One of the hardest things to do in business is forecast sales: precisely. No matter how much effort and research you put into it, you never know for sure if and when your customers will buy your product. However, foresight is critical to running your business. If you forecast too low, you may not be able to meet your demand and customers may choose another supplier. If you forecast too high, you can create unnecessary inventory, potentially becoming obsolete. Just as bad, inventory ties up your cash.
There are several external factors that affect your sales forecast, including economic conditions, competitive activities, and other priorities that can delay your customers’ buying decisions. Many describe sales forecasting as more of an art than a science, as it tries to predict when your potential customers will actually place an order. Some industries, especially those with long lead times or complex facilities, have an easier time projecting sales 12 months ahead because orders are placed well in advance. However, most companies operate on much shorter lead times, making it difficult to forecast sales.
There is an element of psychology in foresight. So make an effort to read between the lines as you try to understand what your salespeople and customers are really telling you. This is difficult, but over time you will learn which of your salespeople or sales channels are too optimistic and which are too conservative. Study the trends of your actual purchases compared to your forecasts so you can better estimate the actual demand for the product. Your ability to “crack” a forecast submitted by your team can be a huge advantage.
When you expand internationally, forecasting sales becomes even more difficult. Due to distance, their influence and methodologies may not be followed as closely. Remote sales organizations can think more independently than groups located at headquarters. Your day-to-day involvement is also less, so the judgment factors you may have used for the domestic forecast cannot be used for the international. In the beginning, you will have to rely more on forecasts presented at face value. Over time, you will have a better idea of how to adjust the data sent.
The biggest challenges in forecasting international sales are due to culture. Different cultures have different ways of “seeing” things. Sometimes the differences are subtle, but other times they are quite obvious:
Some cultures will seldom disagree with their boss or headquarters. If you are pushing for a higher sales forecast, there will be no push back. However, when the results come in, you will likely be disappointed.
Some cultures will always try to provide a lower prognosis than they think they can achieve. This gives them more comfort and a greater sense of success when they achieve their sales goals.
Some cultures will always provide you with an optimistic forecast that can only be achieved if the best case scenario occurs. Unfortunately, results at best don’t happen every month or quarter.
These cultural challenges are just as real for your employees as they are for your channel partners. They all follow similar patterns. The best way to neutralize these challenges is to communicate. The more you visit your overseas sales staff and channel partners, the better you’ll understand their cultural foresight philosophy. Also, being present and seeing what’s going on in a market firsthand will allow you to be a better judge of true demand. If your only interaction with your sales resources is when reviewing forecasts, don’t expect to be able to make fine adjustments to submitted numbers.
Here are some ways to break down these cultural barriers so you can make an accurate forecast. First, use a gentle approach when you begin the forecasting process. You may have a tendency to push for better results, but it may not work with your international sales teams, depending on the culture. Being a tough ‘field general’ when it comes to forecasting is often not an advantage. If you demand and apply pressure, expect results that fall into the first or third category: your team will superficially agree with your expectations or provide an overly optimistic forecast so that they are not challenged.
Next, set up sessions to review the forecasts after they are submitted. These review sessions should be held within days of receipt of the written forecasts so that the thought process is still fresh in everyone’s mind. Ask their international sales teams to present their forecasts to you, followed by a question and answer session. In these sessions, ask questions to find out how your team came up with the forecast. Ask them to explain the process they used to develop the forecast, not just their numbers. Ask lots of questions. The more you dig, the better the accuracy of the final product.
Then track the accuracy of your forecast over time. This is necessary to make precise adjustments to the initial forecasts. Keep a spreadsheet showing which forecasts were submitted, then add the actual results as they happen. Comparing historical forecasts with actual results serves as a guide for planning adjustments when the team delivers future forecasts. As you follow this process with your international offices, you will begin to see patterns that will help you refine the final forecasts.
Just as important, spend time in the field with your international sales teams. You and your team at headquarters should visit them frequently. When you go, go out with them to the field. Don’t spend all your time in the office. You should spend more than 50% of your time in the field visiting customers, resellers, and partners. Meet as many clients and partners as you can and ask lots of questions about their business. The more you know about your business, the better you can evaluate the sales team’s forecasts and make adjustments.
Finally, apply your own good judgment to any forecast submitted. Do not take the numbers provided at face value. Based on information gathered in meetings, discussions with other members of the organization, and site visits to customers and partners, you should adjust the estimates as you deem appropriate. The more information and questions you have asked, the better adjustments you will be able to make. Ultimately, you are responsible for the results, so feel free to review the forecasts you receive from your sales teams.