In my experience, sales forecasts and actual sales have little correlation. This topic came up recently as several colleagues, and I discussed what appears to be a panic push for more sales activity from the sales team. The trouble is, many are still clinging to the old model of sales, and most of us agreed that the model doesn’t work anymore. Which, of course, leads to even more disparity in Forecast Sales versus Actual Sales numbers.
“Sales estimates are totally uncorrelated to actual sales — some drugs that were correctly predicted to be successful had their sales underestimated by up to 22 times.”
I characterize my days in forecasting sales as up and down as far as my attitude was concerned. Depending on the leadership team, we either were allowed to make our forecasts from the bottom up or (more frustratingly) we went through the bottom-up forecast only to be given numbers that came from the top down — presumably to support budgets somewhere. The stories I’m hearing suggest that some of the same issues exist today. Why?
Range or Confidence Level
As I’ve said elsewhere in this blog, a sales forecast should not be a single number, but rather a range from low estimate to high estimate. Or at least a confidence number should accompany the forecast — We believe there is an 80% chance of achieving $200 MM in this region and a 50% chance of reaching $225 MM. Frankly, I think we waste much time on forecasts and that we could put the time to better use in our organizations.
I agree that goals make sense, but why waste time? If we want to see 10% growth this coming year, well, then, that’s the target—no fuss, no muss, no wasted time. Just declare that to be the target and go for it. Whom do we think we are kidding with all this forecasting? I love the phrase coined by Taleb, “Epistemic Arrogance” —literally, human hubris concerning the limits of our knowledge. Epistemic arrogance was exacerbated when our use of spreadsheets became ubiquitous. It’s on a computer, in a complicated spreadsheet model, it came up with a number and some graphs, and we put that information into a fancy PowerPoint presentation. Must be gospel, eh?
Now, the last time I was involved in formal forecasting was back in about 2000. What do you suppose 9/11/2001 did to our forecasts? How much more complicated is our world some 15 years later? Do we think we can provide any meaningful look into the future? And this isn’t just a problem for sales forecasting. It is a challenge for ANY forecasting. If we are going to forecast, we should at least take into account our own and our organization’s epistemic arrogance. If we did so, I’m about 80% confident that a confidence factor would accompany every forecast!
[Reformatted 9/2020 for our new website.]