Sales forecasting takes time, often requires the use of expensive technology tools and is open to errors. While accurate and effective forecasting can aid in planning, a sales manager must consider these potential disadvantages when selecting the right forecasting strategy.
While there are several methods of sales forecasting, the two broad approaches include manual and data-driven processes. In either case, significant time is required to develop forecasts. In a traditional manual system, salespeople prepare their own forecasts by reviewing current accounts and projected sales. Time spent forecasting is less time spent selling. In more contemporary data-driven processes, companies often have marketing, IT and sales staff involved in building a system to collect and analyze data.
Expensive Technology Tools
Manual processes aren't as technology-oriented, but computer tools such as spreadsheets are commonly used. Typical sales organizations also use database software to monitor ongoing relationships with customers. The more data a business collects and analyzes in preparing forecasts, the greater its hardware and software program requirements. Companies sometimes pay licensing fees to software providers for access. If each salesperson has account access to use in managing relationships and preparing forecasts, the bill can get hefty for an organization.
Forecasting is intended to be a realistic projection of anticipated sales and not a depiction of desired sales. The challenge for company marketing and sales reps in preparing forecasts is that internal bias is hard to avoid. Sales reps look better and earn more commission when they achieve high sales goals, for instance. This natural desire to have lofty aspirations can lead to inflated forecasts, according to a May 2013 article by InsightSquared content marketing manager Gareth Goh. When sales forecasts are high, companies may invest too much in inventory and resources in preparation for selling activities.
Subconscious Limits or Sandbagging
On the other hand, when people involved in generating sales develop or hear about sales forecasts, they may unintentionally limit their potential. If a particular rep is projected to generate $200,000 in quarterly sales, for instance, he may decide to slow down a bit if he approaches this target with several weeks left in the quarter. The rep might get comfortable with the idea of exceeding forecasts by a decent amount. Possibly, the salesperson would continue to push for optimized production if he didn't have a sense of what the company expected him to produce in the quarter. Some salespeople also intentionally under forecast as a tactic to benefit from low quotas or bonus thresholds that a company may set to align with the low forecasts.