Does your forecast accuracy suck?

When meeting with business leaders, I like to ask the question: “How accurate are your forecasts?” I do so because it’s not always an answer folks in SaaS actually immediately know. Once you do though, you can learn a ton about your business. For one, if your forecasts are not accurate, you may as well not do them because it’s essentially useless  data. Making decisions on useless data leads to poor decision making and detrimental company outcomes.   

This is even more critical today as we face economic changes which likely means slower deals, potentially lower average contract values and even more competitive pressure as everyone is fighting even harder to win opportunities. 

As a sales leader it’s incredibly important to be able to forecast your business effectively. *Definitely not exclusive to managers, knowing this discipline is very relevant for all sales functions*. Accurate forecasts allow businesses to make better short and long term decisions and are important indicators for the health of the business when done accurately. Headcount decisions, overall marketing spend and other relevant business decisions are largely based on the forecast for future periods.They also allow you to move more quickly to address problems. 

While it’s pretty difficult to be dead on all the time, you can actually get immediately better with a few techniques and have more accuracy over time with discipline. The best leaders and AEs I know can regularly get in the 90% accuracy zone. 

There are several ways to forecast. During different times of a quarter I actually utilize 3 different methods to triangulate my actual forecast. **I also utilize a multi commit type approach, I ask for a monthly plus current quarter number and I break my analysis into “In quarter Bookings” and “Carried Pipeline Bookings” buckets. I’ll write more on those in another post. For now here are the 3 methods! 

 

1. Weekly Verbal AE forecast

The most common method is the AE calling a number approach. Generally this is done weekly, where an AE will meet with their manager or a leadership group and provide their opinion on what their forecast will be. These personal “commits” are then rolled up across the team(s) to come up with an aggregated projection of future outcomes. This can all be collected in a spreadsheet, in SFDC or a forecasting tool. I’m old school and prefer a spreadsheet.  

2. Yes/No Deal Tracking 

Another method is the deal by deal “Yes/No” analysis. In this method each deal is looked at individually and the AE or manager will apply a simple Yes, No or Maybe for each opportunity as far as gut feel based on deal dynamics. I like to do this mid quarter in a spreadsheet then sum up the outcomes to get a view on what that number looks like vs the AE verbals. There is usually a lot of interesting data in this approach. Sometimes the numbers are very similar but sometimes they are not. Great tool for looking at any discrepancy on a per AE basis. Is someone sandbagging? Or over committing on verbals based on hope vs confidence? 

3. Weighted or Math Based Forecast

This is a pure math based approach. I sum all of our opportunities in the time period in the CRM categorized by stage, and apply “weights” based on the historical percentage of likeliness to close in period. This eliminates some of the human element of forecasting (fear, lack of confidence in verbal setting etc) because its purely based on past trends and actual numbers in your system. There is a bit of a double edged sword though. If behaviors change during time periods you’ll want to adjust your assumptions and calculations to account for that. For example, if you start closing deals faster, or reps start hiding deals in lower stages your math will need evaluation. 

I collectively review all of these numbers weekly, to see if there are any major red flags. My ideal scenario is that they are relatively similar and then I can blend them based on what I know about specific large needle moving deals, swing deals etc to make better decisions. However if they vary greatly, you now know more about where to look for answers. If the math is telling you something much lower and that has been fairly accurate, what is causing AEs to feel differently? Is it just a couple new folks that are inflating numbers? Or is there some large deal about to close that is hiding in a lower stage? 

When you build a cadence around these concepts, you can move more quickly and be increasingly more accurate at predicting your business. Give it a try and let me know what you think!

* You can learn more about me on my Bio or my Linkedin page *

** If you see an acronym or word anywhere on the site that you haven’t seen before, I might have posted an explanation on my glossary of terms. If not, tell me and I’ll add it!*