the tough questions!) The verbal agreement is then reduced to writing and SHARED WITH THE CUSTOMER to ensure clarity. Since you send it to the customer, it serves as a behavior trap to make sure you ask all of the tough questions.
Subjectivity is removed by verifying the conversations with the customer. The account review becomes an integral part of the sales cycle: SHARED WITH THE CUSTOMER versus PUT IT IN A CRM SYSTEM.
How to do it
The MAP is a two-sided agreement. Both parties should have an equal degree of commitment. Contrast that with a proposal. The buyer’s only commitment is to allow the proposal to enter their in-box. When you call to follow up, they say, “I haven’t had a chance to read it yet.”
It’s in both party’s best interest that you reach an engaged agreement or pull the plug on a process that is going nowhere.
As with any sales tactic, if well-executed, it works well. If not, it comes across as pushy. The manner in which you get to those agreements, conversationally, is the difference between being pushy and real mutual agreement.
Don’t Toss out the CRM system
By-the-way, you can still use the CRM system. Just have your salespeople attach the customer-verified MAP to each opportunity. Ask them to do less paperwork and then insist they do the minimum essential.