A Forecasting Fable
There once was a man who owned a widget factory and his two sons were his only salesmen. The factory was in need of a forecast to estimate the next year's production. The man, however, had no understanding of the need for widgets in each of his sons' provinces. He could not rely on his sons to give estimates, because they were always wrong and had such different sales styles--his younger son was always being too optimistic. The man hired a consultant from TheRightWay to figure it out. The consultant returned and said that he could not give a valuable prediction without a careful process. Each son would be instructed to do the same sales activities and take the same measurements. Not wanting to take the time for such analyses, the man fired the consultant and still did not have an answer.
The man then hired another consultant from AnyAnswerWillDo and told of the previous consultant's experience. The consultant returned the next day with a black box and said that it would provide an accurate estimate every time he pressed its button. The man paid the consultant handsomely, thrilled with his immediate and painless answer. After years of using the box, and getting random and inaccurate predictions, he gave up and decided to just go back to guessing. He had feared the loss of a few months to establish processes and here he was years later and nothing to show for it.
CRM does not forecast for you. Period.
Forecasting can be a sticky business and I apologize to Aesop for the above. Many sales managers and vice presidents like to set sales goals that they know are unrealistic, hoping to drive productivity. Others just base forecasting on their gut instinct or last year's performance. As the forecast numbers go up and down the chain, they are often tweaked based on a variety of whims, philosophies, and fears. These all amount to guesses--sometimes educated--but invariably a nonrepeatable waste of time.
Clients often turn to CRM as an answer to the forecasting problem. All CRM vendors address forecasting by offering various functions, ranging from roll-ups to more sophisticated reporting and the ability to do trending analyses. The bottom line, however, is that while CRM systems do automate forecast calculations, they do not forecast on their own in the absence of good data and a strong understanding of the individual sales process.
For example, if the data that is entered at the opportunity level by your salespeople is fictitious, the automated roll-ups will also be fictitious. But there is an undeniable attractiveness to getting a single number from an advanced process. Clients left with these kinds of automatically generated forecast report will rely on the tainted information until someone, perhaps the CFO, starts the gut-feeling intervention all over again, knowing that the number does not seem right and daunted by a nontransparent forecasting formula.
Accurate forecasting requires a consistent process
To have an accurate forecast you need to have created, communicated, and reinforced a sales process with clearly defined stages, each having specific activities aimed at moving the deal closer to positive closure.
Okay, so how does that help you forecast? An examination of the five stages most often associated with a sales process will illustrate the added value of consistency and rigor at each step. Clearly, the exact approach will depend on what makes the most sense for your industry and organization. For these stages I'll assume that the organization has sufficient data and understanding about the sales cycle to correlate sales activities and sales cycle durations.
Stage 1: Discovery: In discovery, initial meetings between your sales team and clients should attempt to uncover the specific difficulties that your company's product or solution can alleviate. Since this is typically the beginning of a client relationship, opportunities in this stage have a probability around a 10 percent possibility of fruition, assuming the salesperson was able to make a reasonable estimation of value and time to close.
Stage 2: Needs analysis: After establishing an initial understanding of a client's needs in the previous stage, it becomes important to schedule follow-up visits with the client in order to further cultivate that understanding and further penetrate the organization. Additionally, it is a good idea to ensure that you're dealing with the client sponsor--the person with signing authority. Otherwise, you may have to backtrack and repeat the process. When problems are mutually understood and validated by the client, you can then move from this stage, typically at 25 percent, and start the activities of the next stage.
Stage 3: Solution development: It is important to translate the above needs into a solution that your company's products and/or services can meet and that the client has partnered with you to create. This makes selling this solution easier because your client has a stake in seeing it through. Typically, this stage's probability is set at 50 to 60 percent. In order to be successful in selling this solution, you should have also worked--with the client--to produce an analysis that articulates the value of your solution via alleviating your client's pain.
Stage 4: Proposal: This stage encompasses the process of creating the official proposal and initial contract documentation. Typically at a 75 percent success rate or so, opportunities that have made it this far should close if you've done your homework correctly and have truly 1) identified the pain, 2) created a solution, and most important 3) been talking with someone who has signing authority. You should leave this stage with a verbal commitment and start the last hurdle with legal.
Stage 5: Negotiate and close: This stage, if everything prior to it was done correctly with the right people, should be about getting through the internal legal hurdles and signing the contract. Clients may, depending on their culture, try to negotiate down on the price, but if you've built up the value proposition correctly, and refer to it in your proposal, you should fairly easily stave off any price attacks by reinforcing your previous messages.
With the steps for each of these stages clearly outlined for your salespeople, and appropriate supporting materials created to help them with the execution of the steps in each stage, you should be able to quickly forecast any given opportunity by asking the following questions of your salesperson:
What steps have you performed in this stage?
What were the identified client pains?
What was the client response?
While judgment and prior history, in general or at an existing organization, may provide additional insight into honing your forecast, a structured process will remove much of the previous guesswork. Only then should a company think of implementing a CRM system to automate the sales process and the reporting of the forecast.
About the Author
F. Phil Cartagena Jr. is a CRM expert with more than 10 years of experience in project management, business process redesign, and technology implementations. Currently a consultant with BusinessEdge Solutions, Mr. Cartagena advises large financial services organizations on CRM implementation, and consolidation strategy and design. Mr. Cartagena's professional development includes a BA in computer science from Harvard, an MBA from Columbia Business School, Solution Selling* training and certifications from Siebel and the Project Management Institute. Mr. Cartagena is an adjunct professor at Boston University, where he teaches systems analysis and design. He can be reached at email@example.com
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