John Wanamaker was an innovator, a merchandising and advertising genius. But when he made the statement, “Half the money I spend on advertising is wasted. The trouble is I don’t know which half,” he left a legacy that has haunted marketers ever since.
New research from CSO Insights suggests that the day may have come for sales. In its annual Sales Performance Optimization study of over 1,500 companies across multiple industries, CSO found that the accuracy of sales forecasting fell to a near all-time low of 46.5 percent.
And since the forecast, defined in the study as near term (30, 60 and 90 days), is an output of the sales pipeline, one could conclude that half (or more) of the pipeline is “junk.”
With the widespread adoption and utilization of CRM (84 percent of the firms surveyed confirmed their use of CRM), marketing automation and analytical forecasting tools, the question is how can this be? Why is the sales pipeline filled with so much junk?
Here are some thoughts on why this might be happening, and five tips to help you improve your forecast.
Reasons for poor forecasting:
Impurities in the System. Let’s go after “the big one” first. “Garbage in; garbage out,” as they say. There’s a laundry list of things to look for—from reps putting leads in the system right before these leads close, to not updating opportunity consistently, and leaving in dead leads too long.
Sales Optimism. Yes, the economy seems to be recovering, but it may not be moving at the “speed of sales.” Sales folks are an optimistic bunch; they want to believe things are better than they may be in reality. For example, let’s examine the average length of the sales cycle. In a report earlier this year by BtoB magazine, 43 percent of marketers reported that the sales cycle had increased over the last three years. This number is consistent with the CSO Insights report, where 42 percent of chief sales officers stated that the sales cycle had lengthened, in particular with new acquisitions.
Incentives and Goals. Take a look at the companies incentive system and/or the reps’ sales goals. You might find the real reason why reps leave opportunities in the pipeline too long or are overly optimistic with their forecasts. Pressure to build and maintain the sales pipeline can sometimes cause counterproductive behaviors.
Gut Instinct. Even if the troops in the trenches are entering accurate and timely data, the generals might change it to fit the political environment or their own personal bias, or both.
Changing Buyer Behavior. Recent research has shown that the buyer’s journey and the typical sales process are not aligned. Buyers frequently start and stop the journey, or they will cycle at a stage and even move backward in the process. CRM systems are typically designed in a linear approach, progressing from a lead to a close. It’s an internal view, and one that is increasingly out of alignment with buyers’ preferences.
How to improve:
Active Pipeline Management. The pipeline and forecast are never going to be 100 percent accurate. As a result, you should have a feel for how far off they are and what is needed to improve. For example, do you have an inspection process to keep the pipeline current? If so, consider examining it more frequently. Move quarterly reviews to monthly, monthly to bi-weekly. In addition, if everyone is responsible for updating the pipeline, then no one is responsible. Consolidate the “maintenance and hygiene” of the pipeline to one person. Others may be responsible for providing updates, but have one person police the system.
Discount Probability and Value. Conduct a postmortem on past forecasts over the last year or two. Assess the difference between forecasted and actual results. Create discounted probabilities based on that delta for lead movement (from stage to stage) and lead value. If implemented, evaluate the accuracy of your “preset” discounts. It should help bring forecasts more in line with reality and ground “sales optimism.”
Govern the Process. To improve the accuracy of “output,” focus on implementing and managing a standard process. Accenture’s Connecting the Dots on Sales Performance found inconsistencies among reps in using their company’s defined process and methodologies to selling. A quarter of chief sales officers surveyed stated that sales reps used their sales methodologies 50 percent of the time, while 31 percent said it was used 75 percent of the time.
Leverage Marketing. Close the feedback loop with marketing to improve the quality of leads from campaigns and activities. In a report on Sales & Marketing Alignment by the Aberdeen Group, marketing accounted for 47 percent of the sales-forecasted pipeline in the top 20 percent of companies studied, compared to only 5 percent of laggard organizations (bottom 20 percent).
Use Business Intelligence Tools. High penetration rates of CRM could equate to high visibility, but it doesn’t automatically mean that such rates provide the best insight. Despite high adoption rates of performance dashboard, few companies are using business intelligence or analytics tools, according to the Aberdeen Group report on sales forecasting. However, the report found that 44 percent of the highest performing sales organizations were using predictive analytics to reduce “gut instinct” in the forecast.
Of all the options, perhaps the best lever for impacting accuracy is the rep. As Ashish Vazirani, a principal in the high-tech practice of the sales consultancy ZS Associates, says: “A sales person needs to be coached, or apprenticed, on how to discern and input the right information for accurate forecasting. Technology can make us lazy and reliant on the tools to do the thinking. We need to emphasize the importance of coaching plays in keeping the garbage out of the system.”
Helping the troops become better soldiers through coaching should help improve the accuracy of the forecast, as well as implementing the tips mentioned above. However, you might still find that half of the pipeline is wasted, and, hopefully, unlike Mr. Wanamaker, you’ll understand which half.
He blogs regularly at www.B2Bknowledgesharing.com