Article
The Complete Guide to Sales Forecasting and Pipeline Management
RAIN Group
Quoted on this wiki
Every place a page here uses this source, in the order the words come in it.
In other words, there are too many opportunities in the pipeline that sellers report are active and strong, but are, in fact, unlikely to close, or unlikely to close at the rate opportunities at that pipeline stage typically close. With manager stress testing, pipelines can be freed of dead wood. Sometimes sellers don’t overestimate their pipeline because they’re posturing or sandbagging. Instead, they have what we call “happy ears”: they hear some buying signals from a prospect and become too confident too quickly about the opportunity, but they haven’t qualified the opportunity or gotten into enough detail to know how real (or not) the opportunity is. In other cases, sellers don’t want deals in their pipelines to be thoroughly vetted, or they don’t want their opportunities to seem to close at too low a rate, so they don’t put them into their pipelines at all. When this happens, sales wins will sometimes seem to appear out of thin air, when, in fact, a seller has been working on them for a while but didn’t add them or move them through the CRM. This can make it impossible to manage or forecast. If, however, you know how to stress test a pipeline and watch out for these patterns and challenges with consistency and rigor, you’ll avoid many of these pipeline management and forecasting pitfalls—and have a consistent and defensible forecast that comes in as accurately as it can. When you do, it’ll benefit your company, your sellers, and you. How to Stress Test a Sales Pipeline A sales forecast is the estimate of future revenue in a given time period of your team. For a forecast to be as accurate as it can be, each seller’s pipeline needs to be accurate. Sales pipeline management is a way to track opportunities that are actively in the process of considering buying. “Confirm the most likely revenue size of the initial contract value of the opportunity.” For pipeline stress testing, we leave off prospecting as it makes sense typically to focus inspection efforts on opportunities that have made it at least to the needs discovery stage. Each stage will have “stage gates,” or items that need to be confirmed before an opportunity can move to the next stage. Every company’s stage gates will be different, but this generic example will give you the idea. Additionally, there are actions across the opportunity that happen as early as needs discovery, but that can happen later or evolve throughout the selling process. Sellers must confirm and update these as they happen. Here’s the same pipeline, viewed through the lens of the buyer: The points here are designed to identify what the seller can confirm, or what the buyer has verified, throughout the opportunity. We recommend stress testing the pipeline through the lens of the buyer verifications, not the stage gates, but we know that not every sales organization has these, so either the stage gates or the buyer verifications will do. And if you have neither, keep reading for a list of standard opportunity stress test questions to ask. For the opportunity you’re stress testing, review the stage gates or buyer verifications and ask the seller the status. For example, has the buyer: Expressed explicit need? Stated a compelling reason to move forward? Confirmed satisfaction with your needs discovery? Shared their buying process? You might wonder why we include “satisfaction with needs discovery.” In our research, buyers have told us that when they speak to sellers, they have very mixed reviews of how those first meetings go. When these meetings go poorly, sellers often don’t realize it. But when the meetings go well, buyers often tell the sellers something like, “I’ve spoken to a few vendors, and this has been a great needs discovery conversation in comparison. You really seem to get what we’re trying to achieve.”
The three primary reasons why forecasting and pipeline management are important are: Planning: Company growth plans, spending plans, inventory purchases, and investment plans are often decided based on revenue estimates, which largely roll up from sales manager forecast reports. Targeting: Company owners and stockholders typically hold executive leaders accountable for reaching revenue targets, and these leaders similarly hold sales managers accountable. Agility: For sales managers specifically, if you don’t know where your sellers’ pipelines are, and you fall behind, you can’t adjust during the year to change plans and influence seller activities to get back on track. What Is Sales Forecasting? Sales Forecasting Defined:Forecastingis the process of estimating future revenue in a given time period by predicting the sales revenue from your team. What Is Sales Pipeline Management? Sales Pipeline Management Defined:Sales pipeline management is a way to track opportunities that are actively in the process of considering buying. Top-Performing Sales Managers are 52% more likely to excel at planning and analyzing how sellers should manage their pipelines, according to a study conducted by the RAIN Group Center for Sales Research. When sales managers do this, they can more accurately forecast for themselves and their team. In ourTop-Performing Sales Manager model, which identifies the core roles that sales managers need to perform, Performance Management is next to Pipeline and Forecasting. This is deliberate as they go hand-in-hand. When sales managers have a sense of how strong a seller’s pipeline is, and they’re confident in how much each seller on their team is likely to sell, they can manage seller performance and adjust actions accordingly based on whether the seller is behind or ahead of target. What Are the Different Types of Sales Forecasting? Pipelines and forecasts are typically looked at over the course of quarters or a year. “Analyze and estimate new business that might come from accounts in the form of renewals, repeat business, or growth.” However, this data can be incomplete, inconsistent, or outdated, leading to inaccurate forecasts. For example, sometimes sellers or others involved in the process have personal agendas and styles that can lead to sandbagging: under-estimating likely incoming sales so they can seem to come out ahead, or over-estimating incoming sales, which can leave sales managers far behind when these sales don’t materialize, especially if the managers find out too late. Market volatility: Sales managers must contend with constantly changing market conditions, such as changes in customer demand, competitor activity, or economic fluctuations, making it difficult to accurately predict future sales. People factors:Sales forecasting is also influenced by the actions and decisions of individuals, such as salespeople, buyers, and executives. Changes in leadership, employee turnover, or unexpected buyer behavior can significantly impact sales forecasts. Limited resources: Sales managers may face limitations in terms of the resources they have available to conduct forecasting. Limited access to data, technology, or expertise can make it challenging to develop accurate forecasts. Resistance to change: Sales managers may encounter resistance to the forecasting process from their team members. Some sellers may view forecasting as a burden or may not fully understand its importance, leading to incomplete or inaccurate data collection. You need to be aware of the challenges involved in the process so you can address them where possible, and approach your forecasting and pipeline management activities in ways that help you achieve better outcomes and more accurate results. How Do You Accurately Forecast Sales? When pipelines aren't reviewed and stress tested on a regular basis by a sales manager, the pipeline can be full of dead wood.
The three primary reasons why forecasting and pipeline management are important are: Planning: Company growth plans, spending plans, inventory purchases, and investment plans are often decided based on revenue estimates, which largely roll up from sales manager forecast reports. Targeting: Company owners and stockholders typically hold executive leaders accountable for reaching revenue targets, and these leaders similarly hold sales managers accountable. Agility: For sales managers specifically, if you don’t know where your sellers’ pipelines are, and you fall behind, you can’t adjust during the year to change plans and influence seller activities to get back on track. What Is Sales Forecasting? Sales Forecasting Defined:Forecastingis the process of estimating future revenue in a given time period by predicting the sales revenue from your team. What Is Sales Pipeline Management? Sales Pipeline Management Defined:Sales pipeline management is a way to track opportunities that are actively in the process of considering buying. Top-Performing Sales Managers are 52% more likely to excel at planning and analyzing how sellers should manage their pipelines, according to a study conducted by the RAIN Group Center for Sales Research. When sales managers do this, they can more accurately forecast for themselves and their team. In ourTop-Performing Sales Manager model, which identifies the core roles that sales managers need to perform, Performance Management is next to Pipeline and Forecasting. This is deliberate as they go hand-in-hand. When sales managers have a sense of how strong a seller’s pipeline is, and they’re confident in how much each seller on their team is likely to sell, they can manage seller performance and adjust actions accordingly based on whether the seller is behind or ahead of target. What Are the Different Types of Sales Forecasting? Pipelines and forecasts are typically looked at over the course of quarters or a year. “This will give you a gap, which is the number of sales you likely need to generate from new sources, like sellerprospecting, inbound leads, referrals, or some other source.” However, this data can be incomplete, inconsistent, or outdated, leading to inaccurate forecasts. For example, sometimes sellers or others involved in the process have personal agendas and styles that can lead to sandbagging: under-estimating likely incoming sales so they can seem to come out ahead, or over-estimating incoming sales, which can leave sales managers far behind when these sales don’t materialize, especially if the managers find out too late. Market volatility: Sales managers must contend with constantly changing market conditions, such as changes in customer demand, competitor activity, or economic fluctuations, making it difficult to accurately predict future sales. People factors:Sales forecasting is also influenced by the actions and decisions of individuals, such as salespeople, buyers, and executives. Changes in leadership, employee turnover, or unexpected buyer behavior can significantly impact sales forecasts. Limited resources: Sales managers may face limitations in terms of the resources they have available to conduct forecasting. Limited access to data, technology, or expertise can make it challenging to develop accurate forecasts. Resistance to change: Sales managers may encounter resistance to the forecasting process from their team members. Some sellers may view forecasting as a burden or may not fully understand its importance, leading to incomplete or inaccurate data collection. You need to be aware of the challenges involved in the process so you can address them where possible, and approach your forecasting and pipeline management activities in ways that help you achieve better outcomes and more accurate results. How Do You Accurately Forecast Sales? When pipelines aren't reviewed and stress tested on a regular basis by a sales manager, the pipeline can be full of dead wood.