As a sales leader, you know the importance of forecasting. Management needs to know how much revenue you will attain in the next week, month, quarter or year. But, my guess is that it’s more important than you think. Here are three reasons why it’s probably more important than you think.
- Your reputation and your credibility. When you make a forecast and you share it with your management team, it is your reputation on the line. You are committing to the company a certain amount of dollars of revenue, units of shipment, etc. Others on the management team will then use your numbers to hire or fire, get more inventory, or divest of inventory. Marketing may use your numbers to decide on sales or promotions. What you need to understand it that it is YOU they are banking on. When you lose credibility with the management team, you are in real trouble.One of my clients, the VP of Sales for an IT services company was spot on in 2011 for eight straight months. He had credibility and consequently the company started hiring because because they had confidence that they would meet their growth targets. Then in the last few months of the year things started to slip and he missed two months in a row. The 2012 planning session was extremely difficult because the VP Sales had lost all credibility with the rest of the management team. It was ugly.
- The reputation of your people. Whether you manage a very large team or a small sales team, each person is under the microscope. This is especially true in sales where revenue and meeting your forecast is critical. When an individual misses his or her target, their personal reputation is on the line. When times are tough and layoffs loom, it most likely will be the people who don’t achieve their revenue targets who will be in the cross-hairs.This can cut two ways. One of my clients has a maverick in his sales team. This woman almost always blows out her numbers but routinely fails to put deals into Salesforce.com. It was three days until the end of the year and the VP Sales was looking at a near miss on his numbers. Then out of the blue, this woman walks into his office and announces that she just landed a multimillion dollar deal with a Fortune 10 company. She hadn’t brought it to management’s attention because she wanted to be hero. Credibility was lost two ways here. First, the rep could no longer be trusted and required much more management attention; but, second, the VP Sales had a lot of egg on his face because he had been telling the CEO and Board that they were going to miss by a small amount.
- The reputation of your company with your investors. Everyone reports to someone. CEOs report to a Board of Directors and even they report to their investors, whether private or public. For a company to miss their forecasts can cause huge swings in their valuations. The important thing here is consistency. Missing on the low side one quarter (or month) and then missing on the high side next month is not the kind of consistency the street or investors what to see.
So, there you have it. Some great reasons why sales forecasting is critical for you, your people, and your boss.