Building a Sales Forecasting Strategy that Works

At the end of the quarter, many companies will find themselves desperately trying to reach sales targets by closing last-minute deals. This can all be avoided by creating a sales forecasting strategy that works. Sales forecasting is the process which shows the level of sales an organization expects to achieve. Gabe Larsen, VP of XANT Labs discussed the stages of creating an ideal sales forecasting strategy. If you missed the webinar, you can watch the recording right here: “Building a Forecasting Strategy that Works.”

Sales departments are constantly lagging when it comes to forecasting, shows Gabe. “Most of us are flipping a coin when it comes to our sales forecast strategies,” says Gabe. Industry research shows that 79% of sales organisations miss their forecasts by more than 10%.

Why Is Sales Forecasting So Difficult?

So why is forecasting sales such a difficult task? One reason is its complexity, shows Gabe Larsen. Sales forecasting includes all the factors that influence whether a deal will close or not. The other reason is limitations of the Customer Relationship Management (CRM) software.

“The problem is a lot of people try to do forecasting inherently in CRMs. This is a multi-tool framework that goes about this deep in 150 areas. They lack a lot of the things they want to do around forecasting. They lack the system and the capability so that they end up maybe doing a lot on the side and it gets a little bit messy,” explains Gabe. “Specific forecasting tools are more like a chef’s knife. They’re designed for a specific tool and they’re going to do one thing 150 feet deep. This is one thing I find is often a problem,” he adds.

 

Sales Forecasting, Done the Right Way

Gabe Larsen advocates for a model based on discipline and flawless execution, when creating a sales forecasting strategy. Here are the action items you should have on your list for a winning sales forecasting strategy:

1. Define sales stages
2. Determine stage probability
3. Build forecast categories
4. Use predictive forecasting
5. Establish a forecast cadence
6. Know what you’re measuring

He uses a few stages for creating this strategy, and optimizes based on company goals and specific factors that influence sales. These may be target audience, deal sizes or customer journey:

1. Understanding the model: transactional vs relationship selling
2. Create descriptions, milestones and outcomes
3. Ensure stages cover the entire customer journey
4. Define distinct sales stages

Transactional vs Relationship Selling

Whether the company uses transactional vs relationship selling is important for the sales forecast, as it influences building sales stages, shows Gabe Larsen.  The transactional selling model focuses on achieving quick sales. The rep will not have a deliberate attempt to form a long-term relationship with the customer. Relationship selling is about sales striving to develop a relationship with them first, and then try to close the sale.

“A lot of companies obviously want to move up stream. They want bigger deals. We all want bigger deals. The problem with moving up stream is that it’s going to be a relational selling model. It will be bigger deal sizes, longer sales cycles. Whether you like it or not, it is probably going to be a different business model than your high velocity [sales],” shows Gabe Larsen.

He recognizes that many companies try to use both models in their strategy, however they are not always successful. “Better companies are recognizing that they are very different and they have a completely different go to market strategy for their transactional business, different marketing, [they are] different sales plays,” adds the InsideSales VP.

 

Create Descriptions, Milestones and Outcomes

Creating milestones and outcomes you are expecting during the sales process is a crucial step in the sales forecasting strategy, shows Gabe. He recommends taking the time to build this document to understand how to optimize the process. Some of the sales stages might be (each can have its own different milestones, outcomes and description):

• Planning
• Opportunity Qualification
• Opportunity Strategy
• Executive Sponsorship
• Solution development
• Solution confirmation
• Closing

The milestones will help you progress each deal from one stage to the next. It will also give an accurate view of how much time sales reps spend on each of these steps.

“A lot of people actually take this to the next level and build some of these concepts into CRM to help people really be able to manage this more effectively. I’m a big proponent of systematizing it but I think the first step is really getting it down on paper in a way that allows people to know different sales stages are,” said Gabe Larsen, during the webinar.

 

The Probability That Your Deals Will Close

Successful sales forecasting has a lot to do with probability. Probability is the likelihood that a deal will close or move something into a closed state. To determine probability, you might use the following processes:

1. Have rep subjectively assign probability
2. Default a probability by stage
3. Run reports to determine probability by stage

 

Often, companies will use a default probability for their industry – or one built into their CRM, shows Gabe Larsen. He adds that he doesn’t recommend the first strategy: subjectively assigning probability. However, intelligent companies will use reports to determine probability by stage.

“You really want to get to that point where you’re starting to run some reports to be able to determine what the probability is by stage. […] This method is easily understood and depending on how you use your probabilities, it’s objective. There is no management call, […] a lot of the emotion is taken out of it,” said Gave Larsen.

One point of caution would be: probability must consider sales cycle length, he adds.

 

Building Forecasting Categories

Each organization will build different forecasting categories based on its goals, says Gabe Larsen. However, it is a crucial step of sales forecasting.

“You can just be completely subjective here and allow sales managers, sales reps, etc. to define forecast categories. A lot of organizations will actually bucket them into these different sales stages,” says Gabe. He adds that each company will have different verbiage (they may call their categories ‘pipeline’, ‘commit’, ‘upside’ or other).

Pipeline = a newly created opportunity that is not likely to close this quarter;

Best Case = identifies opportunities that are not guaranteed to close this quarter. They may close if everything goes as planned;

Commit = these are opportunities that are going to close this quarter;

Closed = you have received an order and closed an opportunity.

 

Using Predictive Forecasting

Predictive forecasting will take some of the subjectivity out of the sales forecasting process.  Predictive forecasting tools will look at the variables which influence results (predictors), to forecast outcomes for your sales results. The process uses data mining and probability to create a statistical model.

[Predictive forecast] looks at historical conversion rates. What’s winning percentage of similar opportunities that have been like this in the past? It’s going to look at current sales pipeline and number of opportunities in the time frame. It will also consider other variables: average deal size, time, engagement, the number of times something has been shifted. All of this data driven sales forecast rolls up into predictive forecast. This is going to make your sales forecast substantially a lot tighter than the intuition of reps,” explains Gabe Larsen.

Predictive forecast tools will account for these variables and help you get a more accurate number on sales forecasting. They will consider, for example, the commit risk. When a deal has shifted its close date three or four times, this reduces the probability to close and constitutes a commit risk.

“The predictive forecast gets you a truer number and it then becomes very effective at helping reps get closer to their number. […] Once we have sales stages identified, it helps show how effectively are people moving through them,” shows Gabe.  Moreover, predictive forecasting tools will flag any slowdown of the sales cycle.

“Predictive forecasting is best utilized when you have larger, complex deal sizes than transactional one call closes,” added the InsideSales VP.

Sales Forecasting With XANT

If you’d like to learn more about creating a winning sales forecasting strategy, watch the webinar with Gabe Larsen: “Building a Forecasting Strategy that Works.”