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Sales Solutions
Forecasting, Part II vol 3, issue #1
January, 2005
In Part I 1 of Forecasting, we discussed the importance of providing an accurate forecast, why we might sometimes knowingly provide something less than accurate, and the ramifications of doing so. In this issue, we tackle what constitutes "best" when it comes to forecasting business.


Most sales people are trained (or not trained) to simply apply a number or letter when a deal gets to a certain stage - after the initial conversation, 10%, after the first meeting, 20% after the presentation, 50%...and so on. I've never liked these methods, because simple movement through the sales cycle doesn't necessarily translate into probability of closing. Many other factors need to be considered in order to provide an accurate, meaningful, and actionable forecast. What, then, are those factors?


There are three elements that need to be considered when forecasting a piece of business: The likelihood that the deal will close at all ("Win"), when you project it to ("Timing"), and in or near the amount you project ("Amount"). Let's explore each of these in turn.


Win Likelihood

This is your estimate of how confident you are that you will win the deal - period - irrespective of the amount or the timing. Factors you consider in determining this include:

  • Feedback from the prospect ("Love what you've presented here - best we've seen so far!" or "You seem to be missing a capability your competitor has")

  • The number of competitors and the relative strength of their offerings in the eyes of the prospect

  • How well you have qualified them (confirmed a need, budget, the authority to buy, and an urgency to do so)

  • Historically, what percentage of deals at a given stage eventually close (e.g. of 40 deals that got to a second meeting, if 32 died after those meetings, then the Win likelihood today of a given deal at that stage - all things being equal - should be 20% (40-32=8; 8/40 = 20%)

  • The presence or absence of factors out of your control (a pending merger, or an adverse legal judgment)


Timing Likelihood

You may feel good about a deal, but Management also wants to know when they can expect - and count on - the revenue (cash, actually) from your deal to show up. They're going to want a high confidence that your projected close date is accurate. Factors you consider in determining Timing include:
  • How long is your typical sales cycle, and is this a typical sale?

  • What are the stages of your sales cycle, and how long do they typically last?

  • Are there any extraordinary factors that could speed up or slow down this deal (exceptionally large size of deal, or number of committee members; a customer-imposed deadline)?


Amount Likelihood

Lastly, you need to project a dollar amount for your deal. Once you've assembled a quote based on the prospect's requirements, factors you consider in refining the Amount include:

  • Does your company permit negotiation from list price?

  • If so, how much leeway to you (or your boss) have?

  • How hard - and successfully - do you anticipate the prospect will negotiate for a better price, or better terms?

  • Who's the more skilled negotiator - you, or the prospect?

  • Who has more negotiating power in this deal?

  • What discounts or current promotions do you have in place that you may be compelled to offer?


While I've always advocated for reps to report the quantitative details of each deal - prospect name, Win likelihood, Projected Close Date, and Projected Amount - I've also always had them include 3 fields or columns of qualitative comments: one each for Win, Timing, and Amount. This allows the rep to provide a more complete and accurate picture than the best guess numbers can. For example, a rep projects an 80% likelihood of a deal to close for $40,000 this month. His comments in each field or column might be:


Win Likelihood comments: "Well positioned with champion and key influencers. Been told we're in the lead!"

Timing Likelihood comments: "Could slip to Feb. Gut tells me it won't but haven't been given sufficient assurance this has to be done in Jan"

Amount Likelihood comments: "Pretty solid - because we're perceived as best solution, don't think we'll need to budge much, if at all, on $"


As a manager reviewing forecasts with your reps, these comments provide you with a more realistic picture of the landscape. It also provides probing points to explore with them, which often lead to brainstorming and ways to improve the various likelihoods. In fact, in working with a client last year, we applied this discipline and saw this very phenomenon happen: a significant improvement in the quality of the forecast, and ideas that helped to shorten the sales cycle and maintain the forecast amounts.


One further note for managers: when reviewing forecasts, in addition to analyzing the numbers and the comments, you need to develop an intuitive feel for what looks right (and what doesn't), based on your own experience. For example, if a rep submits a forecast with a deal that looks too optimistic (75% probability to close this month, it's the twelfth of the month, and the prospect hasn't even seen a presentation), you need to push back on him or her to justify that forecast.


ACTION ITEM

Forecasting has always been, and always will be, an inexact art. But that doesn't mean there's nothing we can do to improve the accuracy of the process, and of the output. Reps, take a look at your own forecast. Do you feel comfortable that it gives your manager - and yourself - a complete picture of each deal? If not, add the qualitative comments fields I've presented here. It will not only give management a truer picture of what's going on, but it may also help you and your manager discover ways to improve the odds of closing, closing sooner, and closing for more. Managers, have your reps include these fields in their forecasts, explaining the benefit to them of doing so. Then use this additional information to both explore ways of closing deals as forecast, and to provide your own senior management with a clearer picture of when funds can be expected to be available for their use.



Good Selling!



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