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What are the best practices of sales pipeline forecasting?
Predicting demand is probably the largest benefit of CRM, but it's also often the least understood. At a high level, the best practices in sales pipeline forecasting come down to two components: (1) removing bias and subjectivity from the forecast and (2) using a time-series of past actual sales to determine the current forecast.
Posted May 15, 2002
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Predicting demand is probably the largest benefit of CRM, but it's also often the least understood. At a high level, the best practices in sales pipeline forecasting come down to two components: (1) removing bias and subjectivity from the forecast and (2) using a time-series of past actual sales to determine the current forecast. The first component, removing bias, is frequently difficult because at many firms the culture of sales confuses targeted goals with sales forecasts. Goals are what you'd like to do, forecasts are how you'll do compared to those goals. To produce an objective forecast, you'll need to have defined the sales-cycle into stages, and analyze past performance to understand the real probability of close at each stage. Our client experience and academic research overwhelmingly support this; objective statistically-based forecasts are always more accurate and predictable than forecasts that are manipulated with subjective weightings or probabilities from sales reps, management, or executives. Once a forecast is compiled using objective weightings based on sales-cycle stage, it probably will still require a statistical adjustment up or down based on past forecast error. The second component involves comparing your objective forecast against a time-series of past performance. The CEO at one of our clients once told us, "we can't build an accurate predictable sales forecast because 70 percent of opportunities close in the last week of the quarter." Ironically, that's exactly what that CEO needed to know to get a predictable forecast, what percentage of ending revenue is typically achieved in each week of the quarter? That way, you can forecast where the revenue for the period will end, and how much more or less it is than targeted goals. This relatively simple approach is probably the single best weapon in a sales forecasters' arsenal in seeing demand changing as early as possible. Both of these components assume effective and repeatable opportunity, account, and contact management. That's why predictable sales forecasting is often in later phases of sales-oriented CRM implementations.
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