{"id":17681,"date":"2024-01-18T00:00:13","date_gmt":"2024-01-18T00:00:13","guid":{"rendered":"https:\/\/www.sandler.com\/?p=17681"},"modified":"2024-11-25T05:37:16","modified_gmt":"2024-11-25T05:37:16","slug":"why-sales-leaders-get-and-give-bad-revenue-forecasts","status":"publish","type":"post","link":"https:\/\/sandler.com\/blog\/why-sales-leaders-get-and-give-bad-revenue-forecasts\/","title":{"rendered":"Why Sales Leaders Get (And Give) Bad Revenue Forecasts"},"content":{"rendered":"

This post originally ran on the Forbes Business Development Council at:
\nhttps:\/\/www.forbes.com\/sites\/forbesbusinessdevelopmentcouncil\/2023\/12\/14\/why-sales-leaders-get-and-give-bad-revenue-forecasts\/<\/a><\/strong><\/p>\n

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As President and CEO of a business specializing in sales training, I\u2014and my team\u2014speak to a lot of sales leaders. Most of them have a similar experience when it comes to asking a salesperson what’s likely to close over the next 30, 60 or 90 days: They hear an answer that sounds confident and sometimes even optimistic, and when they come back to the salesperson later on, they learn that the answer they heard no longer aligns with reality<\/strong>.<\/p>\n

The \u201cforecast\u201d from the salesperson is not based on any meaningful data. It\u2019s more of a guess. Often, what sales leaders hear is best translated as, \u201cSee, I\u2019m a closer!\u201d Or, if a deal collapses, as, \u201cLook, it wasn\u2019t my fault.\u201d Salespeople learn to give themselves some wiggle room.<\/strong><\/p>\n

In response, many sales leaders make the same mistakes. Instead of tracking down hard data, they add another level of guesswork\u2014their own:\u00a0Salesperson A usually overestimates a lot; I\u2019ll take their estimate down 40%. Salesperson B overestimates, too, but not as badly; I\u2019ll take them down 20%. Salesperson C, though, is usually on target; I\u2019ll take them down 5%. That way, I\u2019ll leave myself plenty of wiggle room.<\/em><\/p>\n

Picking numbers based on guesswork is how the problem started in the first place.<\/strong> This low-information cycle is, at most organizations, the answer to the question: \u201cWhy are our forecasts so far off?\u201d It\u2019s also the answer to the question: \u201cWhy do we have so many peaks and valleys, as opposed to linearity, in our revenue stream?\u201d<\/p>\n

We can reverse this dysfunctional cycle by making our sales process a communication tool<\/strong>\u2014one that supports forecast accuracy, pipeline hygiene and linearity.<\/p>\n

Typically, when organizational leaders talk about a \u201csales process,\u201d they\u2019re talking about something that runs at a macro level. It\u2019s not a shared set of standards used to quantify opportunities in a rigorous, meaningful way. How about a process that works at both the macro\u00a0and<\/strong>\u00a0<\/em>the micro level?<\/p>\n

Here\u2019s an example of what I mean. Many sales organizations identify Stage One of their sales process as something like \u201cInitial Contact,\u201d Stage Two as something like \u201cQualification,\u201d and Stage Three as something like \u201cPresenting the Solution.\u201d There\u2019s nothing wrong with labels like these. They\u2019re accurate enough. They describe what we want to happen in each stage. But if no meaningful criteria govern the movement between the stages\u2014if there\u2019s nothing to confirm that a given opportunity has hit all the benchmarks necessary for it to move forward from Stage One to Stage Two, or from Stage Two to Stage Three\u2014then we\u2019re running\u00a0only\u00a0<\/em>at the macro level<\/strong>.<\/p>\n

When there are no objective exit criteria<\/strong>, individual salespeople decide for themselves<\/strong>, based on gut instinct, when an opportunity belongs in \u201cQualification.\u201d (\u201cI\u2019ve already had what feels like initial contact, and I still think this is going to close. Therefore, it must belong in Qualification, even though they\u2019re ghosting me.\u201d) Or when an opportunity belongs in \u201cPresent the Solution.\u201d (\u201cI\u2019ve had a couple of good calls; therefore, I must be ready to present our solution, even though I\u2019m not connecting with all the decision-makers and I haven\u2019t asked about the budget.\u201d)<\/p>\n

Another issue is that the information<\/strong> salespeople gather isn’t linear<\/strong>. It comes in at various times. This often causes people to skip steps in the sales process. For example, “We are in the Initial Contact phase, and we have some but not all of the information needed to move on to Qualification.” Most salespeople in this situation leave the Initial Contact phase too quickly and jump ahead.<\/p>\n

Now, occasionally, sales leaders push back when I describe their sales process as operating at the macro rather than the micro level. They\u2019ll say, \u201cIn order to move an opportunity from Stage Two to Stage Three in our world, the salesperson has to confirm X or Y has happened.\u201d Here\u2019s the problem: There usually aren\u2019t enough criteria to give them any meaningful data, and their salesperson has too much independent authority to decide whether X or Y has taken place.<\/p>\n

For a sales process to function as a communication tool, it must be built around multiple objective and verifiable exit criteria.<\/strong>\u00a0<\/em>These are the yes\/no questions whose answers tell us what we need to know about whether a given opportunity even belongs in our process at all. For instance, “Do we have a meeting scheduled for some point within the next two weeks?”<\/p>\n

We need to find between 2-5 such questions for\u00a0each<\/em><\/strong>\u00a0transition out of\u00a0each<\/em><\/strong>\u00a0stage of our process.\u00a0<\/strong>If the answers aren\u2019t all \u201cyes\u201d, then the opportunity can\u2019t move forward to the next stage; income can\u2019t be projected against it.<\/p>\n

It is our responsibility<\/strong> as leaders<\/strong> to:<\/p>\n