Iceberg Ahead: Sales Forecasters Steer Clear
October 10, 2008
We've hit the iceberg straight on and it could be time to jump ship. With a sinking economy and petrified consumers, sales forecasting is becoming pivotal. But can companies count on their sales forecasters to keep them afloat?
By Karen Yi
We've hit the iceberg straight on and it could be time to jump ship. With a sinking economy and petrified consumers, sales forecasting is becoming pivotal. But can companies count on their sales forecasters to keep them afloat?
Kim Orumchian, CEO of Right90, a sales forecasting and revenue performance management vendor, says, "The economy presents us with an opportunity, because when things become more uncertain, the forecast becomes more important."
Now more than ever, companies need to understand the market demand and what is—and—isn't going to sell. But according to Orumchian, "a lot of companies don't respond to sales forecasts, they use it primarily as a rough estimate of how much they are going to sell and don't use it to really run their companies."
Sales forecasting is one of the major issues facing companies in today's dubious economy. With the capsizing of major financial institutions, and the sudden changes in market patterns, sales forecasting—if properly incorporated—may just prove to be the buoy to safety.
"Selling is no longer the holiday that it was," says Denis Pombriant, an analyst at Beagle Research Group. With stiffening competition in the marketplace and the development of technology, "the art of selling is coming back and the need for forecasting is becoming much more paramount," says Pombriant, "now add to that, a knowledgeable consumer base."
Orumchian says that by "responding more intelligently" to sales forecasts companies "will get the competitive advantage, which will lead to a whole round of efficiency and customer satisfaction."
Predicting the Sales Weather
But why are companies not capitalizing on this effort? Pombriant says a major problem facing sales forecasting is accuracy. According to Pombriant, a survey conducted by Beagle Research found that only 18% of those surveyed said that their forecasting accuracy was above 80% while 7% said it was above 90%.
Inaccurate forecasts can have devastating effects on the company. Swayne Hill, CEO of Cloud9 Analytics says, "If you don’t deliver accurate forecasts then the business will have an inefficient allocation of resources."
Hill recommends a three-tiered approach to accurate forecasts:
1) Bottoms-up View: Go out and look at the deal by deal level and simply roll up from the bottom what the forecast should be.
2) Management View: You need management override at every level, which is the subjective view. Management needs to interpret what's going on in the front lines.
3) Historical Patterns: Track the actual observed historical patterns in the data, aggregate that data and come up with a third data point—the historical view projected under the current forecast. It's the confidence marker on the first two.
Improving accuracy is only one part of the problem. Pombriant points to technology. "They’re not using the tools that they've got or they're misusing them," he says. "Survey data shows that the most popular tools and technology that salespeople are using are things like cell phones and laptops for hardware and word processing and spreadsheets for software."
At the same time, relying solely on technology does not complete the picture. "Whenever you add technology, you provide an accelerator," says Pombriant, "Regardless of how fast we can do things on the back end, we are still dealing with people who make logical decisions for emotional reasons."
There is always a risk factor involved with sales forecasting—the wild card of human behavior. "The fact that emotion is part of the decision making process makes it unpredictable to a degree and makes it not necessarily able to be subject to the accelerant of technology," says Pombriant.
A Balancing Act
According to Hill, companies need a balance, they "can't simply rely on technology to deliver," he says, "you need to have the combination of technology supporting human behavior."
The key aspect often missing from sales forecasting is accountability. "If you don't hold people accountable," says Orumchian, "it's like a vicious cycle." Often executives cut corners and do things for "short-term gains" explains Pombriant. "These executive positions tend to be revolving doors."
But it's not about immediate gains. Companies need to use sale forecasting not just as an immediate life raft, but to help them steer clear of future market fluctuations.
Pombriant says, "It's not just what we're going to do this month, but what we're going to do in the months ahead."
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