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The only function of economic forecasting, said Prof Galbraith with his signature wry humour, is to make astrology look respectable. Sales forecasting in companies isn’t very different
Typically, two approaches inform the sales forecasting exercise. One is the pragmatic, ‘what’s possible’ approach, where the sales likely to achieved given the potential of markets and capabilities of sales people is arrived through a process of aggregation. The other one is the aspirational, ‘audacious goals’ approach that decides the sales numbers to be reached and then figures out ways of getting to them
It becomes the responsibility of the top management, often that of the CEO and the Head Of Sales, to marry these approaches to find a happy middle path where aspiration meets pragmatism. Herein lies the Yin and Yang of sales forecasting. An uncompromising, audacious approach to goal setting may be blindsided to constraints and risks.
This could also bring enormous pressure on the sales force resulting in demoralization and eventual attrition once the targets fixed are perceived to be unreasonably ambitious. On the other hand, a weak, ‘as the traffic will bear’ sort of goal setting passes up opportunities, makes poor use of market and human potential and gives the sales team an under-achiever complex. Sales forecasts, to be purposeful, should challenge the sales force with a grand vision, raise hopes of achievement and inspire them to give off their best
To serve the strategic interests of a business, sales forecasting must have 2 qualities:
Are these new challenges? Not exactly, as these are among issues discussed over 3 decades back in a Harvard Business Review article Manager’s Guide to Forecasting authored by David M. Georgoff and Robert G. Murdick (HBR Jan 1986) . While the article covers a wider canvas of economic forecasting, the ‘tricks of the trade’ it lists on some of the key considerations in forecasting and tips offered could be of immense value in projecting sales scientifically. Here is a quick listing:
The article offers a ready to use Manager’s Guide to Forecasting Brief descriptions of methods complete with a Forecaster’s Chart and tips on improving and combining forecasts, simulating outcomes and applying judgement. A side bar on Forecasting Strategies deepens our appreciation of the 3 basic strategies in use
Like most timeless lesson of selling, the Yin and Yang of forecasting hasn’t changed after all
“What will be your sales numbers for 2019-20?”
Does that question make you anxious? Or squirm secretly?
It needn’t, says Tim Berry in his blog post How to Forecast Sales. The answer isn’t in some magic formula you ought to know. Or a training you should have taken or a spread sheet model you cannot do without. It’s about something lot more uncommon – Plain old common sense
Sales forecasting isn’t about seeing into the future argues Berry. “Instead, it’s about assumptions, expectations, drivers, tracking and management” he says. If forecasting seems hard, running a business without forecasts could be a speedway to failure. That’s because, a business is measured by its growth in sales. Forecasting sales, therefore, becomes the starting point to estimate expenses, profits and growth. Having a sales forecast helps tracking planned sales against actuals. This tracking in itself can kick start formal business planning.
Where do you begin then? These pointers, with some tips and tricks shared by Tim Berry can be your Sales Forecasting GPS:
Tim Berry sums it up this way – “Sales forecasting is not about accurately guessing the future. It’s about laying out your assumptions so you can manage changes effectively as sales and direct costs come out different from what you expected. Use this to adjust your sales forecast and improve your business by making course corrections to deal with what is working and what isn’t.
I believe that even if you do nothing else, by the time you use a sales forecast and review plan versus actual results every month, you are already managing with a business plan. You can’t review actual results without looking at what happened, why, and what to do next”
There are opinions. Everyone has plenty of them. And then there are facts. Facts are inviolate, unchangeable. Not so with opinions. Often formed with no basis in facts, opinions contribute to a range of human follies, some bordering on tragic. These include, prejudices, poor decisions, suspicion, fear or even plain hate. Into this opinion-driven, post-truth world, enter Factfulness, the new best seller book that reminds us how “fighting ignorance and spreading a fact-based worldview (is) .. sometimes frustrating but ultimately inspiring and joyful”.
Hans Rosling, the book’s principal author, lived a rich life of many parts, a physician, teacher, a highly acclaimed Ted presenter, statistician, passionate public health crusader and even a sword swallower! The world lost a campaigner for better global understanding, climate awareness and poverty eradication when Rosling passed away in 2017.
Rosling lived his message of a fact-based approach in all situations, sometimes even ones threatening his own life. Like the time, when Rosling was surrounded by a suspicious, machete-waving mob in an African country, where he had gone to find a solution for frequent instances of paralysis in the population. Not knowing the local language and completely defenseless, Rosling turned to his favourite weapon – facts. Producing pictures of paralyzed patients, Rosling used sign language to plead his case that he wanted to find a cure. Inspired by the ring of sincerity in his plea, a woman in the group appealed for peace and rolled up her sleeve to offer a blood sample. Others followed. Soon enough, Rosling identified the real culprit – poorly cooked cassava root that had cyanide like residue leading to paralysis. Rosling’s campaign eliminated cassava induced paralysis
Factfulness lists 10 Instincts or mindsets that prevent a fact-based world view. In each, there is a sales parallel we can draw. Here are the 10 instincts that blind us to facts:
Possible Sales Example – Seeing sales performance in the binary of quotas reached or not reached. In forecasting and fixing targets, we should in fact be mindful about the gap instinct and look for the shades of grey in between and the factors behind them. That contributes to a richer understanding of the sales force and its various constraints and strengths
Possible Sales Example – The temptation to do ‘base plus percentage’ forecasting is irresistible in sales. Ignoring other facts that could influence sales, vitiates the projected numbers
Possible Sales Example – Economy is slowing says the pink press and most businesses are cautious about their expectations. We buy into this negativity and forecast lower numbers even when our products are poised do well because they are in good demand
Possible Sales Example – Failing to look for the facts behind big numbers. Example: The sales of a peer company have grown 20 percent faster than ours, so we conclude our team is inadequate, when in truth, their sales would have been 10 percent less than ours, without a large a one-time order landed by them through sheer luck
Possible Sales Example – Market uncertainties may be worrying us when in fact the sales competencies of our team may be getting rusty. Business plans based on such fears, are apt to go awry
Possible Sales Example – Two products in a category fail to fire and the sales team decides to junk the entire category in its annual business plans. A competitor with a more fact-based approach identifies the profitable ones in the category and moves into the vacuum to make a killing
Possible Sales Example – Week on week small declines in sales volumes are ignored till they all add up to a gap that can’t be bridged and the forecast goes out of the window
Possible Sales Example – If forecasts are not met, withdraw or hike the incentives
Possible Sales Example – Fire or promote the territory managers solely basis failure or success in reaching quota numbers
Possible Sales Example – After 3 consecutive months of big gaps between forecasted and actual sales, we decide to scale down targets, taking them to be unachievable. In reality, seasonal factors may have led to the lack luster show
This New Year before you plan your sales for 2019, pick up Hans Rosling’s book. Treat yourself to a helping of Factfulness
Let’s start here. The ‘Commit Theory’ of sales forecasting is completely broken. Committing that a deal will come in does not make it come in.
Accountability is good – but the misguided use of commitment is dangerous. It can be the enemy of good sales practice, and has the potential to alienate
For sales managers to get accurate sales forecasts there are four basic things to get right:
Donal is CEO of The TAS Group, author of Amazon #1 Bestseller Account Planning in Salesforce. His latest publication is Winning Sales Performance Management – No Analytics Needed. Follow him on Twitter, LinkedIn and on The TAS Group blog
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