Weighted Forecast: Objective Science or False Sense of Security?

Salesforce.com Expected Revenue Chart The one mistake that causes the greatest loss of political capital and confidence is an unexpected drop in the sales forecast that occurs after week 8. Once the executive staff loses confidence in the sales forecast, decision-making deteriorates and the company risks turning a single miss into a downward spiral. The weighted forecast (or expected revenue) gained traction as an objective method for the CFO to do a quick check on whether the company could afford to believe the sales forecast when getting it wrong could crush share price or trigger a RIF. A purely objective forecast where responsibility falls on the “model” and not the individual manager has a great deal of allure, especially when it comes time to CYA.

“Can we believe the sales forecast?”

Anyone willing to accept a job where the primary responsibility is to commit to a sales forecast in week 2 of the fiscal quarter has a certain amount of courage. If predicting a “make” 10 weeks in advance were easy, companies would pay a lot less money to managers who forecast accurately. When dealing with customers and new prospects in particular, uncertainty weighs heavily in the calculation.  It’s human nature to seek cover when things go wrong.  A good forecast system is consistent, underpinned by specific opportunities and has credibility with executive staff and finance in particular. A reliable forecast system also leaves nowhere to hide. The purely objective forecast model is a phantom; it does not exist. Weighted forecast was never intended to replace a bottom-up sales forecast based on sales process discipline that is coached methodically via weekly cadence.

Sales Forecast | Expected Revenue

 

Most sales methodologies and CRM packages include opportunity probability and expected revenue reports. It is a “check the box” feature for amateurs. Avoid using it if you can. Too late? Read on.


What could be wrong with this statement?

“We close 20% of our stage 2 deals.”


Have you correctly defined Win Probability?

  • Have you input % buying process complete by mistake?
  • The sum of ALL competitors Win Probability is equal to the probability the customer will make a purchase.
  • Is time frame part of your definition?
  • Will close someday, on the close date or this fiscal quarter?

Do you calculate actual close rates?

  • Based on which week?
  • Week 2 Close Rates and Week 10 are apples and oranges.

Are your probability percentages really objective?

  • Are sales overrides based on any objective criteria?
  • You may be backing into a purely subjective forecast number

Are you treating net new business the same as repeat business?

  • Close rates are much higher when selling to existing customers.

Pipeline Inflation: How do you handle outliers?

  • Big and binary deals 10-20 times your ASP in the sales pipeline require special treatment.
  • Are Stretch deals set to an appropriately low % ?
  • Check out “On the Radar” for advice on working quarter visibility vs. Close Date.

4 Steps to Take Right Now

 

1.   Use Expected Revenue as a quick-check only

2.   Define Win Probability precisely

3.   Just because a CRM enables you to do something doesn’t mean you should

4.   Never substitute Expected Revenue for Forecast

The most important personal characteristic for sales and operations leaders is personal accountability. Don’t hide behind false science. “It’s not me, it’s the model” won’t save your job and only makes it more difficult to predict and deliver quarterly results above quota. Weighted Forecast and Expected Revenue have some value in experienced hands, just understand the limitations and keep them in perspective.

 

Resources

2015 High-Tech Industry Report on Sales Enablement

2014 High-Tech Industry Report on Sales Operations

Quarterly Business Review PowerPoint Template


 

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About Neal Murphy

Neal Murphy is the publisher of Enterprise Sales Operations and former VP of Worldwide Sales & Operations with 20 years experience in enterprise technology.

+Neal Murphy +ESO