“Proper Sales Forecasting & the Importance of it”
Proper forecasting makes a difference in both the bottom line and the top line. The impact will affect profitability, inventory, and supplier/customers relationships. As an owner or sales leader failure to accurately forecast sales on both sides of the spectrum can cause the organization to fail in their preparation of the extended supply chain. Forecasting sales under or over will impact both the top line and bottom line as well as place a strain on suppliers and customer relations.
Forecasting is not a perfect science they need to be accurate enough so the operational team can make the necessary decisions in meeting customer demand while still maintaining profitability.
These are the five areas of focus when preparing to complete a forecast:
1. Historical sales data that show family a product mix
2. Sales force interaction with the customers that feed back to the organization
3. Feed back and review of the regular sales and customer interaction at the Sales & Operations Planning (S&OP) meeting
4. Accountability from the ownership or sales manager down to the sales team
5. Standardized sales process
Historical Sales Data – Monitoring incoming sales order is one of the most important process steps in an accurate forecast. Without historical sales data you are not able to see trends, seasonal spikes and product mix changes. Properly measured past sales data will give you predictability, without it you are flying blind.
Proper forecasting is also impacted by the sales cycle this requires regular communications between the supplier and the customer. Long sales cycle can impact your forecast due to changes that can occur during the time span of the last order. Change is constant and with out regular communication valuable data can be missed that will impact the sales forecast.
Sales force interaction with the customer - Sales people need to build strong relationships with both potential and existing customers. Additionally the sales person needs to understand the customer’s needs and in some cases they need to guide the customer in finding the right service or product that meets their requirements. This will require asking some difficult questions at times but if the sales person has built an honest relationship this will not be as difficult. We need to understand that the sales team has a major role in an accurate forecast by providing information captured on sales calls and in sales meeting with the customer.
S&OP review – Setting up regular meeting to review Sales & Operations Planning meetings is an important factor when monitoring a sales forecast for accuracy. Establishing a sales forecast is not a “set it and forget it” process, it requires monthly review of both the actual sales trend and any unforeseen spikes or drop off’s in sales. At times you will be required to re-forecast based on these trends.
Accountability from the ownership or sales manager down to the sales team – Without accountability no one will own the sales forecast. This requires makes person responsible to make sure the data that is provided is true and accurate with the ability to back up the data with facts. Without the ownership the forecast is most likely not going to provide the proper guidance to prepare for customer demand. This does not mean that the sales manager has to do this alone, an accurate sales forecast requires input from operations as much as the historical data and the feedback from the sales force.
Standardized Sales Process – The entire sales division needs to understand and follow a standard sales process along with understanding the process and purpose of a quote activity report, potential sales prospect, prospect, qualified prospect and closeable prospect these are just a few terms that are required from the sales team. The data from this activity will provide feedback in preparing an accurate forecast. Without this information it would be compared to driving a car forward by looking in the rearview mirror. At some point you’re going to crash.
Sales leaders must make it clear that these requirements are mandatory if you want an accurate sales forecast. Let’s face it an accurate sales forecast will give operations the information they need to meet customer demand and do it profitably. This gives the sales force increased leverage when they are trying to expand market share or keep existing customers satisfied.
Proper forecasting makes the entire supply chain process function smoother which satisfies the customer the suppliers and the individual teams that provide the serve or manufacture products. It is the responsibility of the sales manager to set up a standardized system that present the sales team in the best light giving them a chance to make a good first impression.