Why Forecast Accuracy Matters

Why Forecast Accuracy Matters

The sales organization of every company is a highly objective environment – you are either delivering the number or you are not, there is no in between. Objective measurement is a key component of sales. As management guru Peter Drucker once said, “What gets measured gets improved.”

While most sales organizations submit a monthly or quarterly forecast, few track its accuracy. In fact, the most common analysis is, did we close enough revenue to meet (or beat) forecast? It comes down to if the amount closed is greater than the forecast submitted, you are good in the eyes of management. If it was lower, you or not.

That said, forecast accuracy is an often overlooked measurement of sales capability and skill. Forecast accuracy measures the amount of revenue committed versus the actual revenue closed in the form of a percentage. It objectively measures how accurate the organization and its sellers are at predicting future business.

Why is forecast accuracy important? It provides clarity to management. For sales managers, forecast accuracy is the start of a discussion as to how well AEs know their deals. For the VP Sales, it is how well sales managers know their business. The higher the accuracy, the greater the reliance that can be placed on the forecasted number.

Forecasting accurately also means leadership can make decisions, including investments, with greater confidence. Consequently, each step of the management chain (AE to manager to VP) must be able to forecast the business within a narrow range; e.g., 95%-105%. Being 150% of forecast means lacking command of the business.

In practice, during the first week of each month or quarter, each seller should submit their forecast, including specific deals, to their manager. Managers then roll their forecast up to the VP, etc. The forecast submitted is what sellers and managers are held to for accuracy. Coaching opportunities can then be assessed at the end of the period.

Having the ability to accurately and consistently forecast the business is a key component of high-performing sales organizations. It ensures sellers have a thorough command of the sales cycle, including how they are going to bring in deals and when. Measuring forecast accuracy eliminates the “thumb in the air” approach to calling deals.

In every company, the same question is asked at the start of each month and quarter: How will the business perform? The CEO wants guidance from the VP Sales and the Board wants guidance from the CEO. Understanding how the business will perform over a specific period via consistent accurate forecasting is key to high performance.

All contents copyright © 2016, Josh Lowry. All rights reserved.

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