How to Improve Your B2B Sales Forecast Accuracy
As a consequence, B2B companies that care about their forecasts usually choose one of two methods with notable drawbacks.
How can you mitigate the drawbacks of these forecasting techniques?
1. A documented sales processBoth methods require that your opportunities be in the “right” pipeline stage, i.e. the stage that accurately reflects how advanced they are in your sales process.
For that, a well documented sales process is key. Sales reps must understand where they are and what they should do based on their prospect’s buying process. To help them, I recommend a simple, yet effective (and free) application: Sales Coach. For each stage of your sales process, Sales Coach lets you define the required milestones and specify the available collaterals. Sales Coach then displays this information directly in your opportunities.
Create validation rules for advancing opportunities from one pipeline stage to the next. While such validation rules are stricter than Sales Coach guidance, they can be quite cumbersome for sales reps handling dozens of opportunities. You don’t want them to degrade data quality, with sales reps omitting to update their pipeline because of “fastidious” clicks. So we recommend that validation rules be used sparingly, for really important requirements, like contractual documentation or compliance procedures.
2. Reality checks for closing datesBoth techniques are also exposed to bad closing dates. This is a serious issue: respondents to CSO Insights’ 2011 Sales Performance Optimization Survey typically indicated that fewer than half their sales opportunities closed in the time frame predicted. We all know what “slippage” does to sales forecasts...
I would like to suggest 3 “reality checks” for closing dates, which should improve your sales forecasts significantly.
- Hunt outdated closing dates down. Our research shows that at any given time, 30% of the opportunities in B2B sales pipelines have outdated closing dates. This is clearly unacceptable. Standard Sales Cloud reports and alerts will help you eradicate those pests.
- Identify stagnating opportunities early on. Both SalesClic research and Sales Benchmark Index research shows that on average, it takes twice as long to lose an opportunity than to win an opportunity. The reason is simple: the opportunities that are eventually lost tend to stagnate a lot before that, which is why you must spot them as early as possible in your pipeline. Doing this “intelligently” (i.e. based on the analysis of your historical data) is quite complex, since it implies measuring and interpreting your sales velocity in real time. But selected applications on the AppExchange can help you.
- “Back pedal” from the closing dates. You know your sales process: the requirements for each pipeline stage and the time they usually take. For a given opportunity, start from your closing date and back-pedal through your sales process to the current stage of that opportunity. Do you arrive at today’s date? That is usually an effective check.
3. Closing probabilities: beware decompositionForecast categories are immune to bad closing probabilities, but the weighted pipeline is very exposed. Copious research in behavioral economics has established that humans are bad at assessing probabilities, which regardless of the politics involved explains why weighted sales pipelines are frequently biased.
As a correction, some sales consultants recommend that you decompose the closing probability into (i) the probability that your prospect will complete the corresponding project, and (ii) the (conditional) probability that you will be the preferred supplier for this project:
P(closing) = P(project) x P(supplier)
I am not convinced, for reasons that are detailed in this article. I don’t necessarily recommend that you drop decomposed closing probabilities altogether if you are using them (as a “forecast accounting” tool they can be interesting), but at a minimum that you combine them with alternative, ideally data-based methods.
4. Your sales database is a gold mineSpeaking of which: your sales database is a forecasting gold mine. True, as a B2B company you probably don’t have enough closes per year to feed statistical forecasting models (you would need thousands). But:
- Focusing on “pipeline dynamics” (e.g. transitions from one stage to another, variations in amounts and closing dates), not just closes, increases the quantity of data available for forecasting significantly.
- There are very effective forecasting methods that apply to the B2B sales process and don’t require as much data as “traditional” statistics. They include pipeline simulations and algorithmic modeling.
Digging into your sales database that way is quite technical, but here again selected AppExchange applications can help. It is worth trying them out - think of the value to your team of a 35-50% increase in sales forecast accuracy!