Why Sales Leaders Get (And Give) Bad Revenue Forecasts

Why Sales Leaders Get (And Give) Bad Revenue Forecasts

This post originally ran on the Forbes Business Development Council at:
https://www.forbes.com/sites/forbesbusinessdevelopmentcouncil/2023/12/14/why-sales-leaders-get-and-give-bad-revenue-forecasts/

 

As President and CEO of a business specializing in sales training, I—and my team—speak to a lot of sales leaders. Most of them have a similar experience when it comes to asking a salesperson what’s likely to close over the next 30, 60 or 90 days: They hear an answer that sounds confident and sometimes even optimistic, and when they come back to the salesperson later on, they learn that the answer they heard no longer aligns with reality.

The “forecast” from the salesperson is not based on any meaningful data. It’s more of a guess. Often, what sales leaders hear is best translated as, “See, I’m a closer!” Or, if a deal collapses, as, “Look, it wasn’t my fault.” Salespeople learn to give themselves some wiggle room.

In response, many sales leaders make the same mistakes. Instead of tracking down hard data, they add another level of guesswork—their own: Salesperson A usually overestimates a lot; I’ll take their estimate down 40%. Salesperson B overestimates, too, but not as badly; I’ll take them down 20%. Salesperson C, though, is usually on target; I’ll take them down 5%. That way, I’ll leave myself plenty of wiggle room.

Picking numbers based on guesswork is how the problem started in the first place. This low-information cycle is, at most organizations, the answer to the question: “Why are our forecasts so far off?” It’s also the answer to the question: “Why do we have so many peaks and valleys, as opposed to linearity, in our revenue stream?”

We can reverse this dysfunctional cycle by making our sales process a communication tool—one that supports forecast accuracy, pipeline hygiene and linearity.

Typically, when organizational leaders talk about a “sales process,” they’re talking about something that runs at a macro level. It’s not a shared set of standards used to quantify opportunities in a rigorous, meaningful way. How about a process that works at both the macro and the micro level?

Here’s an example of what I mean. Many sales organizations identify Stage One of their sales process as something like “Initial Contact,” Stage Two as something like “Qualification,” and Stage Three as something like “Presenting the Solution.” There’s nothing wrong with labels like these. They’re accurate enough. They describe what we want to happen in each stage. But if no meaningful criteria govern the movement between the stages—if there’s nothing to confirm that a given opportunity has hit all the benchmarks necessary for it to move forward from Stage One to Stage Two, or from Stage Two to Stage Three—then we’re running only at the macro level.

When there are no objective exit criteria, individual salespeople decide for themselves, based on gut instinct, when an opportunity belongs in “Qualification.” (“I’ve already had what feels like initial contact, and I still think this is going to close. Therefore, it must belong in Qualification, even though they’re ghosting me.”) Or when an opportunity belongs in “Present the Solution.” (“I’ve had a couple of good calls; therefore, I must be ready to present our solution, even though I’m not connecting with all the decision-makers and I haven’t asked about the budget.”)

Another issue is that the information salespeople gather isn’t linear. It comes in at various times. This often causes people to skip steps in the sales process. For example, “We are in the Initial Contact phase, and we have some but not all of the information needed to move on to Qualification.” Most salespeople in this situation leave the Initial Contact phase too quickly and jump ahead.

Now, occasionally, sales leaders push back when I describe their sales process as operating at the macro rather than the micro level. They’ll say, “In order to move an opportunity from Stage Two to Stage Three in our world, the salesperson has to confirm X or Y has happened.” Here’s the problem: There usually aren’t enough criteria to give them any meaningful data, and their salesperson has too much independent authority to decide whether X or Y has taken place.

For a sales process to function as a communication tool, it must be built around multiple objective and verifiable exit criteria. These are the yes/no questions whose answers tell us what we need to know about whether a given opportunity even belongs in our process at all. For instance, “Do we have a meeting scheduled for some point within the next two weeks?”

We need to find between 2-5 such questions for each transition out of each stage of our process. If the answers aren’t all “yes”, then the opportunity can’t move forward to the next stage; income can’t be projected against it.

It is our responsibility as leaders to:

  • Identify these yes/no questions.
  • Build them into the sales cycle.
  • Remind each salesperson what’s needed to move from one stage to another.
  • Confirm that the right questions have been answered before a lead moves forward in the pipeline.
  • Hire salespeople who answer these questions accurately, consistently and with integrity.

For example, let’s say we decide that for someone to move out of Stage One and into Stage Two, we must confirm that the contact:

  • Is a C-level official at a company employing more than 100 people.
  • Had a voice-to-voice conversation with us lasting more than 90 seconds.
  • Scheduled a 30-minute discovery session with us for some point within the next two weeks.

It’s our job to turn these criteria into questions, make sure each member of our team knows what they’re going to be asked, and then (you guessed it) ask those questions about every opportunity a salesperson proposes moving from Stage One to Stage Two. Leading this conversation is what we mean by supporting a sales process that operates at both the micro and macro levels. There should be no forward movement until all the exit criteria are met!

This one game-changing principle allows sellers to lead the buyer-seller dance and empowers leaders to lead the dance with each team member. Use it!