Off the Cuff Interview Question: From your experience, what would you say are the 3 top reasons sales forecasts don’t match results?
First, we need to define what “match” means in the context of forecasting. If “match” means “equals,” we only need one reason: because it’s a forecast. Attempting to get sales forecasts to hit actual revenue bang-on is a fool’s errand.
On the other hand, if “match” means “in the ballpark,” then companies need to specify what that means in terms of variance, because an acceptable variance for one company might not be acceptable for another. And acceptable variance might change for a given company, depending on market conditions and other forces.
In general, I see three reasons for forecast variances (defined as the delta between expected results and actual, usually in terms of revenue or unit volume):
- Sales forecasts are projections dependent on human decisions, which are exceedingly difficult to predict. That’s true with just one decision maker. And when there are multiple decision makers – for example, with buyer committees or additional levels of approval – forecast complexity skyrockets, often defying intuition and mathematical prediction.
- [Stuff] happens – though most sales managers are loathe to admit it. Across a broad spectrum of situations, unanticipated events occur with such frequency that there is vernacular for them: Black Swans. In forecasting, salespeople and their managers seldom allow for them, and they include such things as supply chain interruptions, buyouts, executive defections, sudden strategy changes, and reallocation of project funding. When it comes to closing opportunities thought to be “in the bag,” these are frequently catastrophic deal-killing events. Every forecast must consider these possibilities and more, and account for them in the forecast.
- Senior management injects biases. Sales managers commonly demand that their reps carry “healthy” revenue pipelines, and they stigmatize their reps as “low performers” if they don’t represent a projection that’s congruent quota. The result: forecast candor is systemically discouraged, while forecast inflation gets rewarded with a pat on the back.
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