(This post originally appeared on LinkedIn here)
“You don’t want to influence the same system you are trying to forecast.”
Nate Silver
Did you ever try to negotiate the weather forecast because you didn’t like it? Would you ever deny an upcoming storm when hiking the mountains or setting out on a sailboat?
I guess not, but this is exactly what scores of sales managers do whenever the sales forecast doesn’t meet the quota: They push back on the forecast and demand “a better one”. In other words: They ask their sales staff to tweak the inputs until they meet the desired output, threatening them with negative consequences for not doing so. They abuse the forecast for controlling sales.
Of course, they get what they ask for! People will adjust their assumptions until the desired numbers show up pushing the moment of truth into the future. Those that don’t will have to write “close the gap” plans listing all kind of activities they haven’t done in the past to (hopefully) improve results in the future. The less reactive revenues are to short-term changes the less impact these activities will have in the current forecasting period. But hey: once the year or quarter is over everything will be reset and the cycle starts all over again!
Fact is: By abusing the forecast for control you influence the system you try to forecast. If you want a reliable forecast, you mustn’t do this.
I learned forecasting the tough way when working for an Israeli company. There the revenue forecast was frozen the first day of the last month of the quarter and coming in by more than 5% off this forecast earned you a warning the first time and a termination the next time. You read this right: coming in above 105% of forecast resulted in the same consequence as coming in below 95%!
So what was the outcome? Going into the last month of the quarter we really scrutinized our pipeline to the max, identified the deals we didn’t have control over or where the momentum wasn’t growing and focused on the ones that were left treating them as must-win deals. As a result, we hardly lost any deals and we didn’t miss the forecast. We were honest to our customers AND our management. We had control over the business because we didn’t tweak the system.
So what should sales leaders do to control their business?
There is a simple answer to this: they must dive deep into the business of their team. Frequently. They must familiarize themselves with the fundamental drivers of the business, the market, the competition, individual customers and even their various functions and regions. They need to define and implement instrumentation that supplies unfiltered signals. They need to ask the “5 Whys” to get to the root of the business’ drivers.
They must separate control from forecast.
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