In a previous article, I talked about stage based forecasting, and gave some examples where it doesn’t work. The conclusion was that probability often has little to do with where you are in the sales cycle. In this post, I will talk about how to properly assess probability, and how time still remains relevant.
Let’s first review another method of picking probability – we’ll call it the “Pick a Number” method. In this process, the sales person assigns a percentage probability from 0 to 100 based on their gut feel. Let’s say they pick 80%. What does that mean? There is the obvious argument that this method can’t possibly work across a team, as each sales person might have a different idea of what 80% means. Further, this “80%” number can also be based on mood that day of the individual sales person. Finally, is there really any need to offer 100 choices in the answer? What is the difference between 79 and 80?
However, there is another factor at play here. Sales people, especially the best sales people, are often quite competitive. When they are asked to pick a number, they consider their position against the competition overall. They are thinking, “There is a 75% probability I will win this opportunity against the competition.” This is important, but it is no way to forecast. In fact, it is only one part of forecasting.
That’s because there is a second, equally important question: “Can the customer buy at all?” This speaks to whether the customer has funding, and what their overall level of need is. For instance, they