The Challenge of Sales Forecasting in a Lean Environment
(based on the book “Sales Process Excellence,” by Michael J. Webb
The sales team worked frantically to qualify and close their opportunities. Their forecast accuracy was terrible.
Knowing the market’s enormous potential, the president attended all sales meetings. “Damn it, Matteo. Last month you were 19% over plan. This month, you’re 40% under. Can’t you get your act together?”
Exasperated, Matteo, the sales manager, said, “There is no way to know which prospects will buy. You don’t understand how this works. We’ll get there. I promise.”
When sales forecasts drive business decisions, lousy accuracy is a killer. Every other department lives by forecasts, why can’t sales?
The president’s first reaction was that Matteo’s team should standardize their work. Forecast inaccuracies are a kind of variation. Controlling variations should improve things, right?
Not necessarily. To make a change that creates improvement, you must first understand the problem. So, was the forecast the real problem? Or, were not enough customers taking the actions we wanted them to take? And if so, why?
Traditionally, the theory of sales was that salespeople relied on emotions and intuition to build relationships that caused customers to buy. Could the traditional theory be wrong? It is worth considering this.
Business results are caused by employee’s behaviors. Ideal results require ideal behaviors. How do we know what those ideal behaviors are? And, how do we get salespeople to behave in more ideal ways?
Behaviors are caused by how people think, i.e., by what they understand. Leaders hoping to solve sales problems must engage people on the terms they are currently using to think.
Fortunately, the lean philosophy offers some valuable principles here. One of the most important is operational definitions (i.e., an exact description of what words refer to in reality, or the procedure used to derive a measurement).
Salespeople know they need to qualify their prospects. Unfortunately, sales traditions ask them to make judgements about things like whether a prospect has budget, or the authority to buy. This is not scientific. Budgets get pulled. Prospects lie.
Operational definitions require sales teams to work out concrete, observable characteristics that cause a higher or lower likelihood that a prospect will become a happy customer.
This is a game changer.
Why? First, because salespeople become so engaged and learn so much from working out the details, it changes how they think. Second, the instrument they develop produces very high forecast accuracy.
And third, like an X-Ray, the data generated by this approach reveals the bottlenecks and blind spots in your sales funnel, where changes will create improvement.
We’ll continue exploring this subject in future posts.
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