More Accurate Forecasting and Reducing Close Date Slippage (CDS).

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In earlier posts I discussed uncertainty in selling situations and how uncertainty manifests itself as a range of probabilities of success in closing a piece of business, and I coined the term ‘Uncertainty Range’ to refer to range of probabilities.

I also showed that the size of the Uncertainty Range was a direct indicator of how well the opportunity was qualified; a poorly qualified opportunity has a much larger Uncertainty Range than a Qualified or Well Qualified opportunity.

And if you recall, I introduced the term Degree of Qualification (DoQ), which is a measure of how well the opportunity has been qualified and represents your level of knowledge about the opportunity.

And in my last posting I discussed how we need to qualify an opportunity along 2 dimensions, the Probability of Winning and the Probability of Closing by the Close Date.

So let’s bring all these concepts together make some sense of this stuff and see how they apply to what we do for a living, which is selling.

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In the previous post I mentioned that for practical purposes when it comes to forecasting most sales reps (& sales managers) only include opportunities that they are highly confident of winning.  It doesn’t make a lot of sense to advertise to the world (via a CRM) the opportunities that you’ll lose.  But research by Beagle Research indicates that only 40% of companies have a forecast that is accurate to 85% or greater. 

So where’s the disconnect? 

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This sounds ominous, but it isn’t.

Before we get into the details of forecasting, perhaps we should consider why we spend so much time and effort creating them.  They must be important otherwise we wouldn’t do them.

A company needs to create a budget.  So what is a budget?  It’s simply a statement of how much they will spend and how much they will earn.   It’s revenue versus expenses.  Normally, it’s pretty easy to forecast expenses, and to some extent expenses can be controlled.  What’s not easy for a company is forecasting revenues; there is a lot more uncertainty associated with revenue.    I’m not going to say anything more about budgeting, I’ll leave that to the finance guys.

In a company there is only one group that generates revenue, and that’s ‘Sales’.  So it’s not unreasonable for senior management to want to know how much revenue the sales department will generate in some future quarter etc.    So the CEO goes to the VP of Sales for a revenue forecast, who goes to the District Sales Manager, who goes to the Sales Manager who goes to the Sales Rep.  They all want a forecast.

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In my last post I described a simplified, but common scenario where a sales manager has submitted her next quarter (Q3) forecast; the quota is $500K and she has 15 opportunities in the forecast, each worth 1$100K and each with a probability of closing equal to 33 1/3 %.  

At the end of Q3, she made her quota of $500K, so what happened? 

This is not a trick question…! 

The answer is obvious; the sales reps closed 5 of those 15 opportunities in Q3 for the full amount of $100K each, and they did not close the other 10 opportunities.    

So can we draw any conclusions from this simplified example?   Yes we can.  

The probability of winning a piece of business changes as the opportunity moves through the sales cycle.  

But what causes it to change? 

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