Gong, the Revenue Intelligence leader, has released research that sheds light on the challenges companies face when developing their sales forecasts and revenue projections.
Over 80 percent (UK: 78%) of businesses missed their sales forecast in at least one quarter over the last two years.
In 2023, over three quarters (Global: 76%, UK: 68%) missed a forecast in either Q1, Q2 or Q3. A key contributing factor is outdated tech and practices being used to develop projections.
The study surveyed 2,015 business leaders at privately held companies in the US (1,015) and UK (1,000) between January 3rd and 9th 2024.
A 2022 study in Social Science Research Network found that public companies’ earnings guidance is wrong about 70 percent of the time, suggesting that this problem doesn’t only affect private companies, but publicly traded ones as well.
In both public and privately listed organisations, missed forecasts can signal to stakeholders and shareholders a lack of understanding about the business and markets companies operate in, and cause them to lose confidence. Advanced forecasting tools that incorporate technology like artificial intelligence (AI) can help increase the accuracy of these projections.
The impact of missed forecasts has caused companies to make layoffs, put freezes on hiring, and pause raises and bonuses with 42 percent (UK: 40%) said that they’d had to put a freeze on hiring.
41 percent (UK: 42%) said they’d had to pause planned pay increases and bonuses, and 30 percent (UK: 31%) said they’d let people go.
Despite missing forecasts, companies are optimistic for the year ahead, suggesting employees will be under pressure to deliver with 70 percent (UK: 70%) say they’re increasing revenue projections, only 15 percent (UK: 14%) are decreasing revenue projections, and 16 percent (UK: 16%) are keeping projections steady.
The survey found one key culprit behind missed forecasts: Outdated and inaccurate tech and forecasting systems.
When asked for the biggest hindrance to accurate forecasting, 32 percent (UK: 31%) said their technology is out of date, whilst 15 percent (UK: 16%) also believe they’re spending too much time on forecasting.
When asked if they were tackling their forecasting process differently this year than last year, 34 percent (UK: 32%) of respondents said that they are or plan to forecast differently for the upcoming year.
67 percent (UK: 64%) said that they are investigating or have invested in new, more advanced technology and systems to forecast more accurately.
“The days of revenue leaders relying on spreadsheets and subjective and partial data to predict sales are over,” said Amit Bendov, Gong CEO and co-founder.
“Companies struggle to forecast accurately in good times, and the problem is compounded when economic headwinds hit. AI’s ability to bring the voice of the customer and ‘deal health’ to forecasting is changing the game to help leaders better understand and strategically plan their businesses.”
Work marketplace Upwork is one company that has increased its forecasting accuracy as it has grown, with its community of independent talent earning more than $3.8 billion in 2022 across more than 10,000 skills.
“At Upwork, our sales forecasting process wasn’t providing the level of precision we needed as we entered a period of organizational change and growth amid an uncertain economy,” said Drew Korab, director of sales operations at Upwork.
“We implemented a new, AI-powered solution that gives us the data, process, and insights to more accurately predict how our Enterprise business will perform in new logo acquisition. In the first three quarters we’ve used this solution, we reached 95 percent forecast accuracy, allowing us to deliver a stronger sense of confidence to our stakeholders.”
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