Many sales leaders are frustrated about the hit-and-miss aspect of sales forecasting. With mountains of data cramped into spreadsheets, and no meaningful way to find out what’s really important, it sometimes feels like nothing more than reading the tea leaves. New data from InsideSales.com shows it’s not far from the truth. Only 28.1% of closed deals are predicted accurately 90 days out, and the actual close amounts differ by 31% from forecasts, shows new research on sales forecasting by InsideSales.com Labs.
The Gap Between Forecasting and Reality
In our latest study, “The Gap Between Forecasting and Reality,” we analyzed 270,912 closed won opportunities making up over $18.1 billion in closed revenue from 18 companies. It was an eye-opening exercise of sales forecasting statistics. The results showed there’s an immense gap between what sales leaders forecast and what happens at the end of the quarter.
We knew that in 2016, CSO Insights data showed only 45.8% of forecasted deals closed as predicted. That’s less accurate than flipping a coin. But our numbers have shown the disconnect is even more dramatic. There’s a huge gap between what sellers ‘think’ they do and what they actually do.
Only 28.1% of Forecasts Are Close to Being Accurate
Shockingly, only 28.1% of the opportunities we analyzed closed within 5% of the 90-day forecasted amount. This is significantly different than the CSO Insights number from 2016, which may be explained by the source of the relevant data. Specifically, CSO Insights gathered data through surveys, while InsideSales.com used software to track specific dollar amounts.
Looking deeper, we found that 47% of 90-day predictions were off by a margin of more than half!
Across all of our data, the average 90-day prediction for closed-won opportunities missed the mark by just over 31%.
Sales Reps Overestimate by Nearly 2X as Much as They Underestimate
If you have a gut feeling your sales pipeline is inflated, you’re probably right. Sales reps are notoriously optimistic, and the truth is– you have to be, to be able to work in this business. However, sales rep’s poor forecasting skills often allow deals that will never close to linger in the pipeline.
The data shows that when rep’s forecasts were off, they overestimated by an average $91,000 and underestimated by only $47,000.
As the average size of all forecasts in our sample was just under $81,000. This means that reps are more likely to be overly optimistic on large deals.
Our analysis also showed that the more important the deal, the more likely you are to overestimate its outcome.
Increasing Sales Forecasting Accuracy With AI
Sales forecasting doesn’t have to be like looking through a crystal ball. Technology has advanced significantly, and it can help with revenue projections. We now have the tools to enhance human judgement with predictive insights for more accurate results.
Artificial Intelligence (AI) can analyze past sales interactions and outcomes to understand the key characteristics of good and bad deals, helping you clean up the pipeline. AI sales technology can improve forecasting accuracy by up to 30%.
It can also help improve the sales team performance, by highlighting the sales activities that actually lead to closing business. Once you pinpoint what makes a good deal and a great sales rep, managers can easily coach the sales reps for success. A simple improvement in daily activities for just 20% of the sales team can lead to millions in revenue.
A leaders’ ability to accurately project quarterly revenue is crucial to business growth plans. The problem is that even when sales leaders correctly call which deals will close, the size of each opportunity varies so widely as to make it nearly impossible to make an accurate forecast.
A pipeline management and sales forecasting tool that uses AI to help you close more of the right deals and accurately forecast revenue can offer businesses the confidence they need for their financial projections.