3 Steps for Aligning Sales and Finance Forecasts

In most organizations both finance and sales use complementary methodologies for forecasting out the company’s future bookings. But let me know if this sounds familiar:

Sales: “Forecasted sales for next month are going to be $1M.”
Finance: “The pipeline shows that sales are only going to be $500k!”

A back and forth ensues to determine who’s correct and hours are spent to come to the conclusion that the forecast lies somewhere in between.

This is consistent across most organizations and it’s obvious that the truth of forecasting lies somewhere in between what finance knows and sales knows. In the majority of cases, sales is over-forecasting because of some additional factors like sales goals that they “have” to hit, while finance is under-forecasting as historical information hasn’t caught up to the new initiatives from the sales team.

In this post we will explore how communication and the proper sales tools can create a strong synergy between sales and finance, yielding increased visibility and accountability within your company’s forecasts.

Disclaimer: I live and breath finance, so I will try to keep my biases under control!

Step 1: Align Expectations

The first step to syncing sales and finance is to align expectations around the results you are looking to achieve with your bookings forecast. If expectations have been set at 100% accuracy over the next twelve months, then it might be time to have a sit down to realign.

For example, a company’s accuracy expectations should be limited to its sales cycle, so if your sales cycle is 3 months, then you should be 70-90% accurate up through that quarter. Any forecasts outside of that cycle should be viewed as an opportunity for change, not as a foregone conclusion.

Here is where sales and finance have the opportunity to sit together and change the business by adding headcount, realigning outbound campaigns, improving data integrity within the CRM, boosting efficiencies, etc. In aligning expectations you must make sure boths sides understand how the other is getting to its forecasts and are bought into the methodologies as two sides of the same coin.

Step 2: Choose Your Forecasting Method

To make the above possible, you need to engage with a sales tool where you can extract matching datasets for both the finance and sales methodologies, ensuring alignment at the end of the process.

In my experience, sales leaders traditionally forecast the business through Rep-Based Forecasting Methodology. Using this method, managers meet with reps to go over the deals in their pipe and determine close likelihood and timeframe. This gets consolidated until you have a complete view of the company.

While custom CRM fields can help streamline this process, they can also be tough to manage. Base takes a refreshing approach to deal scoring by automating it through the scoring module in the admin settings, along with providing an accurate forecast close likelihood through an internal algorithm.

Understanding rep activity reporting through an all-in-one tool where e-mail, phone, and text are all captured within the system is also vital for accurate and complete sales forecasts.

On the finance side, the methodology I have seen to be the most accurate and provide sales leaders with the most visibility is also one of the most simple, which is the Pipeline Methodology. The formula for this method is as follows: Pipeline * Sales Cycle * Close Rates = Bookings Forecast.

And without going into too much detail, we can extend the forecast past our sales cycle by adding another component to the formula, which is New Pipeline Generated each month. Base actually provides each of the variables needed to run this methodology through its reporting functionality.

Having a single, accurate source of truth is vital to both creating the forecasts and the ability to bridge the gap between what finance knows and sales knows. Once your company is aligned on forecast expectations and methodologies, the last step is to ensure communication, consistency and accountability on both sides.

Step 3: Streamline Communication

Communication is the most important piece of this entire process, and without it you will end up with two siloed departments at odds with one another. Every business is different, but they all have one thing in common: the sales team is better at selling and the finance team is better at financing (mmm… that’s not right).

Either way, in all cases, sales is lacking pieces of information that finance has and finance is lacking pieces of information that sales has. To ensure effective communication, a simple monthly meeting in which half the time is spent doing a post mortem of the previous month and half is spent planning for future months is key.

Some months might seem repetitive as large changes don’t necessarily happen that quickly, but consistency is key here. Without consistent meetings both parties will miss out on time-sensitive opportunities, either for improvement within the process, efficiencies within the business or, more importantly, opportunities for top line growth.

These meetings should be structured to create accountability on both sides while fostering a relationship in which finance and sales feel like one strong team instead of two siloed departments. This means that both sides need to be prepared, viewed as peers, have the same opportunity to converse, etc. And of course, always keeping in mind that both sides are working towards the same goals!

For more insight into how to improve your sales forecast accuracy, download this free resource: How to Eliminate Sales Forecasting Fallacies with a Data-Driven Sales Approach.

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