Sales forces often struggle with accurately forecasting quarterly revenue. Forecast inaccuracy is a symptom of poor sales processes across the sales value chain.
Performance surprises, good or bad, are the bane to confidence in the sales team by your CEO, executive team, and shareholders. For publicly traded companies, missing forecasts can drive valuations and stock prices down when analysts become concerned about operational execution.
Predictability problems typically originates from 4 areas:
- Confused or duplicated processes
- Inconsistent management oversight
- Distorted information on deals and pipeline by sales reps ( intentionally or unintentionally )
- Failure to measure and hold individuals accountable for results against targets
In response to these issues, CRO’s resort to gut instinct and quiz their executive team on a daily, weekly, monthly and quarterly cadence about their perception of quarterly revenue. Although they are the farthest from the actual deals, they “bet their job” on each revenue forecast they communicate to the CEO. The anecdotal quizzing trickles down to the first line sales manager who in many cases start the forecast rollup conversation with their sales reps as follows:
“Update me on the deals you’ve been working on, tell me about the new ones, estimate when they are going to close, and give me a percentage chance for each one.” Matthew Bellows, HBR 2012
Unfortunately, this practice drives subjective and unreliable reporting of potential revenue for the reporting period. Reps, sales managers and sales executives hedge their forecasts to account for uncertainty manifested from unenforced or undocumented processes, unclear definition of sales stages, multiple CRM systems, and individual decisions to inflate or reduce forecasts to match expectations of supervisors. As information is passed up the chain of sales leaders and combined with others, the final forecast simply becomes a quilt of guesswork about expected revenue.
So how does one go about solving this problem? It comes down to 2 areas:
- Disciplined processes with line of sight measurement
- The importance of top talent
Disciplined processes with line of sight measurement
In today’s hypercompetitive market, it is more important than ever to have discipline in your sales processes if you want to consistently meet and exceed goals, especially for forecast predictability. Discipline is the act of verifying that actions have been completed as committed, individuals are held accountable for performance, and that actions are quantified for measurement. Edward Deming, the father of Total Quality Management, said to only “expect what you inspect”.
To drive discipline, a company needs a framework of unified processes that achieves consistency, standardization and data integrity across functions such as lead generation, opportunity management, pipeline forecasting, account management and sales force management. This is especially important in organizations that span continents and include layers of management. Inconsistent processes across key sales functions are the root cause of discrepancies in actual performance compared to forecasts.
A good litmus test for determining the efficacy of your processes is to compare how multiple sales managers create a forecast, assess their sales reps pipeline and account plans, and evaluate rep performance. If you find significant diversity in how these processes are managed, then it is likely that you have information distortion as it is cascaded up to top management.
The best way to drive consistency is to design and enforce operational processes that can be measured and inspected.
Simplicity is a requirement to attain
- Quality of information
- Data integrity
- Speed of execution
Metric-based measures that cascade through your regions and districts give you a clearer view of management expectations and resulting performance across individuals, districts and regions. In addition, they give transparency around execution so when problems occur, you know where to target.
High performing sales forces drive precision into their revenue forecasts by relying on processes that build reliable data about customers, opportunities and deal status in their CRM systems. They do this for both the direct and indirect sales channel. With reliable data, sales leaders are able to use analytical models to augment management forecast rollups of expected revenue. Common analytics include size and shape of pipeline, conversion rates by sales stage, revenue linearity of previous quarters, YOY revenue linearity, among others.
Successful CRO’s insist on using a single CRM system where opportunities are defined consistently, clear definitions of deal stages are known, sales calls and events are recorded, customer buyers are profiled, and close plans are formalized and reviewed with rigor. Shadow CRM systems are forbidden. It is not uncommon for high performing sales leaders to retort that if a deal is not in the CRM system then it does not exist and will not be eligible for commissions. These CRO’s demand that sales and management training be conducted regularly to reinforce the importance of discipline around the fundamentals of selling. They regularly inspect compliance to processes and standards for ensuring data integrity; and, use incentives to reward behavior that results in better process execution.
The importance of top talent
Now let’s turn to the most important decisions that affect the success of a sales force. A company’s success is directly related to the hiring decisions made on key sales leaders, managers, and sales reps. Although everyone will agree that this observation is obvious, many companies fail to set themselves up for success in attracting and hiring top talent. The changing market environment has impacted buyer behavior and the sales function:
- Customers self-educate and connect using social media before talking to vendors
- Customers want to buy business outcomes, not products
- Cloud computing is changing what customers want to buy
- Lead-to-sales time is being compressed
These market forces place a new demand on the skills and capabilities needed by today’s sales professional and their leaders. No longer can core sales capabilities only focus on relationship building and describing product functions and features. Sales professionals, including sales leadership, need to understand the business model of their customer, be aware of industry pain points, have up-to-date knowledge of a customer’s financial performance and its GTM strategy, and be able to translate into the customer’s business language how the products and services they are selling drive value-added solutions. The ability to describe solutions and approach a customer from a consultative selling perspective is the “price of admission” to start a conversation with a prospect or existing customer. Additionally, they need to understand how to influence all the buying centers in a customer. Using collaboration and social media platforms, internal constituencies inform themselves on competing solutions and share their preferences on prospective solutions. Internal influencers must be included in the selling efforts for a sales rep to be successful.
Faced with customers who are self-educated about competing solutions, CRO’s must demand smarter sales enablement from their marketing and product organizations. Sales playbooks, battle cards, value propositions and training need to be authored from the customer side out. Clearly articulated benefits, ROI and referenced use cases are required proof points in the quest to win new business. A sales force that is not armed with solid sales enablement collateral will not dominate its market.
These dynamics change the profile of the talent needed in today’s environment. Traditional job definitions used by many internal recruiting organizations miss the mark on getting the right sales talent. They focus on characteristics like high energy, relationship building, prior experience, track record, and ability to operate at a fast pace. They fail to connect sales success to the need for professionals with additional skills like:
- Business acumen
- Critical thinking
- Technical foundation skills
- Social media selling techniques using Twitter, Facebook and Linked-in
- Data analytics skills to identify the highest potential prospects
- Solution selling skills in complex environments consultative manner
The shift in capabilities of sales reps adds additional criticality to the types of sales managers and executives that are needed to manage the sales organization. Leaders need to have the same baseline capabilities but also inspire their teams to compete in this new era, keep the sales force informed and motivated, push innovative sales plays, inspect performance regularly, and always be ready to improvise in the face of new competitors and sales tactics.
Keeping a critical eye on the types of professionals hired by your team is essential in today’s race for revenue. Sales hiring is a costly and time consuming process. High performing sales organizations make this investment wisely and avoid mistakes in hiring that degrade performance and fuel attrition.
Let us help you drive success with your processes and talent.
