CFOs Need to Play a Key Role in Sales Forecasting

Salespeople can be notorious for making overly optimistic sales forecasts that can result in a number of negative outcomes for the company.  CFOs need to play a key role in the sales forecast process to ensure that the methodologies and disciplines lead to sales forecasts that enable timely and value-add decision making. The CFO who partners with the sales leader to implement sound sales forecasting disciplines adds value across the company.

Companies with steady customers or recurring revenues can forecast ongoing sales with a high level of accuracy using actual historical sales activity.  However, high-growth, fast-changing companies, or those with long sales cycles, cannot simply use history results for a forward forecast.  Instead these companies must utilize forecasting techniques that rely more on predictive analysis. In these environments, estimates of both the timing and probability of revenue generation are crucial to forecast accuracy.

Many companies approach sales forecasting by ignoring the sales department forecasted expectations and instead manage the business on more conservative, historical data and estimates. While this approach can avoid the risks of overly optimistic forecasts, another unintended result can be a slower sales growth trajectory as real opportunities for growth are underfunded.

CFOs need to play a key role in the sales forecasting process by being an active partner with the sales leaders and participating in the sales forecasting process rather than as a passive recipient of sales-department projections.  The key to more accurate sales forecasts is examining the drivers of sales which are the set of activities that precedes results. CFOs need to ensure that the pipeline-measurement processes utilized identify those drivers, and measure their results. There also needs to be a continuous comparison of actual versus forecasted results to determine any weaknesses in the sales forecast process and to instill a focus on continuous improvements.  This type of discipline leads to a solid platform across the company for planning future sales activities and accounting for the revenues they will produce.

CFOs who are active in the sales process do not simply demand timely and accurate forecasts form the sales leaders.  Successful sales leaders will always focus their energies first and foremost on selling and motivating their sales teams.  CFOs should enable sales leaders to focus their efforts on the tasks that create sales, not on keeping CFOs happy.  CFOs need to be coaches and partners to the sales leaders to assist in building ongoing accurate sales forecasts. CFOs who are successful partners with the business units, including sales, extend helping hands knowing that this role will become a permanent part of the CFO function for the overall betterment of the company.

Sales forecasting can be a “bottoms up” approach which measures prospecting activities in relation to actual sales recognized.  This process can track such activities as e-mails, sales calls, customer visits, and proposals — that move prospects along the sales pipeline, or funnel.  More of the right activities at the top of the funnel should generate greater sales at the bottom.  Documenting and measuring activities can increase the ability to forecast the results of more of the right activity as related to prospective sales. For example if data shows that 25% of prospects that make it through a product demo became customers within 60 days, then increasing the number of product demos to qualified leads should lead to increased sales.

Another popular method for sales forecasting is to assign probabilities to each prospective close based on a pattern of prospect activity.  For example, data shows that when the buyer’s purchasing leader gets involved with the process, 30% of those prospects buy within eight weeks.  Therefore, a prospective sale that is at this stage would be assigned a 30% close probability.  The overall forecast lists all real prospects in the pipeline, categorized by measurable sales action, and the gross value of each potential deal is reduced to the expected value based on the probability % to closing. Regardless of the methodology, sales forecasts work best when the sales team has been using a tried-and-true sales process and has been measuring outcomes over a meaningful period of time.

Along with deriving more accurate sales and revenue forecast, a well-disciplined sales forecasting process focuses the sales team on activities that will generate sales in a more predictable manner. The act of measuring and delineating sales drivers should result in increased revenue and sales process efficiencies.  Also, the sales metrics are now in the hands of the CFO, who, in partnership with the sales director, can accelerate the behaviors that drive those sales revenues.

Progressive CFOs understand that they need to be a critical ally and partner for sales leaders and lead the way in developing and implementing sales forecasting processes to drive value across organizations.  With such partnerships in place, companies will significantly increase their ability to achieve their revenue forecasts, which enable companies to better manage overall business plans. Harvest CFOs understand the importance of partnering with sales leaders and other key function areas to enable overall company success.

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