We’re in for a treat with this two part series on forecasting. In Part 1 Doug and Jess dive into different types of forecasts, the pros and cons of each, and why forecasting is so challenging. Gain an overview of key forecasting methods and learn when to use each type of forecast.
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Show Notes:
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Pre-Show Banter:
- Doug and Jess are excited to be recording two episodes in a week.
- The day this episode was filmed was Jess’s 8 Year Liftaversary (Congrats Jess! 🎉)
- Doug is listening to an audiobook: Surrender: 40 Songs, One Story, which is Bono’s autobiography. This book features a song from Bono’s catalog at the beginning of each chapter which is fascinating. The experience made Doug realize how old he is…Both he and Jess aren’t old enough to have seen a band in concert 30 years ago.
- Jess would rather unpack all the Disney announcements.
Main Discussion Points:
- The problem with forecasting is it’s often a perception that it will be deterministic rather than probabilistic.
- Forecasting creates predictability that enables better decision-making.
- There are 5 main types of forecasting:
- Waterfall: Predominantly using historical data, leveraging what you have about your existing funnel, provides a linear progression
- Pros:
- People love waterfall models
- There’s an objectiveness to it
- There should be a data construct to it
- Provides a clear forecast
- Cons:
- As soon as there is a disruption, the whole thing falls apart
- Stage-Based: Also called Milestone-Based; This the most common B2B type where you look at the pipeline and each stage has a probability.
- Pros:
- Simple
- Clear
- Intuitive
- Easy to automate
- Makes for really good dashboards
- Cons:
- Highly flawed
- Makes the mistake that proximity is probability
- Commit-Based: Reps mark their deal (or you can automate it based on stage, profile, etc.) into 3 categories
- Pros:
- Involves rep participation
- If used correctly
- Enables you to better close the loop
- Cons:
- Bottom-Up: Each rep, each individual, each business unit reports up on each individual opportunity or each group; Effective in high value, low volume businesses
- Pros:
- Little bit more reality
- There’s rep participation
- Cons:
- Really complicated
- Far too often arbitrary
- Top-Down: Doug jokingly refers to this as “We’re going to grow by 25%.” This forecast shows what the business should grow to.
- Pros:
- Used by most public companies
- Could be what you need if you do need to grow by a percent
- Cons:
- Includes artificial elements
- Running multiple forecasting models tends to provide the most accuracy.
- Forecasting works best when you have good underlying data tracking and processes in place already.
Jess’s Takeaways:
- Forecast is predictability. When you’re predicting the future, there’s always going to be variability. Without predictability you can’t make decisions.
- Running multiple types of forecasts gives you the most effective forecast.
- One thing that gets lost when we’re talking about forecasting frequently with clients is forecasting is the end of a good process, not the beginning of it. To have good forecasting, it has to come at the end of good process, good tracking and good structure.
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