Why Forecasting and Pipeline Management Are (and Should Be) Two Different Things
Jason Jordan, Partner, Vantage Point Performance
Pipeline management and forecasting are both important to a sales force. Consequently, companies invest heavily in specialized technology and tools just to manage these two activities; these might unknowingly be the biggest investments a sales force makes in improving its performance.
There’s just one problem: Pipeline management and forecasting are two different things. In order to enable the healthiest pipelines and most accurate forecast, it’s useful to pull the two apart and to take a unique approach to each. Our research shows that most companies don’t.
The Sales Pipeline Challenge
In our study, we asked members of the sales leadership why they bothered to have a sales pipeline — what was its primary purpose. Ideally, their responses would focus on monitoring sales activities, identifying areas for coaching, and determining how to win more deals. However, the number one reason was none of those. The majority of sales leaders told us their primary use for sales pipelines was to create accurate forecasts. Therein lies the problem; many organizations’ efforts to build healthy pipelines and effective forecasts are sabotaged because they fail to separate the two tasks.
Rough Seas Ahead
Imagine your sales leader is the captain of a ship, and that ship is your sales force. Pipeline management is about getting the ship there and back safely, whereas forecasting is estimating the ship’s time of arrival. Managing the ship and predicting its time of arrival might be equally important tasks for the captain, but they’re unquestionably different.
Unfortunately, most sales forces expend too much energy trying to estimate their arrival. Neglecting the operation of their ships, they often drift off course — sometimes missing their destinations altogether. Do a good job of managing the ship, and you’ll likely arrive on time. But spend all your time watching the horizon, and rough seas could force you to abandon ship.
Distinguishing Pipeline Management and Forecasting
How do you separate these two activities? Or, even more simply, how do you tell them apart? To answer those questions, let’s briefly examine the goals of each task and how to know when you’re achieving them.
The two goals of pipeline management are to build a healthy pipeline and to win more deals, while the only goal of forecasting is to accurately predict future performance. Typically, you step into the realm of forecasting when you begin to make three specific assumptions: the size of a deal, the likelihood you’ll win the deal, and the date you expect it to close. When you say things like, “this $100,000 deal has a 25% likelihood of closing next quarter,” you’re unquestionably forecasting. You’re using three assumptions to estimate when your revenue will arrive. Nailing those assumptions will not make you more likely to win that deal, nor will it make your pipeline any healthier. But it will make your prediction more accurate, and that’s the goal of forecasting.
There’s much more to be said about pipeline management and forecasting. Both are rich topics that require unique strategies, tactics, and analytics to do well. But the first step toward improving them both is to successfully separate them in your minds. Know your goals, know what you’re doing, and you’ll realize better outcomes for both. Learn to manage the ship while still minding the horizon, and you’ll arrive both safely and on time.
To read the complete article, “Why Forecasting and Pipeline Management Are (and Should Be) Two Different Things,” visit Quotable.com.