At last! A fail safe approach to getting your sales forecasts right - Mercuri International

At last! A fail safe approach to getting your sales forecasts right

At last! A fail safe approach to getting your sales forecasts right

Forecasts Right

“We should call this a sales gripe line” said Jerry, frustration showing in his voice “It is not a pipeline, anymore”. As Sales Director of ZYX Consumer Products, Jerry had to share his sales forecasts each quarter with Finance. But he was growing tired of getting called out by ZYX’s CFO for his actual sales numbers not syncing with the forecasts. He had had enough. Turning to Roland, his Country Head,  he sighed “Roland, you should get this fixed”  “I have a thought, Jerry” said Roland “There is this Charles, one of our RMs who always seems to get his forecasts right. Close to 100 percent. He is new with us, come on board after five years with a global aircraft maker. May be I can check with him on any best practices that he may be using which rest of the guys aren’t aware” “Do that and please make it quick” said Jerry, closing the conversation. What could have been the best practices that Charles may have used?

Pipeline = Start line for balance sheet

You have heard it before. Work hard till your bank balance looks like a phone number. But if you are in sales, your pipeline is your bank balance. For your company, the pipeline is even more. It’s where the balance sheet begins. Tall claim?  Consider this. If you have no idea how much you will sell next year, how would you fix your production targets, how much cash you will need and what other resources to line up?  That granted, what can you do to get better at forecasting your sales pipeline?

A better crystal ball

Three things make up the sales pipeline – Enquiries generated, enquiries received and offers made. But that isn’t quite the whole story. All sales enquiries are not equal. Each of them is at a different milestone on the roller coaster journey from being a lead to becoming a converted deal. Crossing each milestone would increase the probability of conversion. So, simply adding up the money values of all enquiries will not give you a dependable forecast. On the other hand, your sales pipeline should be the aggregation of potential probable total value of all enquiries, allowing for some inevitable conversion failures. That is where your sales forecast should start. What’s more, doing this will push you to monitor your pipeline consciously, choose actions to nudge the leads along their journey towards closure and review your progress frequently, all adding up to better sales results

A horse for every course – Forecasting strategies for different pipelines

Sales pipelines can typically be one of three types. For each of them a different approach will work as shown below:

  • Pipeline of several small sized enquiries – The purchase journeys of small sized deals being relatively short. Milestones can be assigned to each enquiry based on the probability of winning the order. You could have, say, 4 milestones defined to mean 60%, 70%, 80% and 90% chances of conversion. Multiplying each potential order value by the % factor at that milestone and aggregating for all enquiries on hand, should give you the probable total value sales forecast for the pipeline
  • Pipeline of a few large sized enquiries – The purchase journeys are longer in large sized enquiries. So, you cannot use the milestone approach used in small sized enquiries. You will need to monitor the probability of success at almost every point of the journey and not just on 4 milestones. Large value enquiries are more complex as they involve decisions on where you should invest your efforts to accomplish the desired outcomes. For this to happen, you should have a good idea on the relative probability of success for each deal. This is where the Tactical Checklist method can help you. The tactical checklist can be used to appreciate how likely it is that a deal will result in closure
  • Pipeline combines both (A) & (B) – This would call for an enquiry specific approach applying both milestone and continuous assessments depending upon the enquiry size