Proactive Forecasting

Despite growing sophistication in many areas of business economics, most organizations fall back on two main forecasting methods, says Kevin Temple, president of ValueVision Associates in Del Mar, CA. They either assign a probability-of-close percentage to each forecast item, or they assign a fixed percentage – typically 30% for steady-state organizations – to some portion of the pipeline, says Temple.

While these methods can provide a reasonable estimate of the total probable outcome, “they can completely miss the boat when it comes to identifying which line items will actually close, or what to do if an opportunity is not fully developed,” explains Temple.

As a result, companies might not be able to accurately forecast demand for specific products or services, which in turn affects inventory, staffing and resource allocation. “There’s impact on your inventory and on your ability to deliver,” explains Temple. In addition, there’s no mechanism for helping the sales team increase the probability of winning a sale.

Instead, Temple suggests forecasting from a different perspective. He breaks down the sales process into six interdependent steps, each of which must be accomplished to increase the likelihood that a sale will close in a given time period. The forecasted item starts off at 100% probability. For each of the following steps, 100% is multiplied by a factor of 1 if the step has been successfully completed or by the factor indicated in parentheses below if it is incomplete.