Around 85 percent of sales forces build a forecast based on pipeline opportunities, according to Vantage Point Performance research. But is that the best approach?
If your sales are based on a linear, multistage sales process, the opportunity forecasting model may make the most sense. But not all companies follow the multistage sales process anymore.
For example, what if your company has a small number of major accounts that provide a continuous flow of deals, instead of a linear collection of multistage deals? Maybe your company has a fragmented collection of thousands of accounts, making individual opportunity tracking a gargantuan task. Perhaps your sales revolve around a high volume of calls that result in immediate, on-the-spot sales. What then?
Vantage Point Performance research has shown that, when exposed to alternative forecasting frameworks, 74 percent of sales leaders realized they should be basing their forecasts on something other than individual opportunities. Below are three sales-forecasting models that perhaps you’ve never thought of but may be a better fit for how your customers actually move through the buying process.
Does your revenue come from a few large accounts that provide a high volume of individual opportunities? If so, tracking each individual opportunity using the traditional opportunity forecasting model would be an overwhelming task.
A more manageable method is to forecast at the account level. With account forecasting, you bypass an in-depth examination of each individual transaction in favor of tracking the overall volume of business coming from the account. By doing this, you can better identify significant trends, such as whether the overall volume of business is growing or shrinking. The account forecasting model also allows you to detect changes in the account that will increase or decrease demand for your products. By looking at an account in sum, you can keep your finger on the sales pulse without getting lost in the weeds of individual deals.
Is your customer base made up of hundreds or thousands of small accounts? If so, you may find that, as the number of accounts in a territory grows, forecasting becomes less accurate as forecasts are built more on guesses than actual data. In this case, it makes more sense to forecast at the territory level, rather than at the individual opportunity level. By looking at an entire territory in aggregate instead of at individual deals, you can gain a more accurate forecast and identify critical trends, including whether territory sales are trending upward or downward, as well as determining if the average spend per customer is increasing or decreasing.
If your salespeople close a deal in a single customer interaction, the multistage opportunity forecasting model is going to be overkill. In these cases, sellers don’t have a multistage process to execute.
What matters most is the outcome of each individual sales call. In this case, you might forecast based on the sales call itself. How many calls will a seller make? What is the expected revenue from each call? By examining the sales call rather than the “opportunity,” forecasting can again be made simpler and more accurate.
So now you know of a few alternatives to the ubiquitous opportunity forecasting model. Is it time for your sales force to start using a different model that more closely aligns with the way your customers move through the buying process, or will you be one of the 74 percent of sales leaders who feel they should be basing their forecasts on something other than individual opportunities but aren’t?
Jason Jordan is a founding partner of Vantage Point Performance, a global sales-management training and development firm, and coauthor of Cracking the Sales Management Code.