4 February 2014
Forecasting sales is an annual ritual for most companies. If you are a publicly listed company, sales forecasts are issued to give investors an idea as to how things will play out later in the year. In the case of small and medium businesses, sales forecasts are a way to optimize their sales management pipeline and to motivate the sales force to beat the numbers from the previous years.
Irrespective of the size of the company and the resources they dedicate to predict sales for the upcoming year, sales forecasts remain educated guesses at best. The unpredictable nature of the marketplace is one thing that makes most sales forecasts as reliable as weather forecasts.
If you follow quarterly earning reports of publicly listed companies closely, you might come across CFOs scrambling for reasons to justify the gap between the forecasted and the achieved sales targets. A flood halfway around the world to a coup in a tiny Eastern European nation will end up getting blamed for a poor show. If it’s that unpredictable, why do a forecast in the first place then? Well, there are four reasons for it:
For a small or medium business, forecasting sales is a great opportunity to better understand the marketplace and the forces that work in the background. After a period of trial and error, you’ll eventually be ready to predict sales for the next cycle with a justifiable margin of error.
It’s the time to look back at the track record and learnings from the previous years and apply that wisdom in the future. A quick SWOT analysis will help tying all loose ends together when you are trying to forecast sales. There is no better and practical way to spot and predict trends.
Once you ascertain the demand, it gets way easier to manage the supply. This way, you will be better off when it comes to allocation of resources and to easily curtail wasteful expenditure in supply chain management. Chances of you swamped with a stockpile of inventory go out the window with a sales forecast.
You’ll be better positioned to allocate marketing budgets with a clear understanding of the economic conditions for the year ahead. A slowdown period needs a marketing push with an advertising blitz coupled with a gamut of bargains and discounts. At other times, you can hold your purse strings tight and not splurge as much.
Sales forecasting is a great way to conserve cash. Savings happen across the board. Let’s take the case of an ecommerce business. Right from the amount that’s is needed to source raw materials to saving on logistics and warehouse rental, the online storefront stands to benefit financially.
The ecommerce venture can also plan its hiring based on the demand that they foresee. Why hire twenty people to handle packaging and logistics when they know beforehand that sales might not be great during the winter season? Your fledgling ecommerce business could save thousands of dollars by way of forecasting and sales tracking.
A sales forecast prepares you for handling downturns and economic hardships ahead of time. You’ll save yourself a lot of stress and heartburn by aligning yourself to a stark reality way before it eventually comes knocking.
Imagine a scenario when an impending Government regulation is about to curtail foreign investments to ecommerce businesses and you totally didn’t see that one coming. You and your team are better prepared to weather the storm together by opting for a comprehensive business forecast.
The one thing that almost every business gets wrong is the numbers for the upcoming year. Enthusiasm and optimism wind up replacing reality, and the targets are set 2X or 3X of the sales done by the team in the past year. It’s a good practice to shoot for the skies, but, having a sky high target doesn’t ensure success.
To be precise, an unrealistic sales forecast often leads to slump in productivity and profitability. Your employees get demotivated and disillusioned if you thrust upon them a seemingly impossible to target to achieve. Besides, you might end up investing on resources to meet an artificially inflated forecast, losing money in the process.
The easiest thing to do here is to evaluate if you have enough resources at your disposal to meet your business forecast. Without a firm grasp on the physical, human and financial resources that are vital to execute, your forecast will be a non starter. Besides, you don’t want to appear greedy by overloading your men and machine, right?
Forecast accuracy is something that takes time to master. However, there are a number of qualitative and quantitative techniques practised by businesses across the globe to get the forecast numbers right.
By crunching numbers from the previous years and dipping into your experience of the situation on ground, it won’t be a huge problem to arrive at a number that’s grounded in reality.
Process is the fifth P that ensures the success of a business. A uniform, organization wide process is the best way to keep everyone on the same page. Productivity and efficiency of your team will exponentially improve if there is a process in place. They don’t have to stop and think what they’ll have to do next each and every time they work on a deal.
There are two gotchas to watch out for when you are putting process in place. First and foremost is to ensure not to come in the way of the creativity and ideas of your employees.
A process is in place to ensure the smooth flow of information within the organization. You don’t want humanoid robots who blindly follow the process. Make room for people to exercise their best judgment as and when they see fit.
The other gotcha is to ensure that everyone in the team follows the process. When half of the team is using five stages for sales tracking and a CRM to keep an eye on the sales pipeline, the rest of the team shouldn’t be working with sticky notes and legal pads.
Putting a process in place is just the beginning. Getting people onboard to embrace it is the hard part. People aren’t averse to change at all times. It’s just they are uncomfortable with things they aren’t familiar with.
Few emails and flyers on the noticeboards aren’t going to motivate people to adapt to a new system. Set aside some time to sit down with your team and educate them on the benefits of going with the new process. Run down the numbers and help them see how this new change will help the growth of the company and eventually their career.
Conducting a few training sessions won’t hurt either. Essentially, do everything that you can to iron out kinks in the sales pipeline. Focus on these following skills and topics to start with:
Building Customer Personas - Help your sales team to figure out who the ideal customer is and the benefits of creating customer profiles.
Active Listening - Enlighten people about the need to lend an ear to what the customer says, and the ways to actually listen and grasp the customer’s problems.
Speed up the Sales Cycle - Teach them ways to cut down the length of a sales cycle.
Price Sensitivity Training - Educate your salesperson about the importance of decoupling price sensitivity from the buying process and offer them ideas to streamline the purchase process while at it.
Writing Business Proposals - Train your team to create the best first impression by sending out well written business proposals.
Making Cold Calls - Give your team the opportunity to understand the importance of cold calls in the sales process and help them get better at closing deals.
When you are preparing a sales forecast, bring everyone together and get their inputs. Not just the sales team, but all other departments in your company. Accounts, HR, Operations, Marketing - bringing all hands on deck gives you a 360 degree view of the company’s ability to handle the new forecast.
Sales is a cross functional task and all the above mentioned teams play a key role in the background. Getting their voices heard is a nice and inclusive thing to do. This way, you’ll get them to trust your forecast and throw their weight behind it.
Getting everyone involved will give you a better picture of the availability of resources. This comes with an added bonus of imbibing in your employees a sense of ownership and responsibility.
A sales forecast isn’t something that’s done once a year. It’s actually an ongoing process that needs constant tracking and attention. A transparent to process to track, analyze and report the progress of your sales team relative to the forecast makes a lot of difference.
Ensure that the weekly and monthly results of this tracking is made available to all your employees. Motivate the sales team to stay committed and make sure they follow up on their commitment. After a few weeks, a sense of ownership and responsibility should run deep within the team.
Build and simulate sales scenarios to improve the sales numbers. Open up the floor for discussion and facilitate collaboration to make improvements. Constantly benchmark the progress of the deals with your projections and see how close or far off they are from your prediction.
These numbers form your feedback loop. By making inferences from this data set, you can finetune the sales forecasts for the next cycle. Over time, these diligently tracked numbers will form a valuable data mine for you to predict sales with pinpoint precision!
