I’ve noticed in some companies a casualness regarding sales forecasts from their sales team.  Heck, I’ve worked for some companies that shared that casualness.  Some companies view it as an exercise in Excel gymnastics.  Others view it as a coffee klatch activity.  One customer of ours had multipliers (<1.0) for certain sales reps since they knew those sales reps’ forecasts were inflated…greatly.

Here is a news story about a local company and a significant change to their forecast.  The setup:

Digital River Inc. shares plunged Monday after the e-commerce services provider announced it will lose its largest customer.

Cupertino, Calif.-based Symantec Corp. (NASDAQ: SYMC) notified Digital River on Oct. 9 that it will not extend its e-commerce agreement. That deal, under which Digital River provides a variety of e-commerce-related services to Symantec, expires on June 30, 2010.

Ouch.  Most people know that Symantec owns Norton Anti-Virus so that is a big loss.  How big?

In 2008, sales of products for Symantec accounted for 24.3 percent of Digital River revenue and sales derived from proprietary Digital River services sold to Symantec consumers accounted for 9.4 percent of Digital River revenue.

Over one-third of their revenue gone.  I’ve never been a fan of companies having one customer be so dominant in their revenue stream.  And now that one company won’t be!  Here is a pristine example of when a sales forecast can be a lifesaver for a company.

Here is the CEO’s explanation to the street (emphasis mine):

“Our company is financially strong, our new business pipeline remains healthy, and sales activity in the software, consumer electronics and business-to-business sectors continues to grow,” he said.

As an investor, I would sure like to know what measurements constitute “healthy.”  This scenario, losing a large customer, plays out often in the sales world.  The companies that can absorb such loses are the ones that know how to secure new (i.e. replacement) revenue from new customers.  An accurate sales forecast is the tool that will guide the Chief Revenue Officer to the quickest path for revenue replacement.  If I were in that role, I would be doubling efforts on the best short-term prospects on the forecast.  If my forecast was little more than notes on a napkin, I would be updating my resume.

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