Avoid These 3 Missteps & Prevent Inaccurate Sales Pipeline Forecasting

Accurate sales forecasting is essential for business success. But it can be difficult to get it right due to certain missteps. Here are three of the most common errors that lead to incorrect forecasting and how to avoid them.

But First, What Every Sales Manager Needs to Know

Missing a sales forecast is an absolute no-no for sales managers. Do it once, and you have some explaining to do; do it twice, and you may get fired.

The problem is magnified at high-growth companies that need to show the financial markets consistent revenue growth to support lofty valuations. I discussed the challenges of making accurate sales forecasts with an experienced sales leader at a successful SaaS company. His insights apply to sales organizations in any industry.

First, we discussed a few general reasons you could miss your sales forecast.

For example, failing to consider and account for external factors such as economic conditions, competitor activities, and market trends can result in an inaccurate forecast. But this experienced sales manager noted that basing a forecast on personal opinions or biases rather than data was a more common cause of overoptimistic forecasts.

He also discussed the differences between pipelines for enterprise sales and SMB teams.

Enterprise sales have long cycles involving multiple decision-makers and a higher degree of scrutiny of the product or solution offered. As a result, the sales pipeline for enterprise sales teams may be more heavily focused on nurturing relationships within large accounts.

For SMB teams, the sales cycle can be faster-paced and less complex, with fewer decision-makers. As a result, the key to forecasting success for SMB teams is grounded in managing basic sales activity level metrics.

Regardless of the type of sales team you manage, the sales leader pointed to these three common root causes of bad sales forecasts:

Cause #1: Lack of objective pipeline criteria

Accurate sales forecasts begin with a clean sales pipeline. That means no “bloat”—i.e., dead or stalled sales opportunities clogging up the pipeline.

A critical first step in avoiding a bloated pipeline is developing objective “exit” criteria for each stage of your pipeline. The idea is that before an opportunity can advance from one stage to the next, it must meet specific criteria based on the customer’s behavior, not just your sales activities. The customer-focused criteria should be objective, active, and tangible.

For example, consider a typical stage in most sales pipelines: Identity Customer Needs.

Common seller’s action would include “identifying the customer’s business problem” and “quantifying economic consequences of the problem.” The corresponding customer’s actions could be “Customer acknowledges the problem and has confirmed the economic consequences.”

Many sales teams have fuzzy criteria, or, worse, non-existent.

Salespeople and their managers moved opportunities through the pipeline based on subjective judgments in those cases. Not surprisingly, without objective criteria based on customer actions to check the salesperson's natural enthusiasm, these teams had bloated sales pipelines with many opportunities languishing in the funnel.

Cause #2: Bad Math

The sales leader also observed that many missed sales forecasts can be traced back to faulty math.

More specifically, low activity levels don’t support your sales goal. For example, if your sales pipeline coverage ratio is 3X your sales goal, pipeline development should be the single most important leading indicator that you track. Your pipeline depends on adding three more qualified opportunities for every closed deal. Focus on how many net new opportunities each salesperson is adding each month.

Suppose this net new opportunity metric is lagging. In that case, you may need to dig deeper into more traditional metrics around activity levels, starting with the number of meetings and then turning to the underlying prospecting activities required to generate new meetings.

Cause #3: Weak Relationships

Another crucial factor in making accurate sales forecasts is gauging the quality of meetings your team conducts.

This is true whether you sell to SMB accounts or the enterprise. It’s easy enough for salespeople to build relationships with the technical users at the operational level of an account. But moving up the ladder and connecting with senior decision-makers is much more challenging.

Measuring high-level meetings can be a fuzzy metric, but it’s possible to track the titles of the people your salespeople are meeting with and if they are getting follow-up meetings. The stronger the relationship with the high-level person who makes or influences buying decisions, the better the odds of a deal getting done. Managing the process of building relationships starts with developing a detailed relationship map for each account.

During your weekly pipeline review meetings with your salespeople, ask:

• Who does the salesperson have a relationship with now, and where are the gaps? Where can you help?
• What is the depth/quality of each relationship?
• What is their plan to expand their relationship footprint within the account?
• How many senior-level meetings has the AE had?
• Have they identified and met with the economic buyer? If not, they may not have executive alignment.

In Conclusion

While making accurate sales forecasts is always challenging, it’s essential to a sales manager’s job. As you develop your sales pipeline methodology, consider incorporating customer-focused exit criteria in each pipeline stage. Also, pay attention to essential activity metrics, starting with the number of new sales opportunities added each month, to ensure that your forecast doesn’t have a math problem. Finally, pay attention to the quality of meetings your salespeople are having.

If you're looking to improve your sales forecasts, you might be interested in our High-Impact Sales Manager training program. This program helps sales managers improve the accuracy and consistency of their forecasts so that you can gain greater visibility into sales trends and better measure performance. With up-to-date skills and strategies, your sales team will be able to forecast outcomes confidently, be more efficient and productive, and drive bottom-line performance. Click here to learn more.