I get into a lot of conversations about forecasts and pipelines. Sometimes, people tend to use these terms interchangeably. They are related concepts, but very different.
The single question we answer in assessing the pipeline is, “Are we pursuing enough high quality/qualified opportunities to achieve our goals?” To answer this question, we have to start with a high quality/integrity qualified pipeline. We have to know our healthy pipeline metrics that enable us to look at volume and velocity within the qualified pipeline. The healthy pipeline metrics are different for each person. While two sales people might have the same goals, the their pipeline dynamics may be very different. As a result, their answers to “are we pursuing enough high quality opportunities to achieve our goals,” will be different; and the coaching managers will apply to help them improve their performance is different.
The forecast is different. The forecast is really about a deal. It’s the sales person committing that a deal will happen in a certain time frame and at a certain value. The forecast cannot be driven by a sales person’s wishful thinking or the stage of the pipeline the opportunity is in (If your CRM system automatically moves deals into a “commit” at a certain stage–ignore it.) Committing is all about the customer–their need to have a solution in place by a certain time, the business case, and their confidence in your ability to help them achieve that.
At an organizational level, we take the sum of those commitments and create a forecast of $X.
This is an important nuance, that too many miss. They think the forecast is about $X, not the sum of individual deal commitments which happens to equal $X. I’ll defer what we get wrong about forecasting to another post.
So you may be scratching your head thinking, “Dave, aren’t you saying similar things? What’s the difference?”
The pipeline is a collection of qualified deals. We know we won’t close everything in the pipeline, so we need to make sure that we are pursuing enough to achieve our goals. Knowing how much is enough is based on our past performance of winning and losing. But the pipeline isn’t about individual deals, but the collection of deals. (We use the deal review to understand individual deals.)
The forecast is about a collection of very specific deals. It’s those deals that, based on customer commitments, we believe will close in a certain time frame. We take the summation of the value of those deals to develop a forecast.
The pipeline and forecast are important. They are interrelated, but they are different. We need to understand the difference and the objective of each.
And we know, neither will be perfect.