There’s something boring about defining and using a sales process in your sales management practice using a CRM. Many see this effort as an administrative requirement from finance and senior executives to report the weekly and monthly forecast. Many sales teams adopt the common industry practice of applying a probability of closing (illustrated in this article as percentages) for every sales stage to the total amount forecasted. I get the math behind it, and it sounds appropriate to generate a forecast, but how can you really inspect and coach your sales rep opportunities using only sales-stage probability? You can’t assess the risk of closing a deal just by applying a probability to the total amount or by reducing/increasing the opportunity amount to those opportunities in the proposal or negotiation phases, but you can assess the risk by understanding the actions that the customer took to determine which solution would solve their internal pressures. The most accurate way to forecast a deal is to map out your sales process based on your customers’ buying activities (sometimes called the “customer journey”).
Managers want to add a scientific approach to their forecasting and for some, it will be easy just to take the opportunities with due dates in a particular fiscal quarter, multiply their amounts by the probability assigned to every sales stage and finally add the entire amount to their forecast. For example, if an opportunity moves from a 50% likelihood of closing in the solution stage to 70% in the proposal stage then the forecast will be increased by 20% of the total opportunity amount from the last presented forecast. Also, there are some managers who move the due dates of opportunities with a < 50% probability out of the fiscal period to avoid inflating their forecast. And all of this assumes that the opportunities are in the right sales stages to begin with. From my experience, I’ve seen all sorts of math and rules applied to generating an accurate forecast, but you and I both know that is no way to assess the risk of opportunities reaching the closing stage. Let me share a couple of examples to explain why:
You have a deal worth $1M in revenue at the proposal stage due this quarter (with a 70% probability of closing), and you calculate the risk of this deal by estimating only $700K ($1M x 70%) in your forecast. The lead sales rep categorized this deal in the proposal stage because s/he sent a quote to the prospective customer. Now, if you ask the right questions, you find out that the primary contact doesn’t have the final say, so the opportunity should really be categorized at 20% in the qualification stage while you identify the decision-maker for the deal. As a result, you end the quarter without winning the deal with a variation in your forecast of -$700K, and, even worse, you have added pressure to secure the $1M deal in the month after the quarter’s end, just because you wanted to demonstrate control of your business by keeping the opportunity in the proposal stage.
You have a deal worth $1M in revenue that represents 50% of your quarter and is in the negotiation stage (with a 90% probability of closing), and you will calculate $900K for the forecast. There are competitors involved and the sales rep is trying to progress the opportunity so that the customer views the rep’s proposed solution as the preferred one and not at the bottom of the top 3 shortlist. Because the value proposition wasn’t clear and validated by the rep in an early sales stage, you need to offer a generous discount for the customer to still consider the solution, which may delay the decision that would allow you to regroup and sell your value proposition. After quarter’s end, the committed $900K never came through because you lost the deal, leaving a big hole in your quota achievement.
See how a lack of a defined sales process impacted the success of the product you’re selling or the customer’s decision-making process in buying a solution? Assigning probability to a named sales stage offers very little to no guaranteed value. You inspect and coach the sales reps on how they are progressing in the customer buying process, and you commit the real amount of revenue according to the solution proposed to the customer, which was confirmed in the value proposition stage.
To make this happen, you can build your sales process by incorporating the following elements:
1. Define "exit criteria" informed by customers’ actions in their buying-decision journeys. For example, a customer was able to confirm your value proposition by reiterating how your solution or product will provide a quantifiable resolution to their problem—this is one of the exit criteria needed for the opportunity to pass from the value proposition to the proposal stages.
2. Confirm all exit criteria in each sales stage with supporting documentation. Have evidence of each criteria to confirm a customer actively moved forward in their buying cycle.
3. Suggest questions to assess and validate the exit criteria. Help your managers with the ultimate coaching resource: powerful questions. Create a list of questions that they can use to inspect and coach opportunities, and make sure they purposefully incorporate them into each 1:1. After several months, they will naturally come up with their own questions in those meetings.
4. Define and name sales stages that group customer actions in their buying process. Once you have applied a list of criteria to the customer buying journeys, then you can group them and define specific sales stages for your own sales process. You might develop distinct criteria and stages for different business models and offerings within your company. For example, you might have a sales process for the product you sell and a different process for services offered.
During your inspection effort, you want your team and reps to take the best actions to influence the buyers or get them to agree to next steps. These actions will be the bar for you to benchmark your team and coach them by improving the customer experience in every engagement.
Many companies have documented their sales process and that documentation is used in both seller and manager onboarding. After 30 days, you will find that they can barely identify the sales stages in the right order and only have a high-level understanding of the final goal for every stage. It is hard to remember details in each stage, let alone assign probabilities to them. There are tools that help to expose the elements mentioned above for managers and reps to use in their analysis and coaching effort. You must bring the sales process into every internal review process and coach the reps in areas where they can improve their customer interactions; otherwise the managers will end up using only the probability of opportunities to prepare their forecast without assessing the risk of the pipeline. I will write more about how to create an effective forecasting model, but before you can implement any forecast approach, your managers must master the inspection and coaching of sales reps’ pipeline and skills.