June 24 by Somrat Niyogi
“Will you hit your number this quarter?”
Sound familiar? No surprise. Sales reps, managers, and executives hear this question time and again, from the first day of the quarter to the last, year after year.
But when all is said and done, hitting your number and meeting quota should be a given. That brings us to the better question: “How will you exceed your number this quarter?”
Stronger performance starts with your sales forecast. And sales forecasting is hard — really hard. For years, it’s been the stuff of spreadsheets and calculators: one part art, two parts science, and a bit of gut intuition create a potential recipe for disaster.
Sales forecasting can also be highly specific; many organizations use their own methods and terminology. Regardless of the technique, consistency and careful monitoring are critical to a successful forecast. To quote the old cliché, “What gets measured gets done.”
So the key is to start with measurement. Consistent tracking of each stage in the sales cycle will bring consistently better results in the forecast. And when your forecast improves, you’ll see even bigger results: better planning, smoother operations, and more revenue. These five metrics will set up your team for success.
Forecast accuracy is the variance of the projected forecast to the actual number for a given measurable period. Arguably the most important metric, accuracy determines whether the rest of the business can rely on the sales forecast for planning and strategy. Analyzing past forecasts and using historical data will help inform the accuracy of your current sales forecast.
Variance is the distance between the commit and the upside in the pipeline. It also measures how much the sales forecast changes from the beginning to the end of the quarter. In addition to listening to your reps, make sure you check their deal activity! Pipeline and data inspection are critical to understanding what changed in the sales forecast and why.
3. Pipeline Coverage and Mix
Pipeline coverage is the assessment of pipeline size to evaluate whether forecast goals can be met or exceeded. Pipeline mix is the content and makeup of your pipeline, including not only deal size, but also deal strength and probability to close. Depending on how you define your sales stages and sales cycle, you can determine the optimal pipeline coverage ratio for your organization. A healthy mix of elephant deals and logo velocity deals will ensure you make your number
4. Compliance and Commitments
Compliance and commitment numbers indicate whether all sales team members have submitted an accurate forecast and proper close dates for all committed opportunities. It’s up to sales leadership to submit their numbers to executives — but those numbers start at the bottom with reps. Clear criteria for Commit stage deals will eliminate unnecessary confusion.
Linearity illustrates the balance of deals closed over the course of a quarter. A forecast may be weighted more heavily toward the end of the quarter or spread evenly throughout. Analyzing close dates will show you whether your deals are on schedule, or what adjustments you might need to make to build a healthy spread of deals for the quarter.
Your sales forecast is much more than just a number. It’s a leading indicator of the health of your business and the cornerstone of your company strategy. The incremental improvements of today are the monumental progress of tomorrow. You can find more on these five metrics and how to use them for sales team success in our ebook 5 Non-Negotiable Sales Forecasting Metrics For Every Sales Leader by Jeff Williams, Operating Partner at Bain Capital Ventures and former Senior Vice President of Sales at FireEye.