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Sales Forecasting with Real ValueI've been using forecasting models for the best part of twenty years - and still, it is not an exact science! I have great empathy for sales managers, sales directors annd anyone who has to produce a forecast - even finance people (but don't tell them!).Experience has taught me that most organisations rely on one or two of the most popular forecasting methods already in place. While these methods suffice when it comes to predicting a probable total outcome number, they can completely miss the boat when it comes to identifying which line items will actually close or what to do if an opportunity is not fully developed. My objective is to help you leverage some Value Selling concepts to zero-in on the actual line item of the forecast and what to do about it if it is underdeveloped. The Common Route In the most common forecasting method used by leading B2B sales organisations, each forecast item is assigned a probability of closure (arrived at by the sales person's gut feel or a set of defined - sequential - purchasing milestones) in terms of percentages, 25%, 50%, 75%, 90% and the like. They then multiply the probability by the pound amount to derive the forecasted performance. (This is the one most training companies I’ve worked for use.) Often, the management further factors those numbers based on the individual track record of the sales person or manager submitting the forecast - creating a customised forecasting system. Use of this forecasting method demonstrates an organisation's attempt to convince them that a sale will happen. The problem with the "wishful thinking" forecasting process is that it does not help the sales person or sales manager identify what to do about a forecasted item to improve its actual probability for closure. Furthermore, it assumes that the above steps are independent, when in reality they are interdependent. In other words, it reinforces hope, not action. Another Method Another common method involves isolating some percentage of the pipeline and simply factoring it by a set number. For reasons beyond the scope of this short column, 30% is the most common factor used by steady-state organisations in a stable market. For example, if they have £1 million in their "probable" list, they factor it by 30% to end up with a forecasted number of £300 thousand. Once again, this may accurately predict the total outcome, but not the individual line item outcome. What's more, the factor number can, however, vary according to market conditions, sales skills, market segment issues or maturity of the market among other reasons. This factoring method may be adequate when things are in a steady-state, but can easily surprise a sales executive when there is an unforeseen downtrend in their market, or the economy at large. A Twist To Traditional Forecasting Methods I would like to propose a twist to these well-known forecasting methods that approaches the sale from the opposite perspective. Simply put, it is a method of convincing the sales person of why a sale will not occur. The end result is a list of tactics for the sales person to execute in order to improve the forecasting probability for each item, and to more accurately identify which items will actually close. For example, the forecasted item starts off at 100% and then cumulatively falls from this mark if the sales person has not: 1. Identified and confirmed the business issue that will be addressed for the prospect with the product or service (multiply by 0.9) 2. Confirmed the prospect's view of the people, process or technology problems that need to be resolved (multiply by 0.9) 3. Confirmed the differentiation of their solution with the prospect (multiply by 0.9) 4. Confirmed there is enough Real Value in resolving the problems from the prospect's perspective to commit a purchase (multiply by 0.9) 5. Developed the Real Value and vision to address a significant business issue with a qualified decision maker (multiply by 0.5 - this factor is more stringent because most opportunities stall due to missing this one critical activity, usually delegated for execution to an internal sponsor, who is typically not prepared for the process) 6. Developed and confirmed a plan with the customer of the next steps, which, if successful, will result in their commitment (multiply by 0.9) Using your calculator, multiply all of these factors together and you will find that the opportunity ends up at around 30%, as predicted by a steady-state situation. The individual factors can be adjusted to better reflect the factors in your market, sales skills of your organisation or maturity of your product/service. In this fashion, we are reinforcing the buying steps that a prospect needs to traverse in order to make a decision as well as their confirmation that they are in lock step with us in the buying/selling dance. If any steps are unfulfilled, it clearly identifies for the sales person the priority of the step and what tactic is required to further develop the opportunity. Talking to the Right Person Lastly I want to stress again the importance of making sure that the salesperson is talking to the decision maker. In the last year we have research that states 75% of salespeople are not talking to the right decision maker. When a lost deals analyst is carried out, 50% of deals lost are a direct consequence. I wonder how many line items in the forecast are represented by the REAL decision maker. That is to say, as the sales cycle progresses towards that 100% confirmation, is the sales person actually talking to the decision maker? I constantly come across the same on-going mistake people make in sales – and that is they are, indeed, NOT talking to right decision maker.
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