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? 

In the same post, I proposed that the disconnect is that Close Date for a number of opportunities in the forecast slipped outside the forecast period, i.e. they closed, but they did not close when they were supposed to.  Which implies that we need qualify the opportunity on two dimensions; first, the Win Dimension, ‘Am I going to win?’ and secondly the Time Dimension, ‘Will it close when I said it will close?’

Before we take a closer look at Close Date Slippage (CDS) let’s examine what happens in the ‘real world’ of Forecast Vs. Actual at the sales manager and above level.

The typical sales manager’s forecast will list all the opportunities they expect their sales reps to close in the quarter and normally these opportunities would close throughout the quarter and we would expect a nice steady progression to the achievement of the quarterly quota.  That’s the theory anyway, but what’s the reality? 

The reality is that the progression is not a straight line but is in fact shaped like a hockey stick where hardly anything is closed in the first part of the quarter and there’s a mad rush in the last half of the quarter to close business.  In the graph below, the blue line is the forecast close (when the business is supposed to close) and the red line is when the business actually closes.

We’ve all been through it; the panic in the last few weeks of the quarter where everyone in sales is completely focussed on closing everything thing they can.  We’ve been ‘leaned on’ by management to bring in an order from the next quarter to make up a short fall; we’ve sat through the ‘War Room’ meetings, the emails and phone calls from the VP’s who want to know when the order will close.  And not to mention the visits from the senior sales team who are flying in to help us. 

And this pattern repeats itself time after time.

So why does this always happen?

There’s actually a couple reasons, first and foremost is the simple fact that when we put a Close Date against an opportunity we are assuming that there is a 100% probability that it will close on or before that date.  That’s just wrong.  Just because our contact within the prospect organization gives us a close date, doesn’t mean it will actually close on that date.  What we have to do is qualify the opportunity with respect to its Close Date as well as qualifying it with respect to winning.  In other words, we need to qualify an opportunity in two dimensions.

But there is another, more insidious, reason which is not so easily fixed, and it has to do with the way the sales people are measured and the way in which a company reports its results.

Normally a sales rep is given a yearly quota which is divided up into 4 quarters, and if you look at the reward system, making the 100% Club (or whatever you call it) etc., that’s based on the year as well.  As long as a sales rep makes their yearly quota he/she is considered successful.  From the sales rep’s perspective if an opportunity slips from one to next it’s not such a big deal, as long as it doesn’t slip into the next year.   Sales reps are rewarded for winning the business, not the timing of it.  And a sales rep might say, “I don’t care when I win it, as long is I win it.”

But sales managers (and most VPs) are typically measured on quarters, so it is a big deal if an opportunity slips into the next quarter.  It’s OK if the opportunity slips from one month to the next, within the quarter but there’s trouble if it slips into the next quarter.  And that’s why there such a panic at the end of the quarter.

The reason for this strong focus on quarterly results is that companies are measured by the quarter, if it’s a publicly traded company their stock will rise or fall based on their quarterly results.  So yes, there is a huge focus on the quarter.   This is not going to go away and there will always be a strong focus on quarterly results, and chances of changing a sales rep’s perspective from yearly to quarterly would require a radical re-thinking of the sales force.  

What can be done? 

The solution to Close Date Slippage (CDS) is to provide a close date for an opportunity that you have a high degree of confidence will happen.  And how do you acquire that high degree of confidence?  By qualifying the opportunity for the Close Date in addition to qualifying it for winning.

In my next article I will discuss how to qualify an opportunity along two dimensions; Winning & Closing.  We’ll also deal with Uncertainty as well.

So stay tuned for 2D Qualifying………………………..

Mel

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Tags: CDS, Close Date Slippage, Confidence Factor, Degree of Qualification, DoQ, forecasting, Occulus, qualified opportunity, qualified prospect

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