One of our customers recently spoke at the Sales 2.0 Conference in San Francisco. Our customer, Kirk Nichols of LaCrosse Boots, was on a panel with another company who used sales analytics software and CRM software.
The big question from the audience was “What’s the difference between CRM, sales forecasting software and sales analytics software?” An attendee in the audience answered the question beautifully, but it made me realize the depth of confusion in the market around the general topic of sales forecasting. Simple questions often have complex answers, so I’d like to answer that simple question with the 5 key differences between CRM, sales forecasting and sales analytics:
- handling run-rate and new business
- collaborating cross department
- building a complete sales forecast
- scoring the reliability and quality of the sales forecast
- using the forecast to drive key business processes.
This will be a series of 5 blogs, each blog will explain one of the key differences between these software systems that all touch on the sales forecasting process. At the end, let me know if I’ve succeeded in clarifying that simple question.
Let’s start with the first difference.
Difference #1: How these systems handle the Run Rate Sales Forecast versus the New Business Sales Forecast
In most businesses, selling efforts are divided between acquiring new business (winning new customers or getting design wins for new products) and managing recurring (or run-rate) revenue from existing customers. For many manufacturers, recurring revenue is much higher than the revenue generated by new products and customers. This is generally true even though new products usually have higher margins and are thus key to driving higher profitability. For manufacturers, the business process for forecasting and managing run rate business can be quite different from the forecast process that is used for new business. And the way the forecast is tracked varies as well — a run rate forecast is usually done at the account level while the new business forecast is done at the opportunity level.
A Sales Forecasting System captures a complete view of both the run rate and new business forecast in terms of units, selling price and total revenue over time. A sales forecasting system can track both the run rate forecast at the account level and the new business forecast at the opportunity level. A sales forecasting system understands the differences between these two different kinds of revenue and lets you capture and consolidate the two different components into a single comprehensive sales forecast. A sales forecasting system captures forecast data that is not contained in a CRM system and provides analytic capabilities on that data.
A CRM System focuses primarily on tracking and managing new business (opportunities). The opportunity paradigm is useful for tracking the progression of design wins through the sales cycle and providing visibility into the likelihood of closing a new customer. But CRM does not lend itself naturally to tracking the detailed and ongoing nature of a repeat business forecast. CRM systems are a good complement to sales forecasting systems — CRM is for tracking the progression of new business-oriented design wins, and sales forecasting captures the ongoing recurring business forecast that results from the new business or design wins.
A Sales Analytics System provides multi-dimensional visibility into the opportunity and new business data that is in the CRM system. It can show how the opportunity pipeline has changed over time and where the bottlenecks are that are preventing opportunities from moving forward. It does not capture any data from users itself and is limited to providing insight into what is already captured in the CRM system. Sales Analytics is good at helping to understand how well the new business sales process is working.
So, key difference #1 is in what data is captured and analyzed — new or recurring business? Depending on how your company’s revenue segments into new and recurring business, it may be more important to your company to understand and manage your recurring revenue than your new business. Of course, it’s best to optimize both types of revenue so you can make the current quarter, in addition to the next one!
Speaking of next ones, our next key difference is in how these systems handle collaboration in the forecasting process.