The role of modern CFOs in today’s business is much broader than it used to be. They are expected to use technology and their “number-crunching” capability to give other functions as well as the whole business better information to make decisions and move ahead. One key area in particular where CFOs should get involved more is sales forecasting.
There are several reasons why financial executives need to play a bigger role in the sales forecasting process. Faulty sales forecasts may cause companies to miss their earnings target. Furthermore, sales leaders can be overly optimistic, which may lead to overspends. Based on overestimated sales projections, companies may increase the headcount and invest in new marketing campaigns, only to find out later that they were wrong. On the other hand, CFOs can add the much-needed methodological and analytical approach to the sales forecast that leads to better decision making. Inaccurate forecasts damage the credibility of the CFO as well as the whole finance function. And it affects the decision making of the management team.
One major sales forecasting method is to measure all the activities that move prospects along the sales pipeline, such as calls, emails, demos, and visits. Using their analytical capabilities, CFOs can identify the pattern of prospecting activities as related to actual sales. For instance, data shows that when a prospect makes it through a product demo, there’s a 30 per cent chance that such prospect will become a customer. So how can CFOs play a bigger role in the sales forecasting process?
4 tips for CFOs to help improve sales forecasting
Build trust and partnership with the sales function
Tension between sales and finance functions is not uncommon. Sales leaders may not trust finance teams with their data, and do not want to answer their questions. How can finance people resolve this? It is really all about trust. Make sure salespeople know that both functions are working together, and finance people are here to help. Building partnerships inside the sales function, CFOs should offer help with their analytical skills, and let sales leaders know it would be a win-win situation because salespeople can focus on selling.
Create a single business dictionary
People use different terms across the company, creating confusion between departments. There may be a different understanding of terms between finance, marketing, and sales functions. What exactly do they mean when they talk about leads, prospects, etc.? Therefore, CFOs should ensure that there is a single set of metadata for terms (business dictionary), even if some may sound simple and straightforward.
Make sure all forms are filled out properly
CFOs may not get sufficient data about the pipeline, and such data may not be in real-time, or accurate, because sales teams do not always diligently follow the rules of preparing the pipeline. Salespeople are not particularly detail-oriented like finance people, so CFOs have to make sure they fill diligently out information about the pipeline.
One key factor in achieving accurate forecasting is real-time analysis. As a result, it is crucial that sales teams update their data regularly, ideally daily as it happens else preferably weekly. Management can then review it and make necessary changes if required.
Aim for an integrated, easy-to-use system
To get the data moving across the organisation, you should be on one system. Multiple systems do not integrate so easily. A complex system is not desirable either. Salespeople should feel the system is helping them, not making their lives harder. Excel spreadsheets have widely been used to facilitate gathering and distributing data among functions. However, spreadsheets have many inherent shortages and companies should move on beyond that.
When CFOs and sales leaders become allies and partners, companies can significantly increase their ability to achieve the overall business goals and plan for the future.
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