We are approaching this time of the year when companies start preparing their sales forecasts for the next year, based on which they will decide on the ways to be prepared for this forecast realization with investments, people, capacities etc.
There are so many difficulties and challenges the forecast based process creates for companies; from the innate inaccuracy of forecast, through the incentive the sales organization has to forecast low (so targets are met and bonuses paid) and up to the disbelief of many functions within the organization that the forecast will actually be realized.
I believe that the biggest challenge of all that the forecast based process yields is the profound, yet hidden, sense of irresponsibility. A forecast of sales has an assumption that is not clearly verbalized – the assumption is – sales growth is a result that is almost totally dependent on external forces. Sales growth is a result of what will happen in the market in the period of the forecast. And more than that it says – we have almost no control on that.
Therefore so many companies assume their sales growth will be about the expected rate of growth of their market. And, of course, if a market downturn is expected, most companies expect that their sales will suffer as well. BUT, if a company’s market share is small enough, why would this be the case? If your market share is 2% and the market is expected to grow by 10% or shrink by 50%, why would it have any effect on your sales?
One obvious reason is that a company does not have a competitive advantage, and thus has no reason to believe it can perform better than it market performance. I wrote a few posts on that subject and you are invited to revisit these posts. Yet, there is another possible contributor to that – how is the company planning on realizing it’s growth objectives. And here comes this immense challenge of forecasting – sense of “out of control”. It is time for you to assume control and ownership over your company’s growth. Stop forecasting, start planning.
How do you do that? Well, it is simple – which in turn promises to be a hard task. You start with setting your growth objectives, not for the coming year, do it at least for the next 3-5 years. Choose BOLD objectives, something that will excite your people, be perceived to be extremely hard yet not impossible.
Take each year objective and prepare a sales plan – What are your sources for realizing these objectives – products/ services, markets and most importantly WHY will you be able to realize these targets (meaning why would you be able to grow sales more than the “natural” market trends). Defining these “whys” will allow you, in the future to monitor your performance and make necessary course corrections when some of these assumption will turn out to be erroneous. Make a good, solid plan of sales and then based on that plan all other supporting activities. Document, especially all of your assumptions as you drill down from sales objectives to actions. This is the base for progress monitoring, course corrections and outperforming your plan.
Make the plan with your top management and then communicate with the rest of the people in your organization – make it exciting and build the trust in achieving it.
Sales growth should not be out of your control, it has nothing to do with forecasts it has everything to do with good planning and diligent execution. You can still use forecast for strategic look at trends that may affect the validity of your market offerings.
Forecast is a way for us to avoid accountability – if the results are not achieved it is because of the innate inaccuracy of the forecast. Abandon this method, assume accountability and ownership to find out that Einstein was correct – we are only constrained by our imagination and with the appropriate attitude any target is possible.