Why Your Sales Forecast Is Wrong, And How To Fix It

Toy company Mattel's stock dropped 31% in one day. Their story is a common one that companies, including yours, could be suffering from.

Why Your Sales Forecast Is Wrong: 80% of Your Pipeline Isn't Real Revenue

This is a painful fact that CEOs and VPs Sales don't want to believe. They see the CRM is bustling, the SDRs are booking meetings for the AEs, the AEs are giving demos. Proposals are out. The forecast says revenue will be incoming.

But the CFO says the cash flow situation paints a completely different picture.

Inaccurate sales forecasts are not a given because it's impossible to predict the future. They are 100% a pipeline quality issue (well, maybe 80% pipeline and 20% delusion depending on what leadership decides to invent).

Why Sales Forecasts Are Inaccurate in B2B Companies

Let's start with the delusion that we see over and over again — leadership pressure to inflate projected profitability. The CEO wants to see $10 million in sales next year, so an inaccurate sales forecast is built, predicting a number that sounds nice, but has no basis in the historic pipeline.

Forecasting problems can also come from the bottom up. Improperly trained or managed SDRs build a pipeline full of leads that are happy to talk and to keep scheduling meetings. The problem is, if these leads were properly qualified, most of them would have been disqualified right off the bat. Leads that are not ready to convert are for marketing to entertain — not your SDRs or AEs. So when the pipeline is full of tire kickers, making predictions based on that pipeline will lead to revenue predictability issues.

Sales Pipeline Management: Why 80% of Deals Aren't Real Revenue

There are a few types of "usual suspects" that are clogging up your pipeline if you don't incentivize your SDRs to properly qualify them out:

• Quote collectors: These people are looking to buy, but not necessarily from you. Often, they are looking for the lowest price quote, or to find a lower price quote to see if you can come down. We never advise our clients to compete on price — that is just a race to the bottom — so these types of leads are better off outside your pipeline.
• Procurement compliance bids: They already have a vendor they want to work with (most likely), but they need a few additional price quotes to be in compliance with their procurement rules. They shouldn't be automatically disqualified, but proper pipeline management sets expectations so that these are rated low and there isn't the dreaded pipeline vs revenue gap.
• Internal research conversations: These are the people who don't have the authority or budget yet to make a purchase. They see the need, but need to build a case to present to the decision-makers. These CAN turn into clients down the road, but not until after the lead builds the case. Sales pipeline management 101 says to let them be in the CRM, but mark as low likelihood until they prove otherwise.

Bottom line: your SDRs and AEs need to know that a conversation does not equal intent to buy.

How Fake Deals Destroy Revenue Predictability

These "fake deals" can have huge impacts not just on your revenue projection, but also can cause you to start hemorrhaging money now. It begins when leadership thinks they see a lot of future income in the fake pipeline. That causes a chain reaction of hiring decisions based on inflated revenue ("We're going to need more developers to meet the projected demand").

By the time the truth about these leads is revealed, AEs have clogged their calendars trying to schedule more and more and more "one last meeting" before they think the lead will close. Sales leadership has had a credibility erosion with the board (or higher-ups in general), and now there need to be budget cuts from somewhere due to cash flow instability from those deals that never arrived.

This results in a revolving door of VPs or even CEOs when the board is fed up.

How to Improve Sales Forecast Accuracy

Luckily, you have come to the right place to learn how to improve your sales forecast accuracy. This is the pipeline cleanup strategy that every VP Sales needs to start implementing now.

The only deals that get included in the sales forecast are those that:

1. Have a confirmed budget. This helps weed out leads that aren't really ready to buy.
2. Can give a clear timeline tied to a business event. Examples are "We need this software before the end of the fiscal year" or "We need this for a product launch in Q3." Purchases don't happen in a vacuum, so seeing that the need is tied to an event makes it more likely that it will happen.
3. Define the decision process. If the lead can't let you know what the process for closing the deal looks like on their end, then it is a fake lead. Something like "I'm bringing 3 proposals to the CTO by next week. We're having a meeting on it, and they will make a decision by X date."
4. Agreed next step on calendar: This is tied to step 3. If they can tell you the decision process timeline, then you can already schedule a follow-up for the necessary next step in your process, whether it's presenting to a more senior person or following up after the confirmed due date.

This B2B sales qualification framework relieves the pressure on your SDRs, it's very clear who is qualified and who isn't, improves sales forecast accuracy, and makes sales leadership shine.

Red Flags That Signal a Deal Should Not Be Forecasted

It's also important to highlight for SDRs and AEs the red flags of leads that are crowding their pipeline. Leads who say any of the following:

• No next scheduled meeting
• "We're still exploring options"
• Timeline based on "sometime this quarter"
• Ghosting after proposal sent — give them 2 follow-ups and then close out the lead!

When to Bring in a Fractional CRO

B2B sales optimization doesn't happen overnight, but it can happen much faster when you bring in outside help to build and implement the process. A fractional CRO is the right business decision for many companies, large and small, who are looking for reliable revenue growth.

While KSW Solutions acts as an embedded part of your company as a fractional CRO (or fractional CMO), bringing someone new to review the pipeline and implement new strategies helps to prevent similar mistakes from being made again and again. Their success is judged on how well they recalibrate the current sales process (or build a new one from scratch), so they are motivated to move your pipeline from optimism to evidence.

What Accurate Sales Forecasting Actually Looks Like

It might sound like a fantasy, but you can have a pipeline with higher win rates, shorter cycles, accurate close ratios, and predictable monthly revenue variance. These often come with a smaller, but more accurate, pipeline.

You Don't Have a Forecasting Problem. You Have a Qualification Problem.

Most B2B sales forecasts fail because unqualified deals inflate pipeline value. Revenue predictability depends on disciplined qualification. CEOs must treat pipeline integrity as a financial control system.

When you properly qualify your pipeline via the tips provided above, you'll be able to accurately manage your human resource needs, cash flow, and business growth.

Think your pipeline only has qualified leads and there isn't any forecasting issue? Let KSW Solutions provide a high-level pipeline audit and we'll review your forecast assumptions with you.