Sales Forecasting Is More Complex Than Rocket Surgery

At my son’s soccer game a decade ago, one of the other dads, a top economist, said to me once, “sales and accounting are both about money, but polar opposites. Think about a sales manager, a finance manager and a CEO all standing on the bridge of a ship the CEO is steering. The accountant is looking out the rear window describing with great accuracy where the ship has been. The sales manager is looking out the front telling the CEO where to go.”

What a great analogy. I’ve always detested forecasting. Predicting the future is a leading cause of anxiety. To any up and coming sales managers, I’d offer the hard fought advice of being excessively pessimistic about the numbers you commit to.

Bill Gates said “under-promise so you can over-deliver.” People who beat their chest with pride and a huge prediction are usually preceding a fall. Give your team wiggle room to actually succeed. I’d say your job as a sales manager is to protect your team and maximise their commissions fight against the higher ups by arguing a lower KPI. In nearly every metric paying your sales team commission is better for everyone.

It’s better to have the hard conversation at the KPI setting meeting than at the performance review six months later.

The basic reasons forecasting is actually impossible now

I can’t predict the future.
Sales depends on human decisions. Someone may buy tomorrow, and in the exact same circumstances, not buy the day after.
Peeps change their minds, go quiet, lose budget or get a new boss partway through the process.
There are too many inputs in a sale. Sometimes the weather in Vienna impacts a sale in Darwin.
Sales is part performance, part economics, part psychology, part behavioural profiling, part empathy, part logic, part skill, part trust building, part market awareness. It’s complex.
Sales activity creates awareness of the technique and builds market resistance.
Modern sales can have fractured teams, workflows, processes, KPIs, departments, goals and metrics.
Once you set a KPI, it’s no longer a valid measurement. (Goodhart’s Law)
Things like timing, budget, interest and need can be entirely outside our control.
The market is ever evolving. Interest rates, competitors, new products and economic mood all move buying behaviour.
Sales saturation points mean market share can get exponentially harder and more expensive to win.
Every prospect now has internal politics, approval chains and priorities we can’t see.
Past results show what’s possible. But at best it’s still a guess.
Forecasts assume stable conditions, but staff turnover, cash flow and delivery capability shift the picture week to week.
There’s a name for why we keep making this mistake anyway. The planning fallacy. (see below)
A lot of the KPIs forecasting leans on were built on volume, calls made, emails sent, activity logged. AI has already broken the old link between volume and effort, so a lot of those metrics now measure nothing.

Kahneman and Tversky identified the planning fallacy back in 1979, and it holds up. People systematically underestimate the time, cost and risk of a future task, and overestimate the result, even when their own past experience has already proven them wrong on the exact same kind of task before. Sales forecasting isn’t an exception to this. It’s a textbook case of it.

It’s more complex than rocket surgery. Anyone who guarantees sales, or whips up a KPI, is either lying to you, too stupid to know what they don’t know, or selling you a ‘piece’ of the sales process (see the sales harness post https://www.outsold.com.au/the-sales-harness/),

What I can actually offer instead

What I can do is be a salty old sea dog. Look for storms and know how to weather them. Recognise the patterns on the map and know how to handle a pirate attack.

In sales terms, this means I:

Know how long you’ll be underwater before the first sale lands
Do the maths on the numbers, and if they don’t add up, tell you before you sign a contract, or early in the engagement
Bring thirty years of sales and business development experience to the table
Have hit nearly every target I’ve ever set, because I know what a realistic one actually looks like
Offer predictable, repeatable processes and systems instead of hope
Know what good sales looks like, and the thousand ways to screw it up
Improve your odds of hiring a good salesperson instead of another expensive mistake
Take the sales workload off your plate so you can do the work you’re actually good at
See through a thousand salesperson excuses and tricks for avoiding real work
Help spot a bad client before you sign them, not after they’ve burned out your team
Tell the difference between a quiet patch and a genuine problem, and don’t panic at the wrong one
Protect your margins from scope creep before it starts, not clean it up after
Build a pipeline wide enough that one lost deal doesn’t sink the quarter
Tell you the truth when it’s inconvenient, not just when it’s easy to hear
By finding the right clients, be the shield that protects your staff, your commerce and your culture
Do the hard, unglamorous work nobody else wants to do
Give you the best realistic chance of success, not the best sounding promise

Every KPI is a guess. You can either gamble $120,000 on hiring a sales rep and hoping they can build you a process, accurate sales targets, then hope the self train, self manage, self motivate and accurately report on their own metrics. Or you can consider using our team. What you’re actually paying for isn’t my accuracy, nobody has that. You’re paying for thirty years of knowing which guesses are worth betting the business on, and which ones will sink you. That’s not a forecast. That’s experience, and there’s no shortcut to it.

The research behind this

The planning fallacy was named by Daniel Kahneman and Amos Tversky in 1979, and expanded by Dan Lovallo and Kahneman in 2003 to cover underestimated time, cost and risk alongside overestimated benefit. It’s one of the most replicated findings in behavioural science, and it applies just as much to a sales forecast as it does to a building project or a university thesis.

Goodhart’s Law. Named after British economist Charles Goodhart, from a 1975 paper on UK monetary policy. His original point was narrower, about statistical regularities collapsing once used for control, anthropologist Marilyn Strathern later simplified it to the familiar line, “when a measure becomes a target, it ceases to be a good measure,” which is now the common form everyone quotes.

More of this kind of thinking lives at www.outsold.com.au/blogs.