Posts by: Barry Trailer

What Sales Forecasting & Jumbo Shrimp Have In Common

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Barry Trailer is the Research Principal and Co-Founder of CSO Insights.

The number 1 metric used to measure (and reward) the performance of sales managers is their teams making their number.  Number 5 on the list is forecast accuracy. No wonder “forecast accuracy” continues to be an oxymoron, that is, a contradiction of terms (ala jumbo shrimp).

Who cares, so long as you’re making your number? In the chart below, the performance of 2 companies (A & B) is shown over a 3-year period, versus the straight line representing quota. Company A’s performance is ±50%, while Company B’s is ±5%–which means both companies made their number. However, if these were publicly held companies, B could have 3 or 4 times the market cap of A, on the exact same revenues.  If privately held, lenders would want to lend Company B more money, for longer periods on more favorable terms. Why? B is more predictable.

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Assuming these companies were in the same industry (i.e., same seasonal variance, relatively same size deals, etc.), B would be more productive and more profitable. Company A would have more rush shipments, more overtime, more sick time, and generally higher expenses simply because of the volatility and lack of consistency.

I talked about the importance of sales process in my prior blog. It could also be said that Company B has its processes more under control; Company B has less variance.

How would you like to be the CFO of Company A? How would you give guidance prior to the end of a period? As the head of HR, would you staff for the peaks and risk overstaffing, or the valleys, risking delays and massive overtime?

If it takes 6 months to recruit, hire and train a product specialist, as CEO, would you authorize beginning that process 6 months in advance of actual sales based on the sales forecast? If not, would you risk poor customer satisfaction ratings downstream because customer implementations are delayed or poorly implemented? Poor sales forecasting takes the bat out of every other functional leader’s hands. Profitability can be lost as well.

Making the Number versus Making the Forecast

As stated above, it’s all about making the number, right? Maybe, but there’s a difference between making the number and making your forecast.

For example, a rep has a quarterly number of $400K. The forecast shows 5 deals (A, B, C, D & E) each averaging $150K and each with a 60% probability of closing (with a win). First, what does “60%” mean? Sounds better than 50/50 but the rep’s not going out on a limb and committing to 90%. Without a defined sales process and buyer evidence “toll gates,” one rep’s 60% could be another’s 30% (whatever that means). But as this rep’s manager is thinking, 5 X $150K X 60% = $450K, so we look OK.

Second, what closes is B for $75K and surprise mega-deal H for $350K. Final quarterly number: $425K. Hooray, ring the bell, made the number! This “hero” is in a flat spin, completely out of control. She made her number but blew the forecast completely.  Again, who cares?  Here’s one example.

A capital equipment manufacturer in the semiconductor industry made a test machine that sold for $2.5M. The basic box was the same but Samsung, Phillips, AMD, etc., would each have custom requirements. In January, an order would be forecast for 4 machines for Samsung to be delivered in April. In early March, Samsung says, we want those boxes but now don’t need them until August.

Sales hustles around and finds new orders for 2 machines with Phillips and 2 with AMD. The customization for Samsung is undone and the new client specs begin being built. Mid-March, Phillips says we only need 1 and AMD pushes their 2 off until Q3 at the earliest.  A new home is found for the 3 orphaned machines at Intel, which agrees to accelerate a July order for 3 machines but at a discount to take them before the end of April. Again, sales’ heroic efforts are celebrated but all the profit from the 3 machines has been eroded. Sales made their number but blew their forecast.

There are other ways that “forecast” inaccuracies can hurt the bottom line. For now, look closely at your sales process, how your managers reinforce/enforce this process, and how their review uses this to improve “forecast accuracy” beyond numeric mumbo jumbo—or shrimp gumbo.

Sales Process… “Remarkably Absent in Day-to-Day Execution”

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Barry Trailer is the Research Principal and Co-Founder of CSO Insights.

Want a silver bullet to increased quota attainment? The magic pill to making your number year after year? The bottom lineon more than two decades of research with more than 40,000 survey respondents?Wait for it…Short answer. Quick answer. Honest answer. Sales process. Yup.

Not sexy but absolutely freaking true. Not kidding. What’s interesting is this really doesn’t come as news to anyone and, yet, it is remarkably absent in day-to-day consistency of execution. And, that’s the word, consistency.

Sales process? Yeah, we’ve got that. Sort of. Use it, measure with and against this standard on a regular, ongoing basis? Reinforce, enforce and continually improve it? Yeah, no; not so much.

What’s interesting is the same sales managers that are such fans of, and recognize the value of, persistence in their reps, lose their love for persistence when implementing sales process. And yet, our research has been consistent for over a decade now: higher levels of relationship (from Approved Vendor up to Trusted Partner) and higher levels of sale process implementation increase (from Random to Dynamic) correlate with higher levels of revenue plan and rep quota attainment, and more.

So, if this isn’t news (it’s not) and it’s true (it is), why the resistance? What is it that keeps sales managers/management from seriously and consistently implementing sales process?

An early observation we’ve made of many sales managers is that the process is “interesting” but what’s of interest are the results. This strikes us as exactly backwards; that a more helpful orientation is having the results being interesting but what is/should really be of interest is the process. This may seem like we’re just playing word games—we’re not.

You can be intensely interested in the results but, no matter how much you study results, they’re not going to change—by definition, results are already done. However, by being intensely interested in the process, you can identify patterns that are early predictors (leading indicators) of things going well, or poorly. You can manage process steps but you can only monitor results. Again, because “in process” means things are still happening, whereas, results are, well, done.

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For 10 years, CSO Insights has been tracking sales performance using the Sales Relationship Process (SRP) Matrix. We’ve defined 3 performance levels (see illustration) across the matrix. Suffice to say, the red zone is generally a low performing, no man’s land, where you’ll find yourself scraping for low margin, hyper-competitive, scraps of business. Moving UP and OVER on the matrix translates to moving up in performance and success. Here’s the key takeaway for today’s discussion: moving over, that is, implementing higher levels of sales process, is wholly with in your organization’s hands. Creating, sustaining, andexpanding a culture of transparency, and continuing process improvement is the success formula (see: “magic pill,” “silver bullet” above) you are seeking.

Sales management is always looking for a “lever” they can use to improve performance. Sales process is that lever. However, a lever without a fulcrum is just a stick. Your front-line sales managers are the fulcrum to consistent process implementation, process-based (i.e., data-driven) coaching and professional development to take your organization to the next level.

Join us on Thursday, August 24th for our “Sales Process or Die” webinar with Barry and other industry leading sales leaders – Register here!

TopOPPS has helped hundreds of Sales Leaders increase their team’s performance level through enforcing sales process rigor that enables Sales Reps to focus on selling to their best deals. To learn if we can help you, contact us!