Your Forecast Is Not About The Numbers!


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Let’s try a thought experiment.

Imagine you are a VP of Sales. You see tremendous opportunity coming out of the pandemic and in the economic recovery. You want to be prepared to seize that opportunity.

You justify hiring and onboarding 100 new sales people over the next two quarters. You need them to be able to execute the strategies to seize the opportunity.

You work with your VP of HR to find and hire those 100 sales people. The VP of HR commits, “I’ll get it done!”

At the end of the quarter the VP of HR comes to you declaring victory, “I’ve hired 100 people. They are each outstanding. I wasn’t able to find the right sales people, but we’ve hired 100 SEs. We hit our number!”

As VP of Sales you’d be furious. You’d respond, “The job was to hire 100 sales people, not SEs! We don’t need 100 people, we need 100 sales people!”

The problem, here, is obvious.

Now let’s look at our forecasts. Don’t we do the same thing as the VP of HR in our forecasts. We believe we are doing our jobs by “making the number,” but forget about what makes up the number.

Recently, I was involved in with a very large client. Like most organizations, they entered each quarter, producing a forecast. They went through the pipelines, worked with their people, identifying a number of opportunities, categorizing them as “commit,” “upside,” or other forecast categories.

They sought to identify a sufficient number of deals they had high confidence in closing and getting orders. A few were short and knew they had to find opportunities to close the gap over the quarter. A few had more than enough deals to make their quarterly goals and were confident in their forecast.

Through the quarter there was the natural backing and filling, shifting and updating of the forecast. Some deals fell out, some deals came into the forecast. It’s always a very dynamic process. At the end of the quarter, for the most part they made their numbers. They hit the order/revenue goals.

This process continued quarter after quarter. The EVP of Sales, however, was very uncomfortable. He never really had confidence until days after the quarter close about whether he would make the overall numbers. Additionally, he had a major problem with what made up the numbers. The rest of the organization needed to know what products to build and services they needed to allocate resources for.

As we analyzed the forecast, we found between 35-60% of the deals the regional VPs forecast actually came in as forecast. 20-25% of the deals they forecast to win, they actually lost! (Hmmm, how do you misread a deal that badly?)

As the quarter progressed, they scrambled, trying to find the deals to make their number, pulling deals forward, offering customer incentives, performing miracles. But somehow they made their numbers.

I decided to be a little provocative in reviewing the data with them (at the EVP’s prodding). When I started presenting, I said, “Congratulations, for the most part you are consistently making your number! Well done! But have you considered, you may be underperforming your potential and we might consider raising the number.”

You can imagine the pandemonium that ensued.

You may be wondering what I’m talking about. Let’s walk through it.

  1. Forecasts are really about specific deals. “We believe the customer will make a decision, selecting our solutions by this date……This is why we have confidence in this (it should be a customer need to buy, not our wishful thinking.).”
  2. The aggregation of those individual deals represents a projected order/revenue number. Ideally, it’s at, or above, the goal we are shooting for.
  3. Things happen, customers get delayed, shift their priorities. Inevitably deals fall out, but if we are helping the customer with their buying process and we understand the customer need to buy and the consequences of inaction, these slips can be minimized.
  4. But here’s the issue, if 40-65% of the deals we believe will come in and they don’t, yet we can somehow “find” deals to make the overall number—why aren’t we aggressively pursuing them anyway, why aren’t we including a large number of these in our forecasts? If we can do this quarter after quarter, one could make the argument that we should be performing much better. Imagine if we moved from 35-60% forecast accuracy, at a deal level, to 80-90%. Then layer some portion of the deals we use for “backfill,” on top, we can raise our performance tremendously.

Our forecasts need to be about deals. We need to be certain enough in our ability to help our customers to reach a decision, that we can forecast the deal. We need to have enough of those deals we are certain about to make our numbers.

Republished with author's permission from original post.

Dave Brock
Dave has spent his career developing high performance organizations. He worked in sales, marketing, and executive management capacities with IBM, Tektronix and Keithley Instruments. His consulting clients include companies in the semiconductor, aerospace, electronics, consumer products, computer, telecommunications, retailing, internet, software, professional and financial services industries.


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