One of the hardest things to do in business is to forecast sales – accurately. No matter how much effort and research you put into it, you never know with certainty if and when your customers will purchase your product. Yet, forecasting is critical for managing your business. If you forecast too low, you may not be able to respond to your demand and customers may choose another vendor. If you forecast too high, you may build unneeded inventory, which potentially becomes obsolete. Just as bad, inventory ties up your cash.
There are several external factors that affect your sales forecast, including economic conditions, competitor activities and other priorities that may delay your customers’ purchasing decisions. Many describe sales forecasting as more art than science, as you try to predict when your potential customers will actually place an order. Some industries, especially those with long lead-times or complex installations, have an easier time projecting sales 12 months out because orders are placed well in advance. However, most companies operate with much shorter lead-times, which makes forecasting sales difficult.
There is an element of psychology in forecasting. So make an effort to read between the lines as you try to understand what your sales people and their customers are really telling you. This is difficult, but in time you will get to know which of your sales people or sales channels are too optimistic and which are too conservative. Study the trends of their actual purchases compared to their best forecaster of the U.S. economy so you can better calculate true product demand. Your skill at “deciphering” a forecast submitted from your team can be a real asset.
When you expand internationally forecasting sales becomes even more difficult. Because of distance, your influence and methodologies may not be as closely followed. Remote sales organizations may think more independently than groups located at headquarters. Your day-to-day involvement is also less, so whatever judgment factors you have used for domestic forecasting cannot be used for international. At the start, you will need to rely more on the forecasts submitted at face value. Over time, you will have a better idea on how to adjust the submitted data.
The biggest challenges in international sales forecasting 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 with headquarters. If you are pushing for a higher sales forecast, there will be no pushback. However, when the results come in, you are likely to be disappointed.
· Some cultures will always try to provide a lower forecast than they believe they can achieve. This gives them more comfort and a greater sense of success when they achieve their sales targets.
· Some cultures will always provide you with an optimistic forecast that can only be achieved if the best-case scenario happens. Unfortunately, best-case results do not happen every month or quarter.
These cultural challenges are as true 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 foreign sales people and channel partners, the better you will get at understanding their cultural forecasting philosophy. Also being present and seeing what is going on first hand in a market will enable you to become a better judge of the true demand. If your only interaction with your sales resources is when you review forecasts, do not expect to be able to make accurate adjustments to the submitted numbers.
Here are some ways to break though these cultural barriers so you can come up with an accurate forecast. First, use a soft 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’ at forecasting time is often not to one’s advantage. If you demand and apply pressure, expect results that fall into the first or third category-your team will either superficially agree with your expectation or they will provide an overly optimistic forecast so they are not challenged.
Next, set up sessions to review the forecasts after they are submitted. These review sessions should be done within days of receiving the written forecasts so the thought process is still fresh in everyone’s mind. Ask your international sales teams to present their forecasts to you, followed by a Q&A session. At these sessions, ask questions to figure out how your team came up with the forecast. Have them explain to you the process they used to develop the forecast, and not just their numbers. Ask lots of questions. The more you probe, the better the accuracy of the end product.
Then, track their forecast accuracy over time. This is necessary to accurately make adjustments to the initial forecasts. Keep a spreadsheet showing what forecasts were submitted and then tack on the actual results as they happen. Comparing historical forecasts versus actual results serves as a guide to plan adjustments when the team hands in future forecasts. As you follow this process with your international offices, you will start to see patterns that will help you refine the final forecasts.
Just as important, devote time in the field with your international sales teams. You and your headquarters team need to visit them frequently. When you go, get out with them into the field. Do not spend all your time in the office. You should spend more the 50% of your time out in the field visiting customers, resellers, and partners. Meet as many customers and partners as you can, and ask a lot of questions about their businesses. The more you know about their businesses, the better you can assess the sales team’s forecasts and make adjustments.
Finally, apply your own good judgment to any forecasts submitted. Do not take the numbers provided at face value. Based on information gathered in meetings, discussions with others in 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 the adjustments you will be able to make. Ultimately, you are accountable for the results, so do not hesitate to revise any forecasts you receive from your sales teams.
If you liked this post check out my book that goes into much more detail, International Business Expansion, available on Amazon.com.
Anthony Gioeli is a Silicon Valley-based entrepreneur, specializing in developing multinational businesses. He has led companies and managed divisions of corporations based in Australia, Europe and North America, and has established offices throughout Asia and Latin America.