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One of the more difficult things for sales managers to do well is forecasting their quarterly revenue, an exercise only slightly more scientific than getting a prediction from a 24-hour tarot card reader or choosing a lucky number in roulette. There are a number of reasons for this difficulty, but the main problem with committing to a forecast number is that, until the digital ink dries on your DocuSign contract, it's impossible to know for certain you will win your prospective client's business.

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The Worst Way to Forecast Sales

The very worst possible way to forecast your revenue is to use the default settings in Salesforce.com or whatever CRM you are using to manage your opportunities. The default probabilities are not scientific and mostly a legacy sales approach holdover from the long-past "Solution Selling" era. These legacy algorithms were mostly used to mark a salesperson's progress toward executing a linear sales process, one that might have started with "qualified" and a probability score of 10%. The 10% figure you find in all kinds of CRMs has nothing to do with the actual percentage of deals you might expect to win. You would be better served by sharing your forecast with your local sports bookie, letting them interview your sales reps, and having them venture a guess at your quarterly revenue.

You have, no doubt, monkeyed around with the numbers, perhaps believing that changing the percentages to match your reality will help. That’s an exercise in delusion right up there with “believing your local Senator’s campaign promises.” Comforting lies are the easiest to swallow, but they’re still lies. For instance, if your team won 70% of their deals that reached the “presentation and proposal” stage last quarter, hard-wiring that prediction in your CRM won’t stop them from only winning 40% of those deals next quarter.

The Invisible Evidence

Some predictions are easy to make: if Jimmy has turned in his last three sales reports a couple days late, chances are good that the next one will be late too (good luck getting your local bookie to give you even odds on that bet). But predicting sales is far more difficult because most of the evidence that you’ll lose a deal is invisible.

In the example above, your 70% win rate in quarter one might lead you to believe that is a reliable number, even though you have only one sample, a single quarter. The 40% result in the second quarter should not only convince you that your forecasting metric is unreliable, but that a salesperson's providing a presentation and a proposal has less to do with winning the deal than you thought.

Bad math, especially the optimistic kind that likes the 70% number, is a recipe to miss your forecast. Let's pretend that your best salesperson just finished a presentation with their dream client. The call was spectacular, with the stakeholders asking all the right questions, so your smooth, buttoned-up, salesperson—the one who is great at thinking on their feet—reports that the deal is all but done. She updates the CRM, and the opportunity shows up in the 70% column of your report.

You know what you know, without knowing what you don't know. Your rep's dream client is interviewing four different potential partners, something that is invisible to both you and your salesperson. Now, I’m not a professional mathematician or statistician, but with four companies competing for the client’s business, I’m going to go out on a limb and say that your chance of winning is just about 25%, even with a successful sales call.

But it’s not just the presence of competition here: you also cannot observe or assess your competitors’ performance, let alone the nature of the relationships your competitors have with the stakeholders and decision-makers. That kind of invisible evidence is often only revealed after you lose a deal—and overstate your forecast by some number near 30%.

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Asking the Right Questions

Rather than assume next quarter will operate the same way this quarter did, a better way to gauge confidence is to ask better questions during the sales conversation. Ask your salespeople what other options the prospective client is considering, or how close they are to having the right approach for improving the client's results. There is no reason to avoid asking for data you need to track.

At the same time, train your sales force to notice evidence that might otherwise be invisible to them. The fact that there were four contacts at the first meeting but only two at your presentation may mean that you have already lost the deal, as the two senior people on the client's side politely bowed out of the conversation. Conversely, if your client goes from sending two representatives to eight, that’s good evidence that they heard something they believed was important enough—and delivered well enough—to invite their peers to join them for part two of the sales conversation. The quality of your conversation matters too. When your contacts start asking you specific questions about how you differentiate your offering from your competition, for example, you can bet the house that they are engaged with a competitor.

There is almost always evidence that you are going to win or lose a deal, but little if any of it is captured in your CRM’s percentages.

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Post by Anthony Iannarino on November 30, 2021

Written and edited by human brains and human hands.

Anthony Iannarino
Anthony Iannarino is a writer, an international speaker, and an entrepreneur. He is the author of four books on the modern sales approach, one book on sales leadership, and his latest book called The Negativity Fast releases on 10.31.23. Anthony posts daily content here at TheSalesBlog.com.
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