Sales forecasting is the map of estimated sales performance, revenue, and expenses that guide a sales organization in their planning processes. Having an accurate sales forecast is crucial to driving revenue, growth, and profitability. The most successful companies are consistently looking for ways to increase sales forecasting accuracy, reduce inefficiencies, and maximize ROI in order to stay on track to hit goals.
So what does forecasting look like for the average company in today's increasingly competitive business landscape?
Sales Forecasting Accuracy in Today's World
The majority of businesses conduct their sales forecasting manually. In fact more than 75% of organizations rely on spreadsheets to manage their planning and forecasting functions. Typically, companies compile data continuously, tracking it down from various spreadsheets, and analyzing at the end of each quarter—often only to discover that due to unforeseen circumstances, sales forecasting is off, and your team is not on track to reach key goals.
There are three problems that accompany this all-too-common scenario:
- Inefficient processes: Your finance and compensation administration team wastes upwards of 5+ excess hours on data retrieval and spreadsheet entry each month. Not to mention, they spend additional time correcting miscalculated commissions, increasing overall payout times.
- Inaccurate data: After the data is organized, you can't guarantee it's accurate, especially when 80% of spreadsheets contain errors, according to research. Plus, incorrect data means your reps may be paid inaccurately, causing its own set of problems.
- Misaligned forecasting and sales planning: Because your sales and finance teams are gathering data from multiple sources, there's no data consistency. Ultimately, your forecasting and planning will be misaligned from the start, and you'll be unable to adjust proactively and identify major problems only after they have already wreaked havoc.
So what can you do to ensure data and sales forecasting accuracy? Better yet, is there a way to achieve forecasting accuracy and ensure data integrity that allows you to proactively identify performance problems before they become catastrophic?
How to Increase Sales Forecasting Accuracy
In short, yes—there is a way to maintain accuracy and proactively adjust planning and forecasting to stay on track to hit goals—a sales performance management (SPM) platform. So what exactly is SPM? Sales Performance Management platforms enable organizations to utilize their data more effectively to create stronger sales plans and increase forecasting accuracy.
A recent CFO Alliance study concurs that ultimately, SPM solutions effectively solve the three common data-derived problems by helping companies:
- Reduce data entry and retrieval time up to 70%
- Ensure 99% data and compensation payment accuracy
- Identify potential problems earlier and implement corrective action
Implementing an SPM solution is at the most basic level a two-step process. First, you need to gather all of your data sources and compile them to create a single source of truth for everyone in your organization to access. Second, you need to take your centralized data and automate processes. This usually begins with automated incentive compensation management (ICM) and ultimately grows to include automation of sales planning, forecasting, and other employee management operations.
Ensuring Data Accuracy
Most companies house their data in a variety of places—most commonly multiple spreadsheets and homegrown systems. Poorly-handled data creates a bit of a mess. When handled well, data can help ensure sales forecasting accuracy and give you a better picture of where your company stands.
How does SPM change this?
When handled exceptionally, data creates a single sources of truth. This ensures every person in your organization accesses the same data, regardless of how they are using it. In addition, you can drive alignment with sales and adjust plans and forecasting together—because you analyze the same data and are on the same page.
Accurate data and automated processes can also help your team manage commission accounting and cost capitalization under ASC 606 more efficiently.
Automation of Processes
Sales compensation and performance data is the basis for your organization's sales planning and forecasting. These processes should be seamless, efficient, and result in accurate plans and forecasts in order for your organization to succeed. Manual planning and forecasting create longer planning times, inaccurate plans, and worst, misalignment betweens your sales and finance teams.
How does SPM change this?
SPM allows you to use your data more effectively to plan and forecast. By pulling from your centralized data, SPM platforms help you model plans, design balanced sales territories, automatically calculate commissions, and continuously analyze and optimize—which ultimately helps increase sales forecasting accuracy.
How Automation Benefits Your Entire Organization
Mutual Success for Sales and Finance
The strongest companies have successfully aligned their sales and finance teams, and the right SPM tools can make bridging this gap much easier. Automated SPM technology gives both sales and finance leaders deeper visibility, accelerated time to information, and access to real-time data.
Furthermore, deeper visibility into performance and pipeline data gives both sales and finance more insight to identify the right prospects earlier. This creates a stronger sales pipeline, and gives everyone a better picture of what’s closing in a given quarter. When sales and finance are on the same page, everyone is better informed. SPM solutions feed data directly into finance systems, so information can be analyzed and shared exponentially faster than before.
In addition, access to real-time data allows finance leaders to quickly monitor and measure sales performance and proactively adjust forecasting and compensation plans, increasing business agility and decision-making timeliness. This makes sales forecasting accuracy easier to achieve and is ultimately a benefit to both teams.
Fewer Surprises = Greater Goal Attainment
Finance needs accurate information to ensure sales forecasting accuracy. Overestimating or underestimating revenue goals or commission expenses can halt progress towards company goals. Fortunately, SPM solutions help leaders gather this data easily and paint a better picture of what’s to come.
Because compensation includes variable pay, you can’t be 100 percent sure how much you’ll need to plan for. Better visibility into the sales pipeline allows finance leaders to compare data to previous years and make a well-educated projection for the future.
As you go through the course of the year, you can access immediate insights into the cost of accruals, see what’s truly in queue in the pipeline, and determine if compensation payments are on target with goals. With fewer financial surprises, leaders can trust their forecast is accurate, improve decision-making, and reduce risks.
Getting Started with SPM
Ultimately, sales and finance leaders should be able to trust their numbers. With more confidence in data accuracy, companies can use their sales data to forecast accurately and strategically. Xactly helps organizations use their data more effectively to unleash the power of their sales force’s potential.
You’ve got your data—now you just need to harness its power and unleash it. Discover more ways SPM solutions can help each leader in your organization in our SPM Workbook.