Ask some people in your company: “On a scale of 1–10, how much do you trust the sales forecast?”
I bet your typical answer is somewhere between 1–3. If so little trust in the sales forecast exists, why spend so much time and effort compiling it? If the operations and finance teams are going to come up with their own forecast anyway, what good is the sales forecast? And why is it important for sales, operations and finance to be aligned?
About 20 million reasons why
Prior to implementing Right90, one of our customers was in this exact situation. The operations team had little trust in the sales forecast, yet sales was adamant that they knew that certain orders were going to happen in the quarter.
At the end of the quarter, those orders did come in. BUT the operations team had not built to the forecast, so those orders went into unscheduled backlog and were eventually lost because a competitor could fulfill the orders quicker. The company could have had an additional $20 million in revenue if they had trusted that portion of the sales forecast.
And therein lies the rub … it’s not that everyone should trust the entire sales forecast; it’s that the company should know which parts of the forecast are trustworthy and actionable.
It’s all about segmentation
The sales forecast is a forecast—of course it should be viewed with skepticism. Sales people are not paid to predict the future; they are paid to close business. They have inherent biases and heuristics like all other humans. They also deal with unpredictable customers and volatile markets that can make forecasting a very difficult task. Yes, parts of their forecast will be inaccurate. However, the sales forecast is very useful.
You don’t need to get everyone to trust the entire forecast to solve that $20 million problem. Instead, you simply need to know which parts of the forecast can be acted upon. There are parts of a sales forecast that can be trusted and there are parts of the forecast that need more scrutiny. There are customers who are more reliable and sales people who are better forecasters.
In the next part of this three-part series, I will discuss how you can segment your forecast, so that you can focus your energy on the right areas of your forecast—and get operations and finance to trust the reliable parts of the forecast.
Photo from Flickr user powerbooktrance
Tags: features, revenue forecasting, revenue performance management, sales forecasting, technology, trust