There are differences between the operational and commercial mindset. The problem many of us demand planners have is not knowing how to speak the language of salespeople, or not providing the right measurements to let them better understand how information is affecting the forecasting process. In this article I distinguish five typical characteristics of salespeople and how these all lend themselves to forecasting bias. I will show you how to ‘speak Sales’ and offer a solution, Forecast Value Add, that will help improve your forecasting process and accuracy.
Problem 1: Sales Are Overly Optimistic
Sales are very optimistic. Fun fact: there are more books on motivation than on sales techniques themselves. They seem perpetually motivated and excited about potential opportunities that they just know will happen. These are great traits and much needed in business but, in demand planning, it manifests itself as over forecasting. One cannot expect accurate forecasts using a gut feeling about the next big sale.
Sales will often consistently over forecast, or talk of the big potential fish but never catch anything
The consequence is a ‘wishcast’ instead of an unbiased forecast. Sales will often consistently over forecast, or talk of the big potential fish but never catch anything.
Prevention: never request a forecast immediately following a product convention or Zig Ziglar motivational seminar. You need to get them away from emotion and provide them a baseline forecast to ground their outlook.
Problem 2: Salespeoples’ Goals Become The Forecast
Whether it’s from reading too much Zig Ziglar or a natural attribute, most salespeople are very goal orientated. This may be hard for salespeople to grasp (and sometime even executives), but goals do not always equal a forecast. Many times, there is a difference between a target and an unbiased demand plan. The problem is either they don’t believe the difference, or they do so much visualizing and hoping for what they want to happen that they actually start believing it.
It’s no coincidence that sales forecasts often exactly equal sales budget, regardless of what results are coming in. Every month the forecast misses or just rolls into future months.
Prevention: explanations of the difference between targets and unconstrained forecasts, and provide a meaningful measurement if they are adding value to the process.
Problem 3: Sales Might Be Smarter Than You Are
Sales are not only Intelligent and cunning – as a matter of fact they are most likely smarter than you are, at least in some respects. Sales has the ability and foresight to create deliberate bias to pad wallets or warehouses. Whilst it takes us multiple iterations and complex algorithms, they can shoot from the hip and get darn close with the extra inventory they want to add or sandbag just enough so as not to arouse suspicion.
You can generally see this one before and after budget by low balling before bonus and increasing right after. Many times, this shows up as well right after stock issues when customers react, and order more than they need, and sales is forecasting that plus even more to drive unneeded inventory.
Prevention: outside of just giving into the charismatic cunning salesperson knowing you can’t beat, try connecting compensation to forecast value add and accuracy.
Carpe diem, or seize the day, seems to be sales moto and attitude. They know what they are selling, who they are selling to, and even birthdates and kids names of their top clients. They don’t know seasonality, cycles, trends, or probability or what is going to happen in the future. Not understanding these things, their reference is what happened yesterday or happening today. When sales are good, tomorrow they will be great and when they had a rough day, sales will be slow until eternity. One clear signal is that the closer to the actual month the demand occurs, the worse their forecast generally gets.
I have seen this in our case where the lag 3 (three-month horizon) forecast was better than the forecast generated one month out. Another characteristic could be they use naive forecasting such as what they did last month or last year, just adding 8%.
Prevention: restrict what they use in forecasting to relevant information and attempt to eliminate most emotion from their forecast by showing the impact of the assumptions that go into the forecast.
Problem 4: Sales Always Be Closing And Never Forecasting
The last trait of sales is they follow the ABC’s of selling (always be closing), and unfortunately none of the rules of forecasting. But equally, I don’t want them spending hours of time recreating bottoms up forecast and paperwork when they could be adding revenue through closing a sale. But we do need them to engage and at least understand how a forecast works and their role in creating it.
Identifying this is sometimes much more difficult to detect because where other biases are conspiracy, this is complacency. It’s usually manifest in not showing up for meetings at all, or coming to meetings with little or no meaningful information.
Prevention: get them involved, provide meaning in what they provide, let them have a stake in the outcome, and most of all, keep it simple.
Forecast Value Added Helps Sales Know How They Contribute To Forecast Accuracy
Forecast Value Added (FVA%) is a tool that can help with all of these and bridge the communication gap between sales and demand planning. FVA can be defined as “The change in a performance metric that can be attributed to a particular step or participant in the forecasting process.” In sales speak, it is simply a case of did they help and add value. In other words, did their activity or involvement improve the forecast or did the information or process negatively impact the forecast.
This is done by measuring the forecast off the baseline, naive, or statistical against actuals and then also measuring the sales inputs, changes in forecast, or consensus forecast against the actuals and looking at the deltas. Looking at the forecast before and after any input or step adds visibility into the inputs and provides a better understanding of the sources that contributed to the forecast, so one can manage their impact on the forecast properly.
It also serves as an effective Sales training tool. What we want to know is what we don’t know, so we can make minor inputs or overrides into the forecast, either up or down, from our baseline prediction. The sales training tool comes in the FVA as a feedback loop to those inputs to help identify what inputs work or don’t work, and the scale of adjustments needed to create value in the forecasting process.
Translating this to sales:
Optimistic – Filters emotion and gives pause to over optimism and they learn to affect the needle.
Goal orientated – Sets understandable, visual, and achievable forecasting targets for success
Intelligent & cunning – Rewards based on added value to the forecast process
Carpe diem– Provides a baseline and opportunity for relevant contributions and they learn what impacts the future
Follows the ABC’s of selling – Can streamline the process, helping them to get back to selling quicker
One additional characteristic I failed to mention is that most salespeople are highly competitive. FVA actually can be used in this case as a score card as well and motivation for better and timely inputs. In my company, we have posted the FVA scores publicly, driving the sales team to compete against each other and try to be the one that provides the most value. In addition, if nothing else, providing the FVA means the salesperson is most likely dying to beat the nerdy person in the corner cube that uses a mysterious black box to crank out a forecast – and they do not want to lose to that.