Art and Science of Successful B2B Sales Forecasting

Running precise and accurate sales forecasting is hard. All sales professionals are growing up in their roles. They can be brilliant Individual Sales contributors or can manage a small team well. The moment you get into VP Sales (CRO or CSO) shoes, you have to balance multiple balls to meet your management and shareholders' expectations. What components make forecasting a well-oiled machine rather than guessing (usually called “management judgment” :) exercise? Let me share my experience and approach here.

Why accurate Forecasting is crucial for VP Sales success:

• It's the most important part of Financial Planning, regardless of the company size. It can be mission-critical for Startups who live on a tight budget.
• Accurate forecasting and ability to hit targets is an important part of Target Setting as well as Performance Management. I always advocate for forecasting accuracy as a middle sales management (regional) KPI. Ideally, it should be within 5% of the factual revenue, measured in the middle of the sales quarter (or after the first month, depending on the sales cycle). It's always a learning curve for any sales leader where you have to constantly adjust your model to local business specifics.
• Shareholder and management confidence is usually triggered by accurate forecasting and the team's ability to deliver on its promise. I would say that Target Setting is more critical to driving Shareholder confidence, which is a topic for a separate blog :)
• Management decision-making is based on forecasting. You can allocate your team resources, plan partner and marketing spending, and do budget adjustments. If you are running on quarterly and yearly budgets, you should always look at and update your current and following quarter forecasts to stay ahead of the game.
• Inventory Management — in case you are dealing with physical goods, stock levels, and production cycles. If you are selling through distribution, you have to track their stock levels as a “sell through” metric — following the same forecasting cycle). Doing it wrong or not receiving stock inventory updates on time might be an expensive mistake…
• Your immediate team performance and your CRM (and forecasting tools) effectiveness. Accurate forecasting will allow you to focus on strategic large deals (or partnerships) and allocate your team focus accordingly.

Let's talk about the forecasting mechanics and what you need to have in place to run an accurate weekly routine here. Yes, forecasting is a weekly exercise, the only week you can skip is the first week of the new (next) quarter. It's not a break, you have to update your models and collect last quarter's KPIs.

So, what are the forecasting mechanics components? Here are the main ones I suggest to use if you are dealing with B2B Software sales:

1. Your CRM funnel data, current week snapshot. Having your opportunities at the right stages and up to date is key here. I never take weighted pipeline as a forecast, it is a bad indicator of pipeline quality as well. CRM hygiene is a separate topic (I keep on piling future blog topics here :)), but assuming you have CRM quality under control, I always focus on “developed” opportunities (at POC or higher stages) that are moving well (measure and keep attention on “days at sales stage” metric), flag the ones which are “forecastable”, then look at total pipeline coverage (2X to target should be your minimum, 3X is a golden standard) and your opportunity owners historical performance. That will allow you to put a number on the current “developed” pipeline forecast.
2. Historical Data Analysis. Knowing your sales and forecasting history and weekly pipeline snapshots is priceless. That should include your business (and local geo) seasonality and your historical forecasting accuracy. I would say that looking at your historical performance (at any particular week through the year) should be extremely helpful in locking your current week's numbers.
3. Forecasting tools input (can replace p.1 if you have well-integrated tools). Unfortunately, all modern CRMs (particularly SalesForce.com and Hubspot) don't have “out of the box” forecasting tools and the ability to take weekly pipeline snapshots. So, you have to pay extra (yes, again) to bring in some powerful dashboards and forecasting models like InsightSquared which will allow you to run effective pipeline reviews. Lighter (and cheaper) SalesForce automation tools like Scratchpad can help you see weekly pipeline snapshots at team and individual levels as well. You can also build your sales performance toolset with instruments like PowerBI or Tableau (you need to have a pretty good idea of what to track and how to visualize it).
4. “Shadow pipeline”. I am talking about the pipeline which is not yet visible (or material, since quite often you are unable to put a price tag on early-stage opportunity) but will evolve and will get closed through the rest of the fiscal quarter. That is a tricky component, but since you start tracking it, it becomes an easy forecastable one: just look at your historical models by team/geo. Obviously — it is the baseline for the next (following) quarter rolling forecast.
5. “Runrate piperline” and models. That's a relative component for channel (including online) sales in case you sell through Distributors. You have to track historical weekly sales, including seasonality (mind holidays as well), and constantly adjust them year over year.
6. Scenario analysis. Talking here about multiple new factors in your sales, including: price increase, new products (product categories or new product features) introduction, new markets opening, team expansion, etc… If you are doing it for the first time, you must make some assumptions. Otherwise — look at historical trends of similar events in the past.
7. Management Adjustments. Sounds easy, right? That is a hard one and I prefer to be conservative here. Especially with new salespeople ramp up and ability to deliver on their promise. You have to know your team's ability to deliver (and “forecasting style/accuracy”) and make your adjustments accordingly. I always had team members whom I could trust on their revenue promises and the ones whom I had to challenge (both directions: from “sandbagging” to being too optimistic).
8. Review, validation, and team feedback (week-over-week forecasting changes, forecasting trends). Forecasting is a team sport, work with your team, build a common methodology language, and keep educating them on pipeline quality standards. A regular weekly routine will build needed team culture and precise forecasting will become a habit.

I believe that the above-listed components is a good reflection of my practice. The devil is in the details, as usual. Building a solid performance tracking system, the right tools, and KPIs help drive execution. Will share more details on sales metrics soon.

Would love to hear from you on any additional forecasting mechanics you have in your day-to-day practice.

Stay tuned and talk soon!