Recently I had a conversation with a friend of mine who’s also a sales executive.   He told me that they were consistently missing their forecast, and by a significant amount.  In his case the root cause of the problem was that they were including all of the opportunities from their pipeline.  This means that they included early-stage opportunities that were not qualified enough to be included in the forecast.

It is very appropriate to include early stage opportunities in the pipeline.  They give management important metrics about overall pipeline health and pipeline balance.  But they should not be included in the forecast for any of a number of reasons: Their values are highly speculative and typically overstated.  They are very unqualified too because of a number of potential factors:  The seller may be “below the power line”, and/or the severity of the problem may not be known, and/or the solution may not be full identified, and/or the sequence of events leading to a buy decision may not be known, and/or other key buyers may not have been accessed.

By practicing the three simple steps that follow, sales and finance executives can get highly accurate forecasts.

  1. Utilize “no wiggle room” stages to grade opportunities.  Stages must be defined that precisely grade the status of individual sales opportunities. These stages must be unambiguous and reflect key events completed with the buying organization. For example, “Assessed Needs” is not good enough. “Defined needs with Power Promoter, discussed Action Plan, and agreed to Letter of Understanding” is unambiguous, not based on seller opinion, and warrants assigning an “A” stage with a 50% probability of closing.
  2. Managers must rigorously grade opportunities.  One of the key roles of the sales manager is to analyze opportunities. The objectives are to:
    • Identify and rectify gaps. If the seller is unable to eliminate the gaps, then in most cases the opportunity should be disqualified.
    • Using the stages described above, grade the opportunity.
    • Once the manager has graded the opportunity, that grade results in an accurate probability of closure. This, in turn, results in the manager being able to then build an accurate opportunity-based forecast.
  3. Follow a sales process aligned with the way your buyers buy.  If your sellers follow a sales process that is aligned with the way your buyers buy:
    • They will not miss key steps during the sell cycle and will therefore both mitigate buyer risk and improve forecast accuracy.
    • Sellers will use date-driven Action Plans (i.e., a sequences of events), agreed to with their Power Promoters, that will accurately predict close dates.
    • With a CRM you will be able to add greater accuracy to closing probabilities based on historical data, thus further improving forecasting accuracy.