Picture this…
It's the last week of the month. Each sales rep provides his manager with a forecast of his best guess as to what will close this month. Taking this information, the sales manager prepares her forecast and submits it to her VP of sales for North America. He turns around and prepares his forecast to his VP of worldwide sales. When the forecast gets to the CFO, CEO, and the Board, the forecast has been touched by many with their own guesses, biases, and wishful projection to attain Nirvana this month. (This story applies to quarterly forecasts, too, as many sales people know.) The month comes to a close and suddenly the sunshine, smiles, and optimism disappear as time comes to justify what transpired. Revenue was missed by 20% to 40%, less than 50% of the sales reps met their quotas, and the expenses and inventory increased significantly based on the original forecast. Does this sound familiar? If you have been in such a situation, and if you were the VP of sales (worldwide, North America, or regional), how did that make you feel?

It is funny how the results and responses of the CFO and CEO are similar in such a scenario:

• What happened?
• What are you going to do to fix this mess and not put us in such a position again?
• Why aren't you controlling your forecast and pipeline grading more effectively?

What we have found is that in most cases, companies share the following statistics:

• The accuracy of the forecast is a direct result of the accurate grading of the pipeline at the opportunity level, not just the revenue numbers.
• Such accuracy varies from 30-50% at best.
• Sales people use at least a 40-50% fudge factor when preparing their forecast unless it can be audited without trusting the words of the sales rep.
• It takes 8-10 hours a month per rep to get the forecast produced.

So, why do bad things happen to good people?
There are at least three reasons this happens:

1. Asking sales people to grade their pipeline without having implemented a consistent and auditable sales process across the company is like putting a fox in the chicken coop while closing any possible avenue for the fox or the chicken to get out.
2. Sales people should never be requested to forecast their business without a thorough review and approval done by their managers.
3. Trusting the words of the sales rep when preparing their forecast is like inviting them to be optimistic when below quota, and pessimistic when close to meeting their quota. Either way, you will never get the truth.

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