Is any part of a sales leader’s job more scrutinized than the sales forecast?
Hard to say. But as you put together your sales goals for 2017, I want to propose a radical shift in the way you manage performance: an activity-based forecast.
This forecast comes from the activity-based selling methodology, where you guide day-to-day activities of sales reps to help them close more business. With an activity-based sales forecast, you use those activities as leading indicators of future sales numbers.
Let’s say your sales team produced a solid $10 million in revenue last year, but the CEO needs to increase revenue by 30 percent in 2017. Here’s how to create a proactive sales forecast with activity-based selling.
3 steps to create better forecasts with activity-based selling
1. Calculate your sales quotas.
Determine your revenue goal and assign sales quotas as usual. Use your average deal size to show reps how many deals they need to close.
If your average deal size is $100,000, then you need to close 130 deals.
( $13,000,000 in revenue / $100,000 average deal size = 130 deals )
Most sales managers stop here. They inform reps what result is expected, but don’t tell them how to get there. Reps forge their own way success, and this trial-and-error approach results in a lot of wasted effort.
2. Determine activity goals.
Activity goals guide your reps to closing more business.
Get granular with your conversion rates: On average, how many proposals get sent for a deal to close? How many meetings does it take to get a proposal?
For this example, I’ll use an easy 25 percent conversion rate between each step of the sales process.
130 deals / (.25 conversion rate) = 520 proposals
520 proposals / (.25 conversion rate) = 2080 meetings
2080 meeting / (.25 conversion rate) = 8320 conversations
Your team needs to complete these activities to reach next year’s revenue goal. Divide by the appropriate timeframe and distribute these activity goals among your team members. Each individual rep should have both activity and revenue metrics.
Consider adding cushion to your goal. An extra 15-25 percent to activity numbers can offer an added layer of assurance that you’ll bring in the needed revenue. Just make sure that the activity numbers are still achievable.
3. Monitor and course-correct.
This type of sales forecast ties back to the day-to-day activities of your sales reps. If your team makes less calls one quarter, then you probably won’t hit quota for the next quarter. If reps are making more calls than required, you’ll likely overachieve.
Consider using a sales activity management system to automate activity goal tracking and pacing. Alternatively, provide reps with personal scorecards to track their activities. Monitor them constantly to stay on pace to achieve quota. Course-correct when performance falls behind.
Stop thinking of a sales forecast as a guessing game. That approach creates uncertainty and inefficiency. With activity-based selling, your sales forecast becomes a mathematical certainty.