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Thursday, 22 July 2010

Sales forecasts, it’s a numb3rs game


Into second half of the year, how is 2H forecast looking?

How accurate was the first half year?

Just before the Summer Vacation is a good time to review 'Sales Forecasting'.
Whiz-bang software in place, got the latest apps?
Remote server based and cloud delivered?
Your Sales Executives disciplined to keep it all up to date.

How good is your forecasting?

Does it 'rain' where your predictions say?

Can you predict how much 'rain' and when?

The accuracy of a Sales Forecast to predict

Which Customer will order,

What product, and

When they will order it is, let us be honest, poor.

In fact, against the standards of - which, when and what,
Sales Forecasts are less than 10% accurate.

If it were the production forecast you would not know, which Customer,
would get their order or when they would get it, 90% of the time!

BMAC have audited nine sales forecasting 'systems' for which, when and what.
The results were slippage of date by at least a month 60%,
losses or discontinuations 20%, a total error of 80%.
The 20% wins were inaccurate in customer, product or forecast pricing.

Overall, you cannot run a business based on this.

If yours is better, it is because you exercise better judgement,
but good forecasting does not rely on 'Judgement'.

My friend and colleague (MH) has a higher degree in Pure Maths
(he calls it 'hard sums' and he is a bit like the character Charlie Eppes in the TV show Numb3rs).

He does not teach, but he is the CEO of Software Company. We worked together on Buyer Behaviour developing a mathematical analysis to predict and modify Buyer Behaviour and Buyer Decision Making.

When we did this something remarkable happened.
Forecasting accuracy improved.
The more we worked at predicting BUYER BEHAVIOUR and how to modify it,
the more accurate the Sales Forecast became!

First, we had to eliminate or greatly reduce BIAS.
Bias (the 'b' factor) in the formula, Bias held a weighting of four.

Bias comes in two forms

  1. Sales-executive 'Optimism', I hope to win this deal and
    I want to look good by having a BIG pipeline
  2. Sales-executive 'Pessimism', I do not want to forecast it until I have won the deal.
    We eliminated bias by having consequences for bias.
The BMAC "Numb3rs Forecasting Formula" has three more letters.
  • Factor 'a' is for ATTRACTIVENESS.
    How attractive is our offer, the price and proposition we offer the buyer?
    A high price or a weak proposition decreases your likelihood to win the deal!
  • Factor 'd' is for DESIREABILITY,
    how desirable is this Customer and this deal in the marketplace?
    i.e. How much Competition is it going to attract?
    And that leads us nicely on to the final letter
  • Factor 'c' is for COMPETITION.
    How many are present?  Which competitors?  How active?  How aggressive?
    The formula arrangement of a. b. c. and d. is
    Attractiveness, Bias, Competition and Desirability put together correctly in mathematical terms with their relationships and weightings a b c & d they really do predict and drive your results, accurately!

    Moreover, you will not need whiz-bang software.
At BMAC we consistently work with and test, Frameworks, Models and Logic.
Contact us for more information.

1 comment:

  1. Just read the Aberdeen Report (June 2010) on sales forecasting,
    Claimed 75% for sales forecast accuracy,
    88% being top and laggards at 40%
    81% (of 422 respondents) claim ‘integration’ with CRM/SFA software
    76% use weighted sales “stages”
    Therefore, it does have to be OK. NO, it is definitely NOT OK!

    75% want to improve Sales forecasting because it does not work,and almost 30% have problems with investors due to poor sales forecasting

    So what is wrong, they identified poor data input, and 'Sandbagging’ or ‘Over confidence’, and the inability of sales execs and their managers to calculate the probability of closing the deal.

    I.e. they are not calculating the attractiveness of their offer, balanced by the desirability of the client, and they are not even looking at Competition and their forecasting sucks........told you so!