If you don’t agree, consider this:
The Institute of Business Forecasting and Planning reports the error rate is between 16%-28% forecasting one month ahead. The error rate 3 months out is over 50%.
Reveal how to spot a sales problem before it happens. Preventing a revenue shortfall is why you forecast. Otherwise, what’s the point? Below is a sneak peek of a solution.
The Customer Health Method
Is your revenue growth with a customer the same, better, or worse than the customer’s revenue growth? The better your customers are doing in their business, the better you will do with them. When your customers succeed, they have more funds to purchase more of your products. When your customers struggle, they have fewer funds to purchase your products. This is simple. I know. The best ideas usually are. Have you cross referenced the revenue growth of your customers with your sales forecast? Give it a try.
Here is a semiconductor company example to illustrate:
What does this reveal?
- This semiconductor’s top customer is in trouble. Revenue is declining 6.9%. Yet, this chip company grew revenue from them 57%. This is a future sales problem. Sales growth is unsustainable.
- In contrast, the customer performing the best grew 26%. Yet, this chip company is decreasing its revenue with them by 12%. This customer must be increasing its spend with a competitor.
It is possible to grow revenues from customers who are struggling. Maybe your offering is what these companies need to turn things around. But, how sustainable is this source of growth? Companies that struggle will make changes to fix the business. These changes might put your revenue with them in jeopardy. Maybe they sell the company. Maybe they change out management. Maybe they exit a market segment. Each of which could eliminate the need for your products. This type of revenue is unstable. Shaky revenue sources turn into non-forecasted sales problems, and unhappy CEOs.
The impact is severe. A CEO ignorant of this issue is at ease. He thinks everything is fine. The VP of Sales is putting up big numbers at the moment. All is good.
Then, kaflooey, the bomb goes off. The top customers stop buying. The CEO runs into the sales leader’s office and asks, “WTF?” The sales leader looks at fancy dashboards. He calls the reps. He checks the probability %’s assigned to the forecast. No one saw it coming. The CEO goes from hero to goat overnight.
Don’t let this happen to you.
The alternative to the above nightmare is The Account Attractiveness Score. This is a job aide used to execute The Customer Health Method. Get this tool for free. An example of its use:
The purpose of this tool is to assess the health of your customers. Using it is simple. Determine rating criteria to assess customer health. List them on the left. Apply a score of 0-10. Define the scoring rules. In this example, if “future growth” is greater than 30% it gets a 7-10. And so it goes. Lastly, weight each criteria. Here “future growth” and “potential profit” are heavily weighted.
The goal is to spot a sales problem before it happens.
Is there more to it?
There is more to this. You might be wondering what to do if the top customer is in trouble. A common question is: “Should I invest in up sell activities?” Sometimes I get asked: “Should I put the account on autopilot?” Last week, a CEO asked me: “Should I pull the rep off of the account?” His sales leader suggested they put her on the next great account. A blog post cannot do this subject justice. My goal is to introduce you to the idea.
Deloitte Consulting believes in it. Rick Roth, leader of their Global Benchmarking Center, read our book, and said:
“I have spent 20 years building benchmarking businesses for KPMG, The Hackett Group and Deloitte Consulting. Many Fortune 100 executives have benchmarked finance, information technology, human resources and procurement. It is now time to benchmark sales productivity. Read Making the Number, by Sales Benchmark Index, to learn how to unlock hidden opportunities to accelerate revenue growth and reduce selling expenses.”