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So many companies struggle to forecast sales: "we know everything about our costs but have no idea when sales will close". Revenue always seems to march to the right, and forecasting seems a mugs game, where those involved lose credibility. Sometimes, the basics get missed and simple techniques can improve forecasting.

It's always astounded me how many fast growing companies have little or no formal sales process that is properly recorded, step by step.  Sales effort needs to be tracked carefully to make sure obvious steps don't get missed, and to provide the basic facts that underpin forecasting. In fact there are two processes that should be understood and progress recorded in detail: the supplier's sales process, and the customer's buying process. Of course one should match the other! The more you know, the better, and a good understanding of the customer's process is as vital as an accurate record of what's been done, when, and what's yet to be done.

Often, a sale hasn't actually been delayed, it was always going to be later but the right questions weren't asked and the meaning and implications of the answers understood. Successful sales come from asking the right questions and listening carefully to the answers. Detailed questioning at the start is the beginning of developing an understanding of what can be sold, when it might be bought, and how to bring that about. The best sales forecasts are derived by understanding where the customer has got to in the buying process, not from what the sales force has done.

Lots of people attempt to forecast sales by factoring the value of opportunities according to the stage - 'these are 50% opportunities, and those are 75%'. In many entrepreneurial, fast growth businesses, this doesn't work because there are too few opportunities. Factors only work if there's a large population to make them meaningful, After all, you either get 100% of the sale or zero. Factors don't help with timing, either, and it's usually the timing that's the major uncertainty. Studying the sales cycle is very valuable, and can lead to a good understanding of which stages are slow or uncertain. This can be used to develop ways of improving the customer engagement at that point to make the sales more certain and the income more predictable.

Sales and income forecasting doesn't have to be a black art if there's enough understanding of the detail, and some science is applied to it. This whole area of uncertainty has become the focus of a business venture begun in 2010, called Revenue Dynamics.

16 January, 2011

(c) 2010,2011 Peter G. Osborn