Piling on! More on the Most Useless Metric in Sales

alt text for Businessman Consulting Financial Crystal BallOnce in awhile you have an insight that is both simple and brilliant. Oh . . . I haven’t just had one of these. But my friend, Dave Brock, has had one, and I have been fortunate enough to discuss it with him at length.

Dave’s post today, The Most Used – Useless Metric In Sales, points out just how ridiculous most of our forecasting efforts are. Despite missed forecasts being a common and consistent complaint from sales leaders for years, the methodology has stuck: increase the odds of winning as the deal progresses through the sales process.

Dave points out that with 3 competitors competing for a deal, all using the same system, each would be forecasting a 75% chance to win. In reality, this means each competitor should really be assuming a 25% chance of winning (there is always the possibility that the dream client decides to do nothing or to do something else), not 75%.

To do a better job of forecasting your deals, there are some things you can do. First, you have to eliminate the idea that your odds to win increase substantially just because you have moved the deal into a new stage.

A Better Way Forward: Use the Salesperson’s Win Ratio

I know this sounds crazy, but there is really no reason not to use the salesperson’s own close ratio. If the sales person closes or wins 2 out of every ten deals, why not forecast the 2 deals he will most likely win? If he has ten deals worth $100,000 each, why not forecast $200,000? When he has two deals in the final stages of the sales process, why not forecast the $40,000 that his personal performance justifies?

Is there any reason to forecast a better result? Is there a reason to forecast 75% of the $200,000?

If there is, and if you’d like to a more sophisticated approach, why not really decide whether or not you will win or lose the deal?

A Better Way Forward: Using the Evidence

There are a lot of questions that you could ask that would allow you to better forecast the likelihood of a winning deal, outside of making the false assumption that your odds have increased because it has moved further a long the process or simply looking at the salesperson’s performance. You can ask questions that help you to gather the information that would give you a better forecast—and perhaps the ability to do something about winning more deals in the bargain.

  1. Why do we believe we have better than even odds to win this deal? Is there some evidence that suggests that out of three competitors we have better than a 25% chance (remembering a no decision is a contestant here, too)?

  2. What percentage of deals do we win over these competitors? Are these competitors we have a strong track record of winning against? Are these competitors who typically beat us? Are there circumstances that indicate that this deal looks like the deals we usually beat them for, or them us?

  3. What factors in this deal favor us and why? Do we have a strategic advantage in this deal that suggests better odds? Do we have a necessary solution that they are missing? Do we have deeper relationships? Do we have a history with this dream client?

  4. Which factors in this deal favor our competitors? Are there areas here where we are not the best choice for this dream client and a competitor is? Where ware the weak spots in our solution that might cause our dream client to choose a competitor?

  5. Has the dream client given us a firm rationale and an indication that we are favored? Is there any reason to believe that we are being chosen? Has the client told us that they favor us and why? Does that eliminate a future threat should our competitor, say, reduce their price by 15%?

  6. Have the members of the buying committee expressed a preference for our solutions? Have we heard from the buying committee members that our solution not only meets there needs, but that they believe it is the right solution for them? (Yes, you should ask them!)

  7. How many verbal commitments do we have that our dream client will select us over our competitors? Have we done a roll call and counted the votes in the way of verbal commitments? Do we have a wide enough margin of votes to feel confident in forecasting better odds? Do we have the votes of key influencers?

  8. Has our dream client made commitments with us that indicate that we are being chosen, commitments that haven’t been made to our competitors? Are we proceeding with implementation meetings? Are we being granted appointments and access that our competitors are not?


The answers to these questions, and the dozens of others like them, can give you a much more accurate ability to forecast your wins and your future revenue.

Conclusion

Forecasting in sales is tricky business. Using the standard forecasting rule of increasing the odds of winning as a deal progress isn’t accurate and contributes to many missed forecasts. Ask the questions and study the evidence to produce better forecasts . . . and to do something about winning the deals while there is still a chance of doing so.

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  • http://www.evergreengrowthadvisors.com Tom Knight

    Great post by Dave. But what about above the funnel metrics that predict oppty quality? There’s a huge oppty for most companies to narrow their funnels and increase their velocity by increasing the number of high quality inputs. Otherwise your still playing the garbage-in-garbage out game, and polishing the proverbial …

  • http://www.partnersinexcellenceblog.com Dave Brock

    Anthony: thanks for the compliment! I appreciate it. There has to be a better way to look at deals and their odds to win. Much is based on the way customers buy and make decisions. Many of the areas you discuss are great elements. The one thing I know is the current approach is, at best, meaningless, at worst misleading.

    Tom thanks for you comment. I was just focusing on on specific issue—happened to run across a lot of issues recently on it. There are many very powerful metrics based on the funnel/pipeline. I’ve written about many of those in the past year. Additionally, the concept of narrowing the funnel is similar to what I’ve written on Vicious Disqualification. The issue of velocity is related to the issue of cycle time reduction. You may want to visit my blog and look at those articles–I’d welcome your comments!

    Regards, Dave

  • http://www.flyingtzlp.com Reagan

    Good focus by Dave on using the salesperson’s win ratios. I am a firm believer in using past performance by a salesperson as an accurate forecasting tool. Human beings are creatures of habit. We get used to making a certain amount of money, if something is threatening our wallet most of us will take quick steps to ensure its safety. A strong atmosphere and expectation of constant prospecting will ensure the opportunity to replace any lost deal. Great post!