The Economic Value of Sales Forecasting

Aberdeen Research has just released a very significant report:  "Sales Forecasting: How Top Performers Leverage the Past, Visualize the Present and Improve Their Future Revenue." They look at the value of a good sales forecasting process to the sales function, but don't overlook the value to corporate strategy.

I've been saying that the economy is becoming more cyclical. One important corporate strategy response is to speed up the flow of information about sales, so that the business can react more quickly. (I say business, but this also applies to governments and non-profits.) The lessons from the Aberdeen report are an important adjunct to my own recommendations.

Here's what Aberdeen found:

  • Poor sales forecasting prevents allocation of sales resources to the best opportunities
  • The best performing companies replace gut feel with formal analytics

There's a lot more detail in the report that will be useful to those rolling up their sleeves to set up a sales forecasting process.

The report sounds like it assumes a bottom-up process using a sales funnel. I like that approach, but don't neglect insights from top-down forecast methods. I've helped companies on this approach, using economic and industry data to forecast sales volumes. It's not necessary to debate which is better: they both have value. When they are giving the same answer, confidence grows. When they diverge, it's important to learn more. What's up with the sales people? What's different about the economy? Make the decision about which to believe on a case-by-case basis. More importantly, see divergence between the two approaches as a red flag. Pay extra close attention to sales trends. Be ready to shift from growth mode to recession mode, or vice versa.

Setting up a good sales forecasting process is one of the clearest implications of my belief that the economy will cyle up and down more frequently in the coming decade. Get working on it. Call if you need help.