You’ve gathered the team.  Working behind the scenes, nearly all of the departments have gathered numbers and reliable data to build a real plan for next year.  The operational guys have built a model outlining current costs and created a methodology for superimposing changes in cost for computers, cars, co-op dollars, phone carriers and utilities.  Marketing has sketched out thoughts on promotions, mailers, events and a couple of really cool shows.  Your HR team has pieced together best estimates on benefits, new hires and potential changes in programs.  Even your product specialists contributed by itemizing new demos and the inventory required  to support a couple of announced new product additions.  Everything is in order — everything but a real-live sales forecast. 

Most Sales Teams Are Poor Forecasters

The sad truth is most salespeople are terrible forecasters.  The very folks who should serve as the eyes and ears of your organization’s future business levels continue to miss the mark on business levels for the coming months.  A trip down memory lane to the Great Recession illustrates the point.  Many salespeople completely missed the magnitude of a massive drop in business coming just a few months away.  Equally important, the same guys also failed  to predict the upturns following these turbulent times.  Both failures created issues for their employers, saddling them with the need to manage inventory levels, cash flows, head counts and a jumble of other variables.

A plethora of reasons exist for this current state of affairs.  First, many sales types have been conditioned to embrace the “sandbaggers or losers” philosophy.  Let’s touch on this.  Over years, many believe they look better to their management team if they start the year off with tales of woe by setting a low goal for the year and then proceed to outpace their goal.   And, while it may feel good to look at monthly numbers which exceed the plan, the practice does nothing for creating an accurate projection or real business conditions.

On the other side of the “sand bagger” equation come the “pie in the sky” projections of those who hope to temporarily gain favor with management by laying out massively aggressive plans at the launch of the New Year.  During the following months, you postpone order dates, excuses bud like flowers in the spring, and by mid-summer everyone realizes the projection was as fake as the creamy center of a snack cake.  Again, not conducive to running a business.   Many times, management simply gives up and resorts to setting their own projections.

Managers without credible feedback from their teams have developed a pseudo-science of forecasting.  The best of these folks carefully consider economic conditions, market dynamics, customer segmentation and their sales team’s strengths in deriving a prognostication. A few others pull information from vendors, add their spin and build a hypothesis for sales levels.  The majority still use the “Davy Crockett Method” — licking their finger, lofting it into the breeze and taking a wild shot. And, based on experience and observations, as much as 20 percent of our industry has simply given up, creating no real projection or plan. Really…

Time to Develop and Exercise Forecasting Skills

Thinking back, I cannot remember attending (or even hearing about) a single distributor training session devoted entirely to forecasting.  Sometimes, someone mentions it in passing as a footnote to some more important issue; but it’s never directly addressed.  This training void seems to have existed since the dawn of time.  This is just a guess, but I suspect accurate forecast data wasn’t really all that important back in our fathers’ time.  Distributor leadership and their sales managers were never exposed to a presentation, plan or process over the course of their entire career.

Times have changed.  Competition quickened.  Our world calls for capturing incremental serial gains and applying them to our natural competitive edge.    Predicting the sales and gross margin growth (or shrinkage) into the future may actually be one of the most critical pieces of data in managing a wholesale operation.  It behooves us to fix the situation.  We’ll break this down into three steps:  1) Learning a process, 2) Implementation and 3) Exercising the skill.

Learning a Process

In my book, The Distributor’s Annual Planning Workbook, we introduced a process called the Who, What, Why Planning model.   And I suggest you consider applying it to your own organization.  Not in the form of an email broadcast to your sales group, but by way of a few minutes of active training.  Trust me, getting people trained is relatively quick and easy.  As we move forward, we’ll discuss more about achieving better results as we manage through the year.

Here are the steps you’ll need to follow:

1)  Provide each salesperson with their customer sales for the past year broken into product categories. 

The best mechanism for this data is a standardized spreadsheet which can later be recalled, manipulated, compared year over year and transferred amongst people.  When employing product specialists, they too should receive the information covering their product or technology groups.  I recommend using specialists to cross-check the product/technology groups under their charge.

