4 Steps to Better Forecasting
Forecasts are awesome.
They are vital. They are key. They should be the backbone of all your work. Love them. Live them.
Why are they awesome?
I’ll tell a story I tell everyone (often more than once to many people’s detriment) about forecasts. I was partnered with a software manufacturer in Taiwan. Forecasts for them were EVERYTHING and not even my capitalizing captures how big they were. September and October were about forecasts. Forecasts, forecasts and forecasts. Every salesperson and outside partner would be flown to Taipei and for two days we would present that year’s numbers and, more importantly, go over the following year’s forecasts.
One year they brought in a new VP, one they had taken from Intel Taiwan. If the company had been gung ho about forecasts before, he made them look soft and lazy on the subject. For him this was the starting point of all your work. Your base. Your (fill in some really good cliche about how important they were). For him a perfect year was being within 5% of your forecast.
In other words being well over forecast was less important than being on target.
Think about this for a minute. For him someone who was 1% under forecast had done a better job than someone who was 35% over his/her forecast.
Think about that for another minute. What does your company do to reward going over forecast?
One last minute to think. What the hell is the reason for that? Is that guy nuts?
Hitting your forecast means you know your territory and your customers well enough to project an entire years of sales. Nothing is more important. Nothing even comes close. If you’re 50% over your forecast, while that is better than 50% below it, it most likely shows that you didn’t know your territory as well as you should have.
And that’s why forecasts, done right, are awesome. They teach us about our market, our territory and our customers. You can never learn enough. You can never ask enough.
4 steps to help your forecasting:
1. Start now. If I’ve done this right I’ve published this article in Q1. The forecasting process starts now. Don’t wait. Start looking at next month, the next quarter, the rest of the year. Learn about last year.
2. Use your head and not the other end. So many professionals and so many companies have this tool they absolutely rely on for their forecasting: their butts. They pull out numbers like a magician does a rabbit. Anyone can make up numbers. Forecasts don’t mean a thing if they have no basis, credibility or reliability. Use your head. And then use real, quantifiable criteria.
3. Units do matter. If you sell a product that can be quantified in units, physical or otherwise, units matter. While there are a number of variables that can enter sales cycles, especially b2c and all consumer related business, if you sell a product in units and you can quantify those units, start with the actual units for your forecast. So many companies work entirely on revenue. Why? You not only risk accuracy on your forecast, you cheat yourself out of great data.
I'll give an example: A very good friend of mine used to work in consumables for the biopharma market. Her company manufactured and sold pipette tips (plastic tips for the turkey-baster-looking things you see on CSI when they move liquid from one tube to another). Their entire forecast was based only on revenue and it blew my mind. Why not start with units? The companies they sold to tracked the number of tips they purchased throughout the year. Just a simple year over year comparison can give a decent unit forecast (whereas revenue, depending on pricing, can vary and be less reliable). From there they can figure out revenue, margin and profit, much more than revenue alone could yield them. And just going through that process would force them to work with their customers. In fact...
4. Work with your customers and partners. Again, this will depend a bit on certain consumer markets but, especially in b2b, onboard your customers and partners into the process. Think about how much you can learn about your customer and partner. And while the mere process of better understanding those you work with is more than value enough to do this, I have seen on numerous occasions how those conversations lead into discovering new opportunities. The forecasting process is a perfect start to forming a strong relationship.
I will not accept that your partner and/or customer won't give those numbers. Work with them. Gain their trust. Empower them with the knowledge you both will learn and prove to them how you can support and grow their business. This is the perfect opportunity to forge a strong working bond with them.
That's possibly the biggest reason the 5% rule is right. To know that information you have to know your market. To really know your market you have to have strong relationships with customers and partners. And I will take strong long-lasting relationships over one year of over forecast sales every time.
