How to get forecasting right?

A good sales forecast helps the entire organization get it right with their plans.  Sales forecasting underpins a whole host of decisions like staffing, purchasing, financing.  An aggressive forecast increases the chances of slippages and wasted resources that were mobilized for a higher forecast.  A too conservative forecast can lead to insufficient resources to meet customer requirements, poor customer satisfaction, or worse, a customer loss.

Everyone gets this, right?  But where do things go wrong?  Sure, there are always things one can’t forecast, like a pandemic or such disasters.  But there are a few other factors that can disrupt a perfectly well-intentioned forecasting process:

1. A forecast being too top-down driven.  Sales organizations sometimes buckle under the pressure of unrealistic expectations from leadership (who often in turn are under pressure from shareholders)
2. A forecast in spite of being detailed/bottoms-up, is only cosmetically so for “meeting” management’s expectations
3. Poor system hygiene & imperfect data leading to technical errors in forecasting
4. Lack of a critical review of the forecast at each level of the organization

In light of the above, let us understand what a forecast means.  Very often it is confused with only being about the numbers and a glorious spreadsheet.  But it is almost always about the story, aka the plan to achieve those numbers.  One always needs a plan to backup the numbers

How do we then get a story as well as the numbers right?  Remember, right is not about getting the forecast 100% right.  It is about getting a plan right and the entire organization being on board with the same plan.

Here are a few things to keep in mind while forecasting:

1. Start with studying the historicals - quantitative as well as qualitative inputs.  This is especially true for established businesses.  For emerging markets, history may not repeat itself, but it is good to learn from the scars and trophies
2. Figure out the right segments of your revenues.  Very often, one finds forecasts are done along the same lines as accounting.  Such forecasts are internally focused and not customer oriented.  And when forecasts are not customer oriented, we know what that will lead to, right?
3. Keep it simple.  Many times, analysts spot patterns and model it mathematically where a simple model would suffice.  Complex models are difficult to disseminate and work with
4. Study competition deeply.  Understand the historicals in light of the relevant competitive landscape.  Research what your competitors are up to recently, their strengths, weaknesses and tactics
5. Factor in customer health.  Are you serving a growing market, or a slowing market?  Are you main customers facing issues?  Or, are they going great guns?
6. For the top accounts, develop a detailed account level plan.  The importance of this cannot be underestimated.  A few questions to consider here:
            -  Are your key accounts happy with your product/service?
            -  Are the projects you are executing for them on track?
            -  Are you up to date with their business plan to the extent it may have an impact on their purchases from you?
            -   Are there any changes in their buying teams? Have new people joined those teams? Are decision makers expected to change? (e.g. a customer whose priority is to save costs next fiscal year would start involving more of their finance personnel in purchasing decisions)
7. For the long tail, segment them into market segments.  Market segments allow one to use market trends to develop better forecasts.  Market segments also help sales organizations to understand if a segment is saturated or not for winning greenfield accounts
8. Review your plans.  Let the plans be challenged.  Let the challenges bring out the best plan and the best forecast based on the plan
9. Work as a team.   Remember, none of us have a crystal ball to see the future.  We can control only what we have in our control - that is, a well laid plan and an across-the-board agreement to execute the plan in all earnesty
10.   Expose areas where you as a team are less certain about - underweight those in the forecast.  Surface up areas where you as a team were consciously conservative - carefully overweight those in the forecast.  Remember, this careful overweighting is only to avoid any resource shortage in case the future turns out to be bright - so be doubly careful as erring too much here could lead to wasted resources
11. Once you get everything together, notch it up a little, because, who does not like a challenge?  The final notching up is to prepare for any unpleasant downsides and to incentivize the sales org to go beyond the call of duty.

Once the year starts rolling, please remember to track your plan and forecast.  Understand where you got it right and where you got it wrong.  That would be of great use in your next forecasting cycle.

All the best for your next forecasting cycle!

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