There is much to be said about the debate amongst operations, service and sales regarding forecasts. All have viable arguments or points of view. Operations and service need accurate forecasts to ensure they have the right amount of personnel, inventory and resources to support the sales efforts. Yet, sales hedges on putting their name on a number. All points of view need to create a balance to manage success between the organization and its customers.
I have spoken to numerous entrepreneurs, executives, operations personnel, managers, sales reps and been on both sides of the table. Even though I have been on the sales side longer, I favor accurate forecasting. The reason is logically because I care more about delivering on promises to my clients than not getting it right or avoiding accountability. I "get it" that operations is not a never-ending money train either. The compromise is to come up with a forecast that balance everyone's needs. It is also important to note that it takes significantly more expense, resources and time to generate one new customer (something like 75%) than it does to keep existing customers happy. Yet, most organizations spend a great deal of effort on winning new customers, especially during uncertain times.
Forecasting is particularly critical if you are focussed on gaining new customers or when economic conditions are unpredictable. Organizations are caught between laying off employees prematurely or out of panic, leaving themselves short when a customer does need the added resources or services available. We know that scientists have confirmed that the chicken did come before the egg. Forecasting is the chicken and needs to be in place before anything else can be established. Every organization, with one employee or one thousand, needs to establish where their revenue will come from. "Forecasting" is just that. Very few organizations have the cash flow or can survive by what I call "Field of Dreams" mentality: build it and they will come.
Even without sales professionals on staff, setting realistic goals on attracting and retaining revenue can determine the success or health of your business.
Unless you are in a large corporate sales environment, the culture for forecasting tends to be less of a requirement. Yet, from formulating or guesstimating best estimate on each sales professionals predicted revenue by year, by month or even by week will help operations and support their efforts. It is sometimes called "accountability". Many sales professionals are uncomfortable with this as they consider it will reflect badly on them if they are off the mark. However, not assessing their own performance will likely restrict their success anyhow. Here are a few suggestions I would offer:
I won't dwell on it too long because I want to emphasise all the many advantages to forecasting, however, organizations can be their own worst enemy. For example, they may project what the forecast has to be and then divide it amongst the sales team. That projection could be based on operational expenses, factoring in commissions, and then profitability. I can put forth my theory that many private organizations don't share the numbers on projections or post actuals because they don't want everyone to know those numbers ... in other words how much money the owners make. Some share only lump sums or maybe only larger corporations emphasise profitability to leverage forecast requirements under a budget, target or plan.
What this all comes down to is accountability. If you are a sales professional, you should have a handle on where your revenue will come from. Sales reps should up the ante through increased activity if a customer or prospect doesn't come through. Where the true value comes from is when you, after practice, become more accurate with time, like golf. Organizations would win by recognizing accurate forecasting. Both sides benefit when there are real numbers to work from. The customer wins the most by having the high level of service and product they envisioned.
Accurate forecasting eliminates mistrust from sales who spin tales to save face or ease pressure of unachievable projections. Organizations reduce buffering or stretching numbers. If an organization feels they have to set the budget higher to stretch their sales team, then they may have a completely different issue to consider. One might be to buy a dart board.
Feedback is learning. Please comment, share or provide your own opinion on this Blog.
I have spoken to numerous entrepreneurs, executives, operations personnel, managers, sales reps and been on both sides of the table. Even though I have been on the sales side longer, I favor accurate forecasting. The reason is logically because I care more about delivering on promises to my clients than not getting it right or avoiding accountability. I "get it" that operations is not a never-ending money train either. The compromise is to come up with a forecast that balance everyone's needs. It is also important to note that it takes significantly more expense, resources and time to generate one new customer (something like 75%) than it does to keep existing customers happy. Yet, most organizations spend a great deal of effort on winning new customers, especially during uncertain times.
Forecasting is particularly critical if you are focussed on gaining new customers or when economic conditions are unpredictable. Organizations are caught between laying off employees prematurely or out of panic, leaving themselves short when a customer does need the added resources or services available. We know that scientists have confirmed that the chicken did come before the egg. Forecasting is the chicken and needs to be in place before anything else can be established. Every organization, with one employee or one thousand, needs to establish where their revenue will come from. "Forecasting" is just that. Very few organizations have the cash flow or can survive by what I call "Field of Dreams" mentality: build it and they will come.
Even without sales professionals on staff, setting realistic goals on attracting and retaining revenue can determine the success or health of your business.
Unless you are in a large corporate sales environment, the culture for forecasting tends to be less of a requirement. Yet, from formulating or guesstimating best estimate on each sales professionals predicted revenue by year, by month or even by week will help operations and support their efforts. It is sometimes called "accountability". Many sales professionals are uncomfortable with this as they consider it will reflect badly on them if they are off the mark. However, not assessing their own performance will likely restrict their success anyhow. Here are a few suggestions I would offer:
- Understand the full annual territory revenue value, then break down by customer, by month
- Record the projected new customers by annual value, by month, considering purchase date
- Assess percentage or ratio of revenue between existing customers and new customers
- You can take last three months, projected next month that includes new customers, and same month from previous year. Total all 5 months, divide by 5 to get a forecast amount.
- Organizations should post results by week, by month or provide access by reps for cross-checking.
I won't dwell on it too long because I want to emphasise all the many advantages to forecasting, however, organizations can be their own worst enemy. For example, they may project what the forecast has to be and then divide it amongst the sales team. That projection could be based on operational expenses, factoring in commissions, and then profitability. I can put forth my theory that many private organizations don't share the numbers on projections or post actuals because they don't want everyone to know those numbers ... in other words how much money the owners make. Some share only lump sums or maybe only larger corporations emphasise profitability to leverage forecast requirements under a budget, target or plan.
What this all comes down to is accountability. If you are a sales professional, you should have a handle on where your revenue will come from. Sales reps should up the ante through increased activity if a customer or prospect doesn't come through. Where the true value comes from is when you, after practice, become more accurate with time, like golf. Organizations would win by recognizing accurate forecasting. Both sides benefit when there are real numbers to work from. The customer wins the most by having the high level of service and product they envisioned.
Accurate forecasting eliminates mistrust from sales who spin tales to save face or ease pressure of unachievable projections. Organizations reduce buffering or stretching numbers. If an organization feels they have to set the budget higher to stretch their sales team, then they may have a completely different issue to consider. One might be to buy a dart board.
Feedback is learning. Please comment, share or provide your own opinion on this Blog.
Very good blog and in my experience also most accurate.
ReplyDeleteThank you Michael. I believe it is critical, now more than ever, that everyone get on the same bus when it comes to forecasting.
ReplyDeleteSince I'm not into sales, I'm the least able to make rrelevant observations. But what I can say is that I detect confidence, and there is confidence here.
ReplyDeleteThank you Rosanne ... no trick to sales: you have to believe in what you sell. In this case, I'm selling my opinions based on first hand experiences I believe in!
ReplyDelete