Why Accurate Forecasts Can Help Weather The Economic Storm

By Wendy Harris, Head of EMEA at Gong

By Wendy Harris on March 1, 2023

With the ongoing economic downturn and the prolonged recession forcing organizations to think ahead and shield against potential disruption, the current climate is uncertain to say the least. One of the most efficient ways businesses can future-proof and protect their operations and workforce is driving predictable revenue.

Sustainable growth of the business, and sales professionals’ career, often depend on the accuracy of the sales forecast. It serves as the ultimate guideline directing how to spend money, how to plan for expansion, and where to allocate energy and resources. On the other hand, inaccurate financial projections put businesses at immense risk. As we head towards annual earnings announcements for many companies, a question arises – how can business leaders ensure that their predictions are correct?

Distorted outlook

According to recent research conducted by Gong, 44% of UK businesses missed their earning targets at some point in 2022. This paints a worrying picture for the British corporate landscape – missing revenue goals as a result of incorrect estimates is likely to lead to a larger loss of confidence within the markets, creating additional volatility. Under or overestimating revenue can have serious consequences on individual businesses such as damaged trust among key stakeholders including investors, employees and suppliers as well as disruption to daily operations.

Although accuracy is essential for corporate success in times of economic instability, 14% of business executives report that their quarterly sales projections are inaccurate. While a relatively small proportion of executives think their projections are inaccurate, the proportion of missed targets suggests that incorrect estimates are much more prevalent. It’s possible that many organisations are unaware of financial discrepancies. Although predicting revenue is a critical process to a fiscally healthy organisation, the numbers show it fails in so many cases.

Outdated tools

Making a financial prediction can not only be seen as daunting but also time-consuming and tedious given that over half (52%) of business leaders feel they spend too much time on forecasting. Interestingly, although most leaders agree that forecasting takes up too much time, many organisations still use outdated and inefficient tools such as spreadsheets to build the picture of their business’ pipeline. In fact, over two thirds (68%) of companies admit they build their forecasts in Excel. This manual method is not only prone to mistakes such as overlooking details, but also leads to misalignment across data from different teams and departments. With that in mind, spreadsheets require a massive effort from operations to consolidate often disjointed reports into a single source of factual insights.

Data-led predictions

Fostering confidence in an organisation’s financial predictions requires insights based solely on facts. However, it’s not always the case as revenue leaders can often rely too much on the sales reps’ personal opinions. In fact, as reported by the Reality of Forecasting study, over a quarter (27%) of respondents admitted that the sales team’s perception of whether their deals are likely to close or not is the top factor adding to their mistrust of the predicted numbers.

Collecting and taking into account only accurate data from buyer interactions instead of relying on gut instinct not only provides leadership with more precise information about prospective income but also improves trust in financial outcomes across the entire business.

Predicting the unpredictable

In the Reality of Forecasting research, it was also reported that the third-highest factor affecting forecast confidence are external market conditions. It should not come as a surprise given that businesses mine previous insights to inform future predictions. However, as organisations face an increasingly complex economic landscape shaped by natural disasters, supply chain shortages and inflation, using forecasts based on historical data will be misleading. To future-proof their businesses, leadership needs more thorough and flexible revenue predictions.

The problem is that, in the face of constant changes, no one knows what influence external factors might have. Business leaders can be more flexible in how they adjust objectives and tactics if they can determine how clients are impacted by change in real-time. While it’s easier said than done, technology can help highlight early warning signals that let businesses analyse how economic conditions impact win rates and other operations as they happen. Having the right solution to spot trends and better understand how economic conditions are impacting specific areas of the business over time gives leaders the agility to turn obstacles into opportunities.

Even in less volatile economic times, it can be difficult to make accurate predictions. In a downturn it becomes even more challenging. The consequences are severe – whether the revenue is overestimated or underestimated, it could result in layoffs, missed opportunities to drive expansion, and cost-cutting in resources. For business executives to successfully navigate a difficult year ahead, having a clear vision of the financial future supported by reliable, reality-based data is essential.