I believe one of the most common mistakes we make in forecasting our accounts is the failure to use all the information that we should to fully understand our relationship with our customers and how that might impact our business in the future.
Understand and Use all Relevant, Available Information
It seems a little bit like Mr. Obvious statement to say that you should understand all the right information to create forecasts, so why does this come up as a failure in our quest to forecast more accurately? Like many things, effective use of available information has its challenges. Here are a few challenges…
1. Relevance. There is more information available than you can possibly absorb. That’s the bad news. The good news is that most of it is likely not relevant to the task of forecasting next year’s or next quarter’s revenue from your accounts. In Malcolm Gladwell’s Blink, he tells a story about the difficulty that ER docs have determining if someone with chest pains is having a heart attack or something more benign like acid reflux.
Cook County Hospital in Chicago conducted an experiment in 1996 to determine why the rate of successful diagnosis was somewhere between 75% and 89%. They study discovered that the docs were using as many as 15 data points to make these diagnoses that were wrong as much as 25% of the time. It was then recommended that the docs make the diagnoses using only 3 data points, called the Goldman Algorithm (1. Is the pain felt determined to be unstable angina? 2. Is there fluid in the patient’s lungs? and 3. Is the patient’s systolic blood pressure below 100?). The rate of successful diagnosis skyrocketed to more than 95%.
It is important to recognize that this does not mean using less data is necessarily better. It means that using the right data and not being distracted by irrelevant data is crucial. So how do we go about that?
Battle this by starting with the end in mind. Your goal is to accurately forecast revenue from your accounts. What do you need to know to complete as accurate a forecast as possible? Focus only on that information and see if you don’t come up with better answers. One piece of very relevant, perhaps the most relevant, information comes from your customers themselves. Do you have timely information about their purchase intentions? Is that information objective, collected in a way that makes it reliable? Are you getting this information from the right people, from decision makers?
Do you have historical data about the way that certain types of customers are likely to behave? We work with a company that uses customer loyalty classifications to validate their initial forecasts. They have proven over a period of time that their most loyal customers grow at a certain rate, their customers that are trapped usually don’t grow much and their high risk customers tend to shrink.
2. Access. Often we don’t have access to some of the information that might help us forecast more accurately. Most of our companies have the information; we just have to find the right source within the company.
Sometimes the information is difficult to obtain because it is controlled by a “gatekeeper” who views that information as his or her source of power. And they usually are not too keen on sharing their power. In Beyond Selling Value , Mark Shonka and Dan Kosch discuss many ways to deal with gatekeepers from a selling standpoint (chapter 9), and these techniques translate nicely to dealing with internal gatekeepers.
The best way that I have found to deal with this is by building and nurturing an effective and empathetic network within your company. Find people that also rely on you and build “back-scratching” relationships. This should give you better access to the right information that already exists. Two people that are critical to this network are a finance person with access to the right financial information and someone in your customer advocacy function with access to the most timely voice-of-the-customer and customer loyalty information.
3. Understanding. In order to use information to help in forecasting, we must understand what the information is telling us and how that impacts our forecast. Sounds easy, but often the source of the information might add some bias in one way or another. Understanding the impact of that bias is critical.
The best way to deal with this is to listen to your customers. Ultimately, the perspective of your customers is the only one that matters. Their attitudes about you will drive their purchasing behavior and, therefore, the results that you are trying to forecast. In effective customer listening programs, there is great information available to help you forecast your accounts. Also, rely on the internal network you build to fully understand the information you have access to.
Again, your customer advocacy team should be able to help you understand what customers are telling you. Many companies provide account managers with sales playbooks that help pull various sources of information together and give us a shortcut to find the opportunities we need to quickly exploit and the issues or problems that we need to quickly address.