March 20, 2009
The Enormous Forecast
Shrinking revenue reports are the fear of most sales managers. This fear is further intensified during this economy. There are salespeople who are attempting to leverage this fear by submitting an inflated forecast. These salespeople provide forecasts that are filled with large deals that are welded to the 90 days out category.
The sales managers who buy into this approach are trading accuracy for enormity as they submit the aggregate forecast from their team. I suppose the sales manager’s thought is that the salespeople will get shot before he or she is shot. Perhaps, but the business pays a tremendous price for this obfuscation.
There are two antidotes to this inflated approach: 1.) Budget qualification and 2.) Salesperson close ratio.
Budget Qualification
Many salespeople suffer from a money weakness. They have difficulty discussing price with prospects and customers. This weakness is problematic in a strong economy, it is deadly in a recession. Any salesperson who places a prospect into the pipeline needs to have the money portion fully qualified. Any lack of clarity on this topic should immediately lead to the salesperson having to go back and clean up that bit of qualifying.
Close Ratio
Most sales managers know that each salesperson has a unique close ratio. Some salespeople are overly optimistic and require a multiplier of <1. Others are pessimists and typically close more than their forecast (there are far fewer of these salespeople, but they do exist). The key is to know the historical ratio of the salesperson when analyzing their forecast. If their close ratio is <50%, you know they best have a large number of suspects in the early stages of their pipeline.
One last note – sales cycles are extended in most industries so pipelines need to be extended also. Since it is March, this seems like a trivial point. However, if your normal sales cycle is 3 months and it has not been extended to 6 months, your salespeople do not have much time to establish their 2009 numbers. The next quarter will determine whether it is a successful year or not. This is an important point no matter how short your sales cycle.