As a point of clarification, I would like to state that I prefer product/technology categories over manufacturers because some of the larger suppliers produce products in many categories, and important data detail can be lost in big numbers. 

2) Review top key, target and prospective accounts with the sales team – The Who.

The best projections come from the short list of accounts that represent something like 70 percent of the salesperson’s book of business.  In most instances, this is the top 15 to 20 accounts.  Our experience points to the great value provided when management continues to refocus their team’s attention back to this short list of customers who can really make the difference.  Once this group is recognized, add no more than five target and prospective accounts to the large list.

In most instances, this should be the group of customers your company understands and relates to the best.  It’s our goal to continue to sharpen the focus of our knowledge base around this group.

3) Ask your sellers to estimate future growth or shrinkage by product category at each account – The What. 

Remember our previous discussion; your people are neophytes at this process.  Ask for a baby step and a stretch; the baby step is a sales forecast for the next 60 to 90 days, the stretch is one year.  The premise is to build short-term forecasting skills and then slowly expand the time frame.

You can enter all of these numbers into the spreadsheet.  A side benefit of the plan comes by way of management review later and coaching tools provided by trends in category growth or measures of proactive plans down the road.

4) Ask the salespeople to answer the question – The Why.

Why will the category sales number grow, shrink or remain stable?  Things like one-time projects, new products specified, competitive issues and the customer’s own growth are considered – and do this specifically one account and one product family at a time.

Again, this information is a dynamite tool for expanding the seller’s horizons.  New sellers and a few of those who just don’t get the selling process will struggle with the why question.  Because they don’t really know the customer in detail, their projections will be the worst.

5) Tally each salesperson’s total and combine the information into a companywide forecast.

Based on your data, you will have not only a 60- to 90-day forecast (which should be the most accurate of your planning numbers) but an annual plan.  Chances are the annual plan will be better than anything you have had in the past, but we haven’t finished our work.

Implementing the Process

Early on, we talked about both the “Sandbagger or Loser” and “Pie in the Sky” approaches to forecasting.  Like any other strategically important selling skill, it is our duty as managers to coach and improve our team.  Expect to see the need for tweaks and individual instruction.  But rest easy; sales processes interact with one another.  Improvement in the Who, What, Why Model drives a cornucopia of related results. 

A major example of this phenomenon is demonstrated in the “Why” answers provided by each member of your team.  Reviewing the results will give you an indication of their connection at the customer end.   Answers which revolve around price alone may indicate your salesperson does not fully understand the value they provide to the customer.  No answer or shallow answers could provide an opportunity for the manager to inspect whether the seller is providing solutions or transacting paperwork. 

Each new quarter brings an opportunity to complete a mini-cycle of the Who, What, Why process.  And it provides an opportunity to measure for accuracy.  Looking back into the previous months, measure salespeople against their ability to predict major customer events.  For instance, if a customer announces a lofty expansion two months into a forecasting cycle, and the salesperson completely missed it, one might wonder if they are interacting with the top brass of the customer. 

Exercising Forecasting Skills

As you’ve seen in the previous section, we are not only forecasting each December for the coming year, we are exercising your forecasting muscles on a quarterly basis.  Each successive iteration provides us with coaching points which interact with other selling skills and better data for running our business.

Trust me, your sales team will grumble and push back.  They’ll come up with some really compelling arguments for discontinuing the work.  For people who would naturally be considered “the harbingers of customer change,” they are slow to embrace any kind of practice, procedure or process which holds them accountable for company-centric data.  But I implore you to build accountability and metrics into your system.  Accurate data and analytics are the key to future success.

A Word on this Forecasting Analytics Thing

 Think about the ability to predict the future.  Consider becoming increasingly accurate in your predictions.  Visualize what could happen if your company aligned strategic investment with market growth.  Project the competitive advantage of outperforming the competition at each fluctuation of the economy.  Enough dreaming; join me in committing to build this strength.