The 5 Financial Impacts of Missing Your Next Sales Forecast
Missing the number on your sales forecast puts more than your job on the line. The consequences are felt throughout the rest of the sales team and the organization. If the forecasted number is too high, your company may find itself struggling to keep up with operating expenses or overcommit to plans that depend on that money being available. Shoot too low, and you end up falling behind because you have to deliver more product and everyone is stretched too thin. Here are the five financial impacts of presenting an inaccurate sales forecast.
1. Team Confidence
Nothing is sadder than seeing a sales team after they realized they missed the sales forecast, especially if they come in under expected numbers. Their confidence is shaken, and that impacts every deal that’s in the pipeline. You face a period of decreased productivity, potential missed sales quotas and possible turnover. While you can minimize how long sales reps stay in these phase through strong and supportive leadership, you’re in for a rough few weeks until things pick back up.
2. Resource Allocation
Some companies may think that underestimating a sales forecast is universally a great thing. When you come out slightly higher than expectations, you can sit and be satisfied with a job well done. If it’s too far over, the organization encounters major resource allocation problems.
The sales forecast is used in many areas of the business, from planning inventory to launching new projects. A prediction with artificially elevated numbers means that the expected funding is not in place. The aftermath looks similar to a pile of tipped over dominos. First, one part of the business has to quickly change their plans and cut back on expected resources due to this change, and the ripple effect creates problems everywhere else.
The company could get set back by months on its goals, and neither executives nor other shareholders are pleased with this development.
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3. Shareholder Confidence
Mistakes happen, and most shareholders realize that. A single missed sales forecast is a problem, but sometimes you end up in a situation where everything that could go wrong, does. Big deals are dropped, replacement sales don’t have much traction and nothing you can do can address these last-minute pipeline gaps. The shareholders are unhappy, but they aren’t questioning your abilities yet.<
If you keep presenting sales forecasts that are wildly different from what’s actually coming in, you lose shareholder confidence. They won’t trust anything that you bring to them and it becomes progressively more difficult to get their buy-in on any plans that you offer. It’s much harder to regain someone’s trust after you lose it, especially when the problem happens repeatedly.
You may need to reexamine the method or system that you use for sales forecasting, audit the performance of your sales reps to see if there’s an issue on the front line or determine whether other factors are influencing the accuracy of your report. The most important takeaway from this situation is to avoid it happening again, or at least not for the same reason. You’re not going to look good in front of the shareholders if you show a pattern of missing forecasts, but if you at least demonstrate that you’re addressing the problems as they occur you may have an easier time at the meetings.
4. Hiring and Firing
The reactions to a missed sales forecast can be highly disruptive to your sales team. Executives and shareholders may decide that you need new reps or to fire people who are underperforming. You have fewer resources available during the critical quarter following your missed forecast, whether it’s due to firing rounds or the process of onboarding new sales reps.
Top salespeople may look elsewhere for opportunities if they’re worried that they’re next on the chopping block. Everyone becomes incredibly risk adverse and may lose out on opportunities that would normally be pursued by the team. If you’re lucky enough not to get replaced, you have a lot of hard work ahead of you.
5. Profitable Growth
The company’s growth goals are closely tied to the sales forecast, and missing it in either direction is a devastating blow. Underestimating can often be worse than overestimating this number, as an inability to rapidly scale could cause major damage to the company’s reputation. Customers have to wait a long time to get products they ordered, services fall short of the expected experience and systems are bogged down with too many requests. Profitable growth is slowed down or may reverse itself, depending on how badly the missed forecast affects the organization as a whole.
The last thing that you want is an inaccurate sales forecast. The problems it causes are difficult to address and can be felt for months or years down the road. If you fear that your estimate has gone off the rails and you need a way to recover, start taking an objective look at everything involved in putting it together. You might not be able to save this quarter, but you position yourself to improve your accuracy (and hopefully keep your job) for the next sales forecast.