Have you ever been surprised by your end of quarter sales results? If so, you are not alone. I too have been duped. The initial tendency is ask for more data. More data means more a more accurate sales forecast, right? Not necessarily. Looking at 8 quarters of past results doesn’t tell you more about the current quarter. It simply tells you what happened over the last 2 years. In sales, the past is not a good predictor of the future. Looking further back is not the answer.
The solution is to look at the right type of data. The right type of data is a balance across Lagging, Leading and Behavior Metrics. What are these?
- Lagging Metrics – Metrics that report on the past.
- Leading Metrics – Metrics that report on a possible future.
- Behavior Metrics – Metrics that predict how likely the Leading Metrics are to come true.
Lagging Metrics tell you what already happened. They include things like Average Sales Price (ASP), Revenue, Quota Attainment, Commissions Paid. These metrics are the ones CSOs and CFOs most frequently review. Why? They are the easiest to get. Lagging metrics are typically used to pay commissions. So they have to be tracked and verified. Plus they have already taken place. So they can be trusted to be 100% accurate. At least they should be. Lagging metrics are necessary to report on the business. But not useful in avoiding end of quarter surprises.
Leading Metrics tell you what might happen. They include things like Total Pipeline, Weighted Pipeline, Total Forecast, New Logo Opportunities. These metrics make CSOs and CFOs nervous. Why? They are self-reported by the sales force. They may be verified by sales management during pipeline/forecast reviews. But that doesn’t mean they are clean. If we can’t fully trust them, then why include them here? Because with the next category we can rationalize the error out of them.
Behavior Metrics tell you how much to trust the Leading Metrics. They help you account for the error in Leading Metrics like the Forecast. Behavior Metrics include things like Buyer Activities, Process Adherence, Training Certifications. These metrics may seem like fluff on the surface. But consider looking at your dashboard with 1 week to go in the quarter. You have an opportunity in the Best Case Forecast. That may mean the deal has a 90% chance of closing this quarter. But what if the buyer has not provided redlines on the contract yet? Or worse, the buyer has not interacted with your sales rep in 2 weeks? This is a red flag that the deal is not going to close this quarter. Or take another situation. Say a sales rep has followed the sales process perfectly. As part of that, we have identified the compelling event. The buyer will be fined $1M if they do not complete the purchase by the end of the quarter. We can have confidence in this deal.
As CSO or CFO, don’t let yourself get surprised this quarter. Think through the scenarios where you were burned in the past. Jot down the Lagging, Leading and Behavior Metrics that would have prevented that. Take these to your Sales Ops leader. Request they be incorporated in your dashboard. You will likely be faced with some healthy ideas on the best way to gather the data. If you get stuck, drop me a comment.
You will know you are tracking the right metrics when the surprises go away.
And while you are at it be sure to subscribe to the SBI Podcast. Each week we showcase a case study on how your peers are solving problems just like the end of quarter surprise.