Sales forecasting is an important element of good business practice and is a hugely influential factor in determining the overall success or failure of a business.
Most businesses use some form of software to generate predictions for future sales revenue; however, there is a strong probability that it isn’t performing accurately or adequately. And when the forecast fails to materialise in reality, this can lead to increased pressure from senior management and loss of motivation from employees who may have spent considerable time and effort on the original forecast planning.
There can be many reasons for inaccurate forecasts. Your company might be using an inappropriate type of forecasting framework which is set up for a different type of business. Most are based on a ‘pipeline of opportunities’ framework’ with fixed stages and percentages. Your company may also be using an inappropriate set of Forecasting Algorithms for your business type; many algorithms are too complex for a Sales team to achieve a quality forecast within a specific timeframe, particularly if a team member in Sales considers forecasting to be low priority when compared to maximising sales time with new clients.
Generally, however, sales forecasting is usually inaccurate because of:
1) Reliance On Bad Data
Perhaps the size of your business is expanding, and your original forecasting process is no longer able to handle the intricacies of your new system. Maybe staff changes have led to inaccuracies as new members take time to become embedded. Salespeople are notorious for giving inaccurate forecasts when asked to predict how much revenue they are likely to generate in a given period. A combination of relying on gut instinct to predict sales and an understandable survival instinct can lead to over-inflated forecasts.
2) Poor Customer Insight
A weak understanding of your customer and their market will make it much harder to forecast accurately. A good forecast can add value throughout the supply chain. Not only will it help your supplier plan the capacity and products that you need, but it can add huge value for your customers. Demonstrating that you understand their business, and that you can forecast their demand and then guarantee supply will set you apart. Feed that into your CRM system, and use data from your CRM to inform your forecast, and your sales team will be ahead of the game.
3) An Unrealistic Timeframe
One of the most frequent errors made by sales managers when forecasting is advising the sales team how many sales need to be made by a certain date. This is all very well but doesn’t take into account your clients’ timeframes.
If your company needs a better forecasting solution, Reflex Demand Planning is worth investigating. Statistical forecasts are generated using adaptive algorithms based on order history and taking seasonal fluctuations into account. Reflex offers a world-class business planning solution with numerous different modules, all of which can be customised to individual industries to go above and beyond expectations.
Reflex Demand Planning includes planning solutions that are designed to reduce costs, improve customer service and allow your business to retain its edge in a highly competitive market. Reflex offers innovation management that will define your critical path, assign resources, and put together a detailed project plan. Finally, Reflex’s demand forecasting and supply planning to allow you to take control of your company’s future and drive forward positive growth.
Read some Reflex Case Studies to see how the operations of your business could be transformed, or call us directly to speak with one of our planning consultants.