Forecasting Sales in 2009
I’ve discussed how critical accurately forecasting sales is to a company’s success before. In short, I think that companies that have the skill to accurately predict how much they will sell and from where those sales will come have a substantial advantage over those that don’t – they can grow faster and often without consuming as much capital in the process. In my experience, too few companies value such expertise and of those that do, too many have a difficult time gaining it.
If it was hard before, forecasting in 2009 is significantly more difficult. If your customer is a business, they are undoubtedly concerned with the stability of their customers and markets. If your customers are consumers or end users, they are concerned about their paycheck and their savings. The bottom line here is uncertainty and the conservatism and cautiousness that it results in. No one knows what’s going to happen and while most people are bullish about the long term, the short term remains scary.
Most companies are struggling with budgets for the coming year and most individuals are stuffing whatever cash they have on hand into T-Bills at 0% interest to be safe. It’s obvious, of course, that corporate budgets will be conservative and individuals will delay all spending decisions as long as possible.
So what’s a Sales VP and CEO supposed to do? Ratchet down expectations to an absolute minimum level? Just discount last year’s sales by some arbitrary percentage? Come up with a number by gut feel? Use Q4 2008 or December 2008 as a benchmark for 2009? No, no, no and buy a lottery ticket instead (it is highly unlikely that Q4 or December numbers will have a strong correlation to 2009 numbers).
Difficult economic times simply require that forecasting be a more rigorous discipline than in good times. To be accurate, more data is needed and each sales person needs to be closer to their customers. In really good times, yearly forecasts are sometimes possible, in normal times, it drops to quarterly, in tough times, weekly forecasting with real data from customers is required. It’s more work, of course, but the payoff can be very big.
So here are some specific ideas about how to develop better sales forecasts for 2009:
- Find out what’s budgeted and when – does your customer have a budget? If so, is your product/service category included at this point? If so, when? Pretty black and white. If your product/service isn’t even budgeted, the sales process is all about getting it into the budget. In the mean time, that customer isn’t on the forecast.
- Find a champion with power – any sales person worth their salt finds someone on the inside (for business customers) that helps them make the sale. It is more important than ever that this person also has some power. Even better if they are the one who actually owns the budget. The closer you are to the money, the more accurate your forecast can be. Duh.
- Build visibility – having a champion is great, but the more you know about the customer, the better. Individuals are tough in this regard, but businesses are easier. How is the target company’s market doing? How well or badly do the service people in the company say that things are going? Take a random sampling from all your contacts at the customer and ask them how the company is doing and how badly they need your product or service.
- Talk with your customers and potential customers frequently – just because they told you everything was fine last week doesn’t mean that it remains cool this week. Even if your champion is the company’s CEO, don’t assume that they have infinite visibility into what’s happening.
- Be paranoid – deals are likely to be smaller and more competitive than ever. Your competition is desperate and will be working their hardest to get the sale that you think is your birthright.
- Make no assumptions – uncertainty is just that – lack of certainty. A customer should only make it onto the forecast when you believe you’ve captured as much information as possible and it all points to a sale happening for a certain amount within a certain time frame.
Interestingly, none of these steps is any different from what a good sales person should be doing in the best of times. The only difference is the frequency and perhaps, the level, at which they are done. The more rigorous the process, the more accurate the forecast.
Forecasting is never perfect even in the best of times, but more data can make forecasting a relatively accurate process even in the worst of times.