Sales Forecasting

Aligning Finance and Sales – Deep Dive

This might sound like a trite question but it’s a question that every company should ask itself and it’s a question that the company should be aligned on.

I recently had a guest post on the Base CRM Blog in which I touched on the importance of company alignment around forecasting but I’d like to explore it a little more here.

Everyone knows the sales forecast isn’t going to 100% correct but ensuring that sales is aligned with finance and other stakeholders is key to forecasting success. What do I mean by this? Well to often do we have a CEO who expects 100% accuracy, a CFO who is dramatically under forecasting to be conservative (or doesn’t have all of the information) and a VP Sales who gets a report from their reps saying x and hasn’t dug deep enough into the numbers to truly get behind them. No matter where the forecast comes out this will leave confusion on all sides as all sides will be inherently wrong.

The first step to aligning is aligning around company goals and roles. What is Finance’s role and what is sales role in the forecast and more broadly in the business. If this sounds obvious, it is but having that conversation and getting the results down set a starting point for each conversation you will have in the following months.

Need to align on:

  1. Forecast Methodologies
  2. Forecast Accuracy Goals
  3. Forecast Timelines
  4. Post Mortem Metrics
  5. Monthly Review Process
  6. Forecast Owners

I would suggest the following structure:

Forecast Methodologies
  • Finance – Pipeline Driven Forecast
    • Found most accurate and is a strong basis for forecasting outside of sales cycle.
  • Sales – Rep Driven Forecast
    • Complementary to pipeline forecast and includes qualitative factors that Finance isn’t always aware of.
Forecast Accuracy Goals
  • Both Finance and Sales should be held accountable to 70-80% accurate forecast based on each of their sales segment’s sales cycles.
    • Ex If you have ESB, Mid-Market and Enterprise teams and on average it takes 30, 60 and 180 days to close a deal then that is the timeframe in which both sides should be accurate within.
Forecast Timeline & Timeframes
  • Finance – Forecast Updated Monthly
    • Data driven forecast normally include some version of historical analysis which can be misleading for most business if looked at on shorter then monthly timeframes and can throw off the forecast.
  • Sales – Forecast Updated Bi-Weekly
    • Finance – 12 Month Forecast
      • Should project out as far as board outside reporting requires
    • Sales – Sales Cycle Forecast
    • Sales should be forecasting based on their largest sales segment’s sales cycle. If the biggest sales segment is Enterprise and on average it takes 6 months to close a deal that is where we should see accurate forecasts up to.
    Forecast Metrics
    • Post Mortem metrics are used to determine where the gaps were in the previous months forecast and to ensure both sides are aligned going forward.
      • Compare Sales Forecasts at either deal level and if not forecasting at that level then by sales segment.
      • Determine reasons for variances. I.e. deals were pushed to next month, declined close rates, etc.
    Forecast Owners
    • Ensure dissemination of information to team members both on finance and sales is aligned with the above.
      • Too often we see CFO’s and VP’s become aligned and their team members are not.

    Aligning finance and sales leaders using an accurate forecast will ensure that the business moves forward in a unified direction.

    By providing an accurate, real time sales forecast, TwelveZeros can help align sales and finance teams across any organization. We use both a rep commit model and a set of AI backed algorithms to help accurately forecast sales.