Last week I described a common scenario for businesses conducting sales forecasting: optimism turns to frustration at the end of the month because revenue and quota projections are painfully off mark. Why is this so often the case?
What we have found is that in most cases, companies share the following stats:
- The accuracy of the forecast is a direct result of the accurate grading of the pipeline at the opportunity level, not just the revenue numbers.
- Such accuracy varies from 30-50% at best.
- Sales people use at least a 40-50% fudge factor when preparing their forecast unless it can be audited without trusting the words of the sales rep.
- It takes 8-10 hours a month per rep to get the forecast produced.
What is the cause for some of these factors? There are at least three reasons:
- Asking sales people to grade their pipeline without having implemented a consistent and auditable sales process across the company is like putting the fox into the chicken coop while closing any possible avenue for the fox or the chicken to get out.
- Sales people should never be requested to forecast their business without a thorough review and approval done by their managers.
- Trusting the words of the sales rep when preparing their forecast is like inviting them to be optimistic when below quota, and pessimistic when close to meeting their quota. Either way, you will never get the truth.
Why should sales management take the grading of the pipeline and the preparation of the forecast away from sales reps? Simply because sales people, like all professionals, want to keep their jobs, want to get their expense reports paid, and get their managers off their backs. Since the managers and the company probably have never implemented a uniform pipeline grading system with auditable stages and milestones, there is very little chances for objectivity, accuracy, and reliability in grading opportunities in the pipeline. Put in the simplest terms:
“If you can’t inspect it, you can’t track it. If you can’t track it, there is no accountability. No accountability also means no motivation. No motivation means no reasons to change. Thus: do not expect what you can’t inspect.”
So where do we go from here? Next week, I’ll lay out a plan for uniform pipeline grading system that eliminates the problems listed above. Stay tuned!