Our Head of Technology Ian Laverty has over 10 years’ experience helping businesses grow their turnover and profitably, so when discussing the common mistakes made when trying to accurately predict sales projections, who better to ask? This is what he told us.
You know what they say about the size of a salesman’s pipeline? I’ll come back to that later…
I’m a salesperson. I’ve made mistakes. Lots. I’d like to think I’ve learned from at least some of them. I’ve worked with sales professionals and sales teams for over a decade. The nature of the sales profession has changed significantly in that time aided by learning from, amongst many things, behavioural psychology, Neuro-Linguistic Programming, better customer research and, of course, technology.
Mainly these changes have been positive and have led to the sales person being seen as a recognised professional within the organisation where previously it was often seen as a dark art and a poor relation to other disciplines (although I’m still at a loss as to why there are few, if any, recognised academic qualifications in sales to match the disciplines of marketing, business studies and human resources?).
However, there is one area where sales professionals continue to struggle and the consequences for organisations are often significant. Pipeline assessment and projections. It is often the bane of the sales manager’s life. Trying to get accurate forecasting and projections is often akin to finger in the wind or pin the tail on the donkey. You see, salespeople by their nature are optimistic. They’re positive people – at least the good ones are. They must be. They must believe that every opportunity can be converted otherwise it’s not pursued fully. They’re competitive. They talk themselves up. I do it myself to this day. The size of a salesman’s pipeline is a measure of his optimism and hopes.
Most salespeople have a process for estimating future sales based on the opportunities in their pipeline. This starts with all those leads that enter the sales funnel at the beginning of the sales process and follows those prospects through until they become customers (or not). There’s usually an assessment of how likely they are to become customers – how likely they are to buy from us – often by way of a percentage estimate. Most sales CRM systems offer such a feature. You can then work out your ‘expected’ future revenue by adding up your weighted opportunities. For example, a lead worth £100,000 with a 50% chance of winning it will show as £50,000 in your future revenue stream. Of course, you are likely to win all of it or none of it rather than £50,000 but if you have enough opportunities in your sales funnel then the process averages out and should be reflective of the overall situation.
Except it rarely is. Projections of sales pipeline revenue are almost always over-estimated. They’re inherently inaccurate and unreliable, and that’s dangerous for an organisation. If projections are being used to estimate future revenue streams and business budgeting decisions are being based on this, shareholder communications or stock ordering then the business is going to find itself in a difficult situation.
So why is it so rarely accurate? Why do fewer prospects filter through to the bottom of the funnel than we expect? The problem is that our estimating system is flawed. A simple one category estimate of ‘how likely is the prospect to convert’ is too wide and asks the salesperson to weigh up too many factors to come up with a single figure. There is evidence of our over-optimistic sales professional right from the outset. We’ve conducted a little research on this over the last 6 months. When a new prospect arrives at the top of the funnel the sales professional often defaults to 50% as the percentage chance of the opportunity being converted. This happened in 91% of all cases. To exacerbate this, a salesperson will rarely adjust an opportunity downwards after the initial assessment until it is lost whereby it is removed from the pipeline. Try this yourself. How many of your assessed opportunities have a lower than 50/50 chance of converting? Often, we find that no opportunities are ranked lower than 50% chance of converting. If that was reflected in actual results, then one in two opportunities going into the top of the funnel would be coming out the other end as customers.
The first thing we need to do therefore is be far more critical of our chances of converting a brand-new opportunity unless there’s a compelling reason to look at it confidently (and 50/50 is optimistic for a brand-new opportunity).
Secondly, we need to introduce a set of more robust opportunity assessment criteria. These criteria should break down the elements of the sales process and quantified accordingly.
1. How well do we know the prospect?
2. How strong is our relationship with them?
3. How well do we understand their business?
4. How well does our product/service meet their needs?
5. How well does the prospect know/understand our product/service?
6. How well does the prospect know our business?
7. What is our competition for this opportunity?
These criteria should be scored, and these scores should contribute to an overall probability of the prospect converting. There should also be room for an element of ‘gut-feel’ but that should be one of the criteria rather than the only criteria. A good assessment process will also guide the salesperson as to the actions required to move the prospect through the pipeline so that they come out the bottom of that funnel rather than getting jammed in the middle.
Now we understand that this may as seem overwhelming, and you’re asking yourself “Where am I meant to find the time to do all this as well as keep on top of my sales pipeline and lead generation?”. Well, lucky for you, we at HMC Global have a proven process to accurately predict sales pipeline revenue so that you can focus on growing and transforming your business. If you want to know more about our processes, get in touch with our Head of Technology Ian Laverty on firstname.lastname@example.org or our Director and Head of Strategy John Haran on email@example.com.