A comprehensive approach to sales forecasting that takes the ‘hunch’ out of the ‘guesswork’. An article Paper by Quantum Co-Founder Jeff Downs
How accurate is your sales forecast? Let me clarify that: how many of the deals you predict actually come in? Many people fool themselves that if the revenue is within (say) 5% then that is a reasonably accurate forecast. Closer examination may expose that the actual forecast was, for example, 70% with the other 30% ‘flying in’ from unlisted opportunities. Once you have assessed the true gap in the accuracy of your forecast you may wish to consider how to improve it. Here are some ideas on how:
- Coverage: X pipeline at Y stage of the sales cycle = Z business in T time. Gap analysis of how many new opportunities are needed
- Conversion ratios: X opportunities at each stage of the sales cycle will convert Z business in T time. Gap analysis of new opportunities needed and / or what can be done to improve ongoing conversion rates
- Probability measurement: qualitative assessment of likelihood. X% range has historically delivered Y business in T time
The first two methods are sound and reasonable provided that you have a good grip on sales activity management. In my view, the probability method is often misunderstood and under-utilised. The common errors are:
- Over-simplification of % probability left to the ‘gut feel’ of the salesperson
- The use of household name CRM systems that confuse ‘probability’ with the ‘stage in the sales cycle’ all on one continuum. Common example:
Unqualified lead: 0%
Qualified lead: 10%
Initial contact made: 20%
Discussions in progress: 40%
Proposal made: 65%
Verbal agreement: 80%
Order placed: 95%
Order accepted: 100%
The problem here is that we should not confuse the ‘probability’ with the ‘stage of the sale’. We might have a first meeting with a prospect who loves the proposition, has the budget, the authority to decide and with no competition. Probability is high but the sales process is early. Likewise, we could be at the proposal submitted stage where we are bidding against 5 bidders with a superior proposition and where we have not met the decision maker. Taking this into account, Quantum recommends a matrix approach:
Depending on which quadrant we are in we can select from a best practice set of actions to make the right next move. Remember, the pipeline is already an outcome; we need to focus on future actions.
Using this method we can then focus on a ‘pure’ approach to assessing the probability. I advocate the use of Quantum’s ‘Win-Win’ tool:
This is available as an iPhone App.
A spreadsheet version is also available on application. Win-Win represents a series of questions (all can be tailored to your business) in the following categories:
M – Money
O – Our Solution
D – Decision
E – Enemy
R – Resource
N – Needs.
In addition to providing the platform for a qualitative pipeline discussion, the tool adds substance to the disqualification of opportunities from the forecast until the ‘Essential’ questions are answered. Regardless of whether the response is positive or negative, answers to the ‘Essential’ questions are, well, essential!
Some examples are:
- Do we know whose budget it is?
- Are we talking to all of the decision-makers?
- Do we really understand the customer’s needs and wants?
The ‘Q’ count measures at any stage of the process of how many questions you are able to honestly answer and how many are really ‘don’t knows’. A low Win-Win score could be because there are many ‘don’t knows’ as you are early in the sales process. This will help you to decide where you are in the process and whether to qualify the opportunity out or to continue to pursue it. Vitally, it will also provide a platform for effective sales coaching which will have a fundamental effect on raising the game of your sales team.
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