Improving Sales Forecasting
At fast-changing, high-growth organizations, finance executives need to work with sales to derisk the business plan. This is also a way to become a more strategic business partner. – CFO.com
Many chief sales officers are notorious for making pie-in-the-sky forecasts that can lead their company to overspend. CFOs who provide sales forecasting modeling and train the sales leader on how to use it can save their company from financial calamities. They can also save their chief executive officer from embarrassing meetings with the board.
But high-growth, fast-changing companies, or those with long sales cycles, cannot use history as their guide: they must rely more on predictive analysis. Commission-driven salespeople tend to be overly optimistic. They add up the new prospects in the pipeline, make a gut adjustment, and pass on a nice big number to the sales director, who then sends it to the CFO.
This can be disastrous. Take the case of a $16 million engineering-services firm that, based on the vice president of saless projections, decided to accelerate growth, adding six salespeople and launching a new campaign. The CFO and CEO built the business plan and budget, staffing up on the delivery side. Six months later, sales were only 45% of target. The business found itself drowning in red ink and was forced to fire people en masse. What a waste of time, effort, money, and hope.
CFOs need to throw themselves heart and soul into a partnership with sales, becoming an active participant in the forecasting process rather than a passive recipient of sales-department projections. The key to more accurate sales forecasts is examining the drivers of sales: the set of activities you know precedes results. CFOs should brush up on their pipeline-measurement skills, identify those drivers, and measure their results. That leads to a solid platform for planning future sales activities and accounting for the revenues they will produce tomorrow.