What do you think is the most important but the most complicated activity right at the beginning of the year? Yes, the much-awaited and probably the most optimistic, sales forecast. Sales forecasting is ideally done to understand the realistic revenue potential for the year/quarter ahead given the market conditions and the sales talent available at hand. Much of sales budgeting and funding hinges on this important activity. The sales goals or quotas are decided based on this crucial yet cryptic activity. And yet it is an activity undertaken with a lot of manual inputs, inputs that are derived from data that are disparate and updated by multiple stakeholders. Whatsmore it is an activity conducted on spreadsheets in most sales orgs. How can we depend on the sales strategies and goals that are derived out of these manual, laborious and error-prone calculations? Sales forecast accuracy helps businesses put their monies where their mouth is.
In the sections that follow let's look at what constitutes sales forecasting and how crucial it is for businesses to get it right. Let's also look at how automation helps you bump up sales forecast accuracy.
What is Sales Forecasting?
What should be sales forecasting might be the right question to ask here, as every sales org takes up this annual/quarterly exercise. Everybody does sales forecasting but how many people get it right?
Gartner reports that over 55% of businesses do not entirely trust their sales forecasts. Also as per a study done by Miler Heiman Group, less than 20% of businesses enjoy 75% or more accuracy in their sales forecasts.
Sales forecasting should be an activity that truly measures the capability of selling your own products and services given the market conditions and seasonalities over a period of time, typically a sales year. Generally, sales orgs get overzealous and project sales for the year based on individual perceptions. Perceptions about how the market is going to shape up , the kind of talent pool they are holding and the demand in the market. No doubt there are times when these projections are bang on, but many times unscientifically done sales forecasting will be off by miles and throw off your sales targets for the year by a good measure.
What are the contributing factors of a Good Sales Forecast?
How much you allocate for your marketing and sales determine how far out you are willing to go for capturing the market. The more they spend on marketing and sales, the more generous your Sales Forecast is likely to be. This is more of a thumb rule, and this generality will only stand if the marketing and sales spend are in the right areas.
Prevailing economic conditions determine the demand in the market. The ability to read the economic conditions well ahead and adapt to them quickly is one important trait every business should strive to develop.
There is a certain seasonality in every market, it could be in sync with other seasonalities like local govt announcements, elections, festive or holiday season and the like. These seasonalities are specific to industries and can be easily accounted for in sales forecasts.
A lot also depends on the kind of sales talent you have or are looking to invest in. How much money you are willing to put on the table to hire and retain top sales talent. Sales talent pool along with the other factors can then give you a reasonable estimate of how much revenue you can make in the year ahead.
Did you notice one thing common in all the factors discussed above? All of those factors depend greatly on the data you collect and harness. The accuracy of data in your system can guarantee a high degree of accuracy in your sales forecast.
How does automation help in Sales Forecasting?
There is no doubt that all the data around your sales performance and compensation form the bedrock for an accurate sales forecast. This is, by the way, only possible if you maintain accuracy across your data systems and the only way to achieve high levels of data accuracy is sales automation.
First and foremost an automated sales performance management system ensures manual or human errors are completely eliminated. An efficient sales performance management system will allow deeper visibility of performance and pipeline data. With clarity on sales pipelines, sales leaders are able to paint an accurate picture of year-end or quarter closing.
With an efficient sales, performance management system comes access to real-time data and with that the power to answer complex questions closely related to sales forecasting. Along with accuracy, this enables sales and business leaders to be agile and nimble, allowing them to quickly adjust sales forecasting and compensation plans.
Lastly, thoughtful investment in a well-designed sales performance and compensation management system will ensure an accurate reflection of revenue and commission expenses. With accurate historical data on revenue and commission expenses, sales leaders will be able to accurately project sales forecasts, baking in factors like seasonality, demand cycles and sales talent pool.
An automated sales performance system that can work with an array of sales tools to extract, maintain and store critical data related to sales activities and sales spending is what sales leaders should invest in.
Kennect offers you cutting edge technology to automate your sales performance and compensation systems. The two solutions from Kennect, Sales Performance Management and Incentive Compensation Management work together seamlessly to automate your sales operations which will guarantee accurate sales forecasting.
Visit us at Kennect.io to know more about how Kennect can help you improve the accuracy of your sales data.