CROs: Don’t Comp Sales on Forecast Accuracy

The results from our LinkedIn poll are in.

More than half of respondents think forecast accuracy should be part of a sales incentive plan. Not sure if that reflects real-world practice, frustration with missed numbers, or an attempt to push that responsibility down the org.

Whatever the reason, if you're a CRO thinking about tying comp to forecast accuracy—don’t.

My friend Hashim Ali nailed the issue:

Wouldn't you want to incentivize more sales over forecast accuracy? If you incentivize accuracy, salespeople will sandbag when they hit their forecast—pushing deals to the next quarter to stay accurate and earn more.

He's right! Accurate forecasts are fundamentally at odds with maximizing sales. You are asking people to forecast something they have control over. The outcome is not pre-ordained like the motion of planets, or the weather.

Compensating for forecast accuracy creates a conflict of interests. Reps start asking, “Is the next deal worth more to me this quarter or next? They might stop selling once they hit their forecast. They may even under forecast to make sure they can meet it. Worst case: they do both.

You might be thinking, “Our problem isn’t sandbagging—it’s that reps overcommit and underdeliver.”

Salespeople over-forecast because they’re optimistic and you are pushing them. We want them to be confident in their ability to do better. Then we ask them to roll up individual deal calls and we get happy ears. Why would we expect that process to have no bias?

But now ask yourself: How does incentivizing forecast accuracy change that behavior?

We already know. Look at how Commit deals behave. They’re designed to be accurate—with lots of negative vibes for missing. And it works! In our case study, 80 – 90% of Commit deals closed (in the quarter). But the median lead time was just a few days. The longest median lead time we saw (for a company) was about three weeks. 

Commit lists—and forecast accuracy incentives—optimize for looking right, not selling more. They reward the wrong behavior. If you comp salespeople on forecast accuracy, you’ll get conservative forecasts with very short lead times. The problem that Hashim described. Lower sales, probably at more risk. 

Your goal is to maximize revenue. Tying incentives—to forecast (or Commit) accuracy may get you more accuracy but that won’t help you beat your goal. It will do the opposite.

Now, if your personal incentive is tied to forecast accuracy, maybe you’d be better off taking that up with your board or comp committee. Ask them. Which would they prefer—that you nail your forecast or crush your number?

That begs the question, how should you forecast and communicate expectations to the board? Instead of giving them your “call” (maybe with a hi / med / lo nuance), we suggest you show them an estimated distribution of possible outcomes if things continue to go as in the past. This is an objective baseline forecast distribution (blue curve below). 

Want a safe number, look at the blue curve, shaded area left edge. Report the chances of exceeding that figure (9 out of 10 times). Show your board your strategy for changing the outcome (focus on specific deals, more demand gen...) and what the distribution will look like if you can do that (beige).

See our blog on how to do that yourself. 

Our recommendations: 

1. Don’t compensate salespeople on forecast accuracy. You’ll get less sales with more risk.

2. Use an automated forecast instead of deal-by-deal forecast category calls.

3. Redirect the saved time to actually selling.

4. Show your stakeholders how to read and interpret an estimated sales distribution.