If you think you have trouble forecasting accurately and need to overhaul your sales forecasting methods, you’re not alone. In fact, “organizations” as powerful as the Congressional Budget Office (CBO) – with all the necessary tools and data at the federal government’s disposal – regularly struggle to produce accurate forecasts. A new report recently released by the nonpartisan CBO suggests that the deficit for this fiscal year, ending on September 30, will fall to about $642 billion, the smallest shortfall since 2008. This is far short of the more than $1 trillion deficit that the CBO initially forecast over a year ago, and about $200 billion lower than what the agency most recently estimated just three months ago. While this turned out to be a benevolent inaccuracy – after all, a $600 billion deficit is a lot more palatable for all than a $1 trillion deficit – this likely still threw the CBO’s budget planning into disarray. While having more money than you expected is certainly better than having less, both our nation’s budget planners and sales managers can benefit from having accurate forecasts.
Your company might not deal in trillions of dollars of government and federal funds. Nevertheless, producing an accurate sales forecast is just as essential as producing an accurate budget forecast is for the CBO.
There are some similarities between the best sales forecasting methods employed by sales managers and the ways that the Congressional Budget Office attempts to both forecast the deficit and bring it down. One critical aspect of sales forecasting is in looking out for your sales forecast killers. These red flags and warning signs can dramatically affect the accuracy of your sales forecast if they are not properly managed. For example, any late random additions – large deals (more than 2x the average deal size) that were randomly added at the last minute of your sales cycle should be flagged as risk and thusly factored into your forecast.
Similarly, most of the $200 billion reduction from their original forecast that the CBO uncovered was largely due to higher-than-expected tax payments from businesses and individuals, along with an increase in payments from mortgage finance companies Fannie Mae and Freddie Mac, according to The New York Times. The CBO noted that they increased their estimates of current-year tax receipts from individuals by $69 billion and from corporations by about $40 billion. The CBO was also able to reduce estimated outlays on Fannie and Freddie by $95 billion at the last minute. These late additions were positive aspects for this fiscal year, but nevertheless dramatically affected the overall accuracy of the forecast. In other years, late additions could bring with them bad news, which would force the CBO to scramble to make up a larger-than-expected deficit for federal coffers.
Beyond forecasting methods, both sales companies and the CBO share similarities in terms of how important an accurate forecast is for both their day-to-day operations and long-term health. For sales managers, accurate data-driven sales forecasts helps them identify early warning signals in the opportunity pipeline while delegating resources more efficiently. If the forecasted pipeline suggests that more reps are needed to sufficiently work these opportunities, managers can hire appropriately. Without such a sales forecast, managers might simply cite aggressive growth goals as the reason for dramatically growing the team, without any data-supported justification for doing so.
The Congressional Budget Office operates in a similar fashion, determining budgetary needs at federal agencies and departments before allocating the appropriate funds. The Treasury noted that the government ran a hefty $113 billion surplus in the tax payment month of April, greater than initially forecasted and giving the country extra breathing room under its debt ceiling – the statutory borrowing limit set by Congress. Going by the initially pessimistic forecast, both Democrats and Republicans might have entered into more heated rounds of negotiations to raise the debt ceiling or slash budgets as necessary, with both parties citing the original $1 trillion deficit figure as justification for doing so. Again, this benevolent inaccuracy could have turned out to be a lot worse had the forecast been wrong in the other direction.
If your sales organization routinely struggles to produce accurate sales forecast, don’t be ashamed – even the Congressional Budget Office can’t get it right (or even close, in this scenario) all the time. However, this doesn’t mean that it’s OK to accept your inaccurate sales forecasting methods. When your sales organization realizes why data-driven sales forecasts are important, can effectively manage forecast killers and has identified the key sales performance metrics that drive the best sales forecasting methods, look for your forecasts to become more accurate. After all, not every organization will have the good fortune of stumbling into benevolent inaccuracies like our good nonpartisan friends at the Congressional Budget Office might.
