A Simplified Method of Forecasting Sales
Here’s a typical sales manager’s dilemma: You ask four different salespeople, “What are the chances of getting the sale?” and you get four different answers. It’s not that the salespeople are lying; it’s just that most salespeople don’t have common criteria for making an accurate judgment call.
A lot of salespeople feel they are doing their job if they keep their sales funnel or sales pipeline full to capacity. Not true. The job of a sales professional is to not just keep the sales funnel full, but to keep it full of “real” opportunities and not “wished or hoped for” sales.
Pipeline vs Sales Funnel
By the way, many people use the terms sales funnel and sales pipeline interchangeably. I prefer to think of the pipeline as the conduit that feeds the sales funnel while the funnel itself is where the sales opportunities reside.
A Dumping Ground
Overly optimistic salespeople will dump almost any potential opportunity into their sales funnel just as long as the prospect is breathing. Just because someone is breathing doesn’t mean she’s a live prospect, it just means she’s alive period! Unfortunately, the sales funnel can get clogged up with too many non, or poor, opportunities and the salesperson spends time spinning his sales wheels instead of focusing on business that he can close in a timely manner.
One way to minimize the sludge is to make sure that it doesn’t get into the funnel in the first place. It’s important to properly qualify the opportunity early in the sales process. Sharp salespeople not only take the time to properly qualify opportunities, but they take pains to disqualify those opportunities that can result in wasting their valuable selling time.
Separating the Wheat from the Chaff
Even the most efficient salespeople will find their sales funnel getting filled with sales sludge from time to time. They need to review what’s in the funnel and take the time to separate the good opportunities from the bad and clean the funnel up so it’s flowing effectively again.
How often they decide to clean out their funnel will depend upon how many new or potential opportunities are added each month. As a minimum, they should probably be cleaning up their funnel once a quarter, or even monthly, if they’re doing the type of selling that generates a lot of potential opportunities.
Outlined below is a relatively simple tool that will help them (and you) decide whether an opportunity is worth keeping in the funnel or not, and if it is worth keeping, what priority should be assigned to it. This method allows you to quickly assign a percent chance of closing the sale to each of the opportunities. Once you’ve assigned a percent chance of getting the sale to the opportunities, they can be ranked in order to determine which opportunities should be worked on and which ones should be left alone to die a natural death.
All you need to do is get your salespeople to look at each of their opportunities and check off the questions in four categories – price information, degree of urgency, funds approval, and competitive edge.
- 10% Prospect has written quote or price information
- 5 % Prospect has verbal quote or informal pricing information
- 0% Not quoted as yet
Degree of Urgency
- 30% High degree of urgency. Prospect must buy something now.
- 20% Medium degree of urgency. Prospect should buy something now.
- 10% Some degree of urgency. Prospect may decide to buy now.
- 0% No or low degree of urgency. Prospect doesn’t need to buy now.
- 30% Opportunity funded to or above our price.
- 20% High probability of funds approval.
- 10% Good probability of obtaining funds.
- 0% Funds not yet available and/or approved.
- 20% Sole source, no other competitors being considered.
- 10% Good rapport, preferred or favoured vendor.
- 5% Competitors still being seriously considered. Who and why
- 0% Sale possible only with difficulty. Why?
You’ll note that, at best, they can only have a 90 percent chance of getting the business. That’s because you don’t consider a sale 100 percent until the product/service has been delivered, installed, completed, paid for, etc, and you’ve done a follow-up to ensure the customer is satisfied.
After setting his sales priorities, a salesperson should work first on the opportunities that have the greatest chance of closing, regardless of the value of the opportunity.
Monitoring the Sales Funnel
I recommend that you have your salespeople present you with a monthly list of each opportunity they expect to close within the next 30 days. Get them to multiply the gross value of each opportunity by the percent chance of getting the sale (see above). This will give you the “weighted value” of the opportunity.
Now, here’s the key. In any given month, the total of a salesperson’s weighted value of the opportunities due to close that month should equal or exceed the person’s quota or target for the month.
For example, let’s assume that a salesperson is expected to bring in $100,000 a month in sales and halfway through the month, the weighted value of the sales due to close that month total $70,000. The chances of that salesperson meeting the sales target are poor unless there is a big sale coming along that no one knew about. On the other hand, another of your salespeople with the same quota has a total of $125,000 in weighted value opportunities in the sales funnel due to close. Chances are very high that he will make target.
One-size Does Not Fit All
Of course, this system isn’t a one-size-fits-all solution to the problem of sludge removal and forecasting sales, but it can be changed and modified to fit most sales situations.
Take the time to make it fit yours and watch your sales forecasting get even more accurate.
Trying to get an accurate forecast for the next 12 months is pure folly. You can, however, get relatively accurate 30-, 60-, and 90-day forecasts by staying on top of your salespeople’s sales funnels.