|SalesVantage.com >> Article Archives >> Sales Strategies >> Improving Forecast Accuracy ... Light At The End Of The 'Funnel'|
Picture This ...
While this scenario takes place like clockwork in virtually every organization that sells products and/or services, one of the first questions I ask CFO's is if they actually commit and spend available funds based on the forecast that the VP of Sales just provided. After the initial laughter dies down, I ask three questions:
The overwhelming majority of the time, I receive the following typical responses:
The logical conclusion of this is to wonder why so much of the organization's energy and resources are regularly devoted to producing a forecast that is so unreliable that an arbitrary correction factor is routinely applied?
Why Bad Things Happen To Good People
I believe, that the reasons for such an abysmally poor forecasting scorecard, may be linked to 2 primary areas:
Let's face it, asking individual Sales Reps (especially underachieving Sales Reps) to forecast their own sales is the equivalent to asking the U.S. Congress to voluntarily pass meaningful campaign finance reform ... and we know how successful that has been. Asking the Sales Rep, who is only 70% of quota a week before the end of the period, to admit to his Sales Manager that he will yet again fail to meet expectations, is a waste of time. The Sales Rep will say what he has to get the Sales Manager off his back ... and to try to keep both his job and his expense account. During territory reviews in which I've participated, it is truly a humbling experience to hear Sales Reps tell their Sales Manager how opportunities that have been in the pipeline, with little or no change for months, will miraculously become active and close "at any moment". Clearly, it is in the Sales Rep's best interest to keep the "sunshine pump" cranking out that "sunshine" until the Sales Manager accepts the explanation and goes away.
Since the Sales Manager may have never established and implemented uniform pipeline grading milestones, he has little or no objective criteria on which to grade the status of the opportunity. In this day and age of micro measurement capability, it still amazes me that sales management still asks Sales Reps for their "gut feel" on whether or not an opportunity is going to close in any specific time frame. Wouldn't it be nice if the "gut feel" of Sales Rep 'A' would always be the same as the "gut feel" of Sales Rep 'B'? In fact, wouldn't it be nice if the "gut feel" of Sales Rep 'A' was at least consistent each time he was queried by his Sales Manager?
My own experience indicates that the further the Sales Rep is from his quota, the less accurate his "gut feel" will be. It's been said that, "you can't manage what you can't measure", and without established uniform pipeline grading milestones, the forecasting process will remain a very dark art rather than the science that it can become.
First Things First
Establishing uniform pipeline grading milestones, and converting that information to accurate forecasts, does not have to be difficult. In fact, for all but the most complex situations, it can be quite simple. All Sales people are familiar with the proverbial sales funnel. Wide at the top and tapering down towards the bottom, it graphically depicts the status of each sales opportunity as it progresses through the buying cycle from initial contact to close. By establishing 5 or 6 intermediate milestones, each based on the stages of the buying cycle, and measured by objective, not "gut feel", criteria, movement through the buying cycle may be tracked ... and subsequently forecast with a high degree of accuracy.
Let's start at the beginning:
In the Evaluating stage, as each step in the proposed and accepted Evaluation plan is completed, progress is made towards a final decision and, with each step towards the final decision, the likelihood of success increases. While each organization differs, we have found that once an opportunity objectively reaches the Evaluating stage, the Sales Rep will be successful 50% of the time. As each step of the proposed and accepted Evaluation plan is completed, the likelihood of success further increases until one of 4 things happen:
Again, while organizations differ, we have found that opportunities that objectively reach the Verbal stage will be successful 90-95% of the time. Perhaps surprisingly, in opportunities where final proposals have been issued and where the Sales Rep no longer has any control of the buying process, the likelihood of success decreases substantially.
Light At The End Of The 'Funnel'
As you can see, at each stage of the buying cycle, the common denominator is documentation; usually a letter or e-mail that simply documents and confirms the conversation and events that have occurred. The documentation is easily auditable, as all the Sales Manager has to do to advance the opportunity to the next stage in the buying cycle is review a copy of the documentation. The Sales Rep is not asked to forecast and has no additional administrative burdens beyond what is normally expected in their day to day sales activities.
As what may have become more clear, the development of uniform pipeline grading milestones are representative of a sales 'process' that permits the Sales Rep to take a prospect from interest development to closure. A second, and perhaps equally valuable, benefit to the use of documentation is that it permits Sales Management to determine if the Sales Rep is selling according to the sales 'process' in addition to providing the basis for skill and opportunity coaching to be exercised by Sales Management.
Perhaps the best part of this process is that all of the "sunshine pumps" are retired, which results in much cleaner "air", "gut feel" has been eliminated from the process, and, based on a majority of the organizations that implement this type of forecasting process, a forecast accuracy in the 85-90% range is routinely reported ... something which both the CFO and CEO can take to the bank.
Bernard Aller is the Managing Partner CustomerCentric Selling® - Mid Atlantic. CustomerCentric Selling® provides the Sales and Marketing team with a repeatable, scalable sales process that is designed to align with the way sophisticated organizations buy. He may be contacted at 410-730-4747 or firstname.lastname@example.org.
More articles by Bernard M. Aller
More articles on Sales Strategies