On this episode, Mel Harding, VP of Product Marketing at Occulus, Inc. asks: Who's ultimately responsible for the sales forecast, the sales rep or the sales manager?
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Video Script
It's an interesting question, and I understand why there's a debate about who should be responsible for the sales forecast. The debate is enhanced because almost all organizations today use CRM systems.
If we think about who's closest to the customer and the specific opportunity, and entering those opportunities into the CRM system, it's clearly the sales rep. But ultimately, it is still the sales manager's responsibility to prepare an accurate forecast, and they're the ones that are going to be accountable.
As a sales manager, I could rely on my sales reps to enter the opportunities, put together a forecast, and turn that over to senior management. But that's dangerous and here's why.
The nature of sales reps is that there's going to be many differences in the attitudes and the way they may relate to their pipeline.
For example, you may have some reps who are optimistic. Optimism is a great thing for a salesperson—we want them to be confident and positive—but they may have a tendency to overestimate the percentage of the deals that are going to close or how soon those deals are going to close. So left to their own devices without any management, they'll produce a forecast that's greater than what they'll actually achieve.
Now, let's go to the conservative salesperson. These are often sales veterans. They've been around for a while and they know they're going to be held accountable for a number. So what they'll typically do is underestimate the percentage of the deals that are going to close or how soon they're going to close and provide a lowball figure. This is often called in sales "sandbagging." They know they're going to do better than what they're projecting, but they'd rather overachieve than underachieve.
As a sales manager, given the differences, my goal is to meet with them, understand the specific deals they're working on, and make sure they're all categorized in a way that's very objective.
So the sales manager not only has to prepare that forecast, but they also have to prepare an “accurate” forecast. A topic that we cover in our new book “The High-Impact Sales Manager.”
I'll share three ideas that we think are crucial for the managers to create an accurate forecast.
The first is to have objective criteria for each stage of the pipeline. Typically, in a CRM system, you may have a five- or six-stage pipeline. Let's call one of those stages "proposal." We like to see sales reps use criteria that are customer-driven.
If you think about a proposal, one criterion could be that the sales rep has submitted the proposal. But that may not be compelling when creating a forecast. A customer-driven activity would be "We've set up a meeting with the customer for a certain date and time to review the proposal." That's more customer-oriented—and action-oriented. To recap, think about objective criteria, customer-driven criteria for each stage of your forecast.
The next step is to think about, "Well, what's a reasonable win rate?" The best way to do that is to go back and look at your historical win rate. Using the example of proposals, let's say that 35% of the deals that have historically been in proposal stage have resulted in closed business, then we want to use that as a factor.
So, we've set objective criteria, and we've also set a very objective percentage win rate to factor a deal on a particular stage. So $100,000 opportunity that's in the proposal stage with customer-driven criteria would get factored at $35,000. But that's not enough.
The third step is to track velocity. Unfortunately for those of us who've been around for a while, we see what we call "bloated pipelines." These are opportunities that have been in a particular stage for a long period of time and are either stuck or dormant. What we want to think about is "What's a reasonable amount of time for each stage of the pipeline?" Again, using the example of a proposal, it may be reasonable to have something in the proposal stage for about 30 days.
Let's say you're now the manager, and you're looking at opportunities that have been there 65 days, 80 days. You don't want to factor those into your forecast. You want to eliminate all of those deals that have been in a particular stage for too long. Obviously, when they advance to the next stage, you'll reset the clock.
To summarize, objective criteria is very important. Apply reasonable probability, track the velocity, and make sure that is a live date.
Back to your original question, it's a thought-provoking question. It is ultimately the manager's responsibility to prepare the forecast. They're the ones that are accountable, and by following these three simple techniques, they'll also produce a much more accurate forecast, which certainly reflects well on them as a sales manager.
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