Experience has taught me that most organizations 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.
In the most common forecasting method used by leading B2B sales organizations, 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 dollar amount to derive the forecasted performance. Often, the management chain further factors those numbers based on the individual track record of the salesperson or manager submitting the forecast - creating a customized forecasting system. Use of this forecasting method demonstrates an organization's attempt to convince themselves that a sale will happen.
The problem with the "wishful thinking" forecasting process is that it does not help the salesperson 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 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 per cent is the most common factor used by steady-state organizations in a stable market. For example, if they have $10 million in their "probable" list, they factor it by 30 per cent to end up with a forecasted number of $3 million. 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 disturbance 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 salesperson 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 per cent and then cumulatively falls from this mark if the sales person has not:
- Identified and confirmed the business issue that will be addressed for the prospect with the product or service (multiply by 0.9)
- Confirmed the prospect's view of the people, process or technology problems that need to be resolved (multiply by 0.9)
- Confirmed the differentiation of their solution with the prospect (multiply by 0.9)
- Confirmed there is enough Value in resolving the problems from the prospect's perspective to commit a purchase (multiply by 0.9)
- Developed the 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)
- 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 per cent, 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 organization 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.
About the Author:
Julie Thomas, President and CEO of ValueSelling Associates, is a noted speaker, author and consultant. In a career spanning more than 20 years, she credits her mastery of the ValueSelling Frameworkﾮ for her own meteoric rise through the ranks of sales, sales management and corporate leadership positions.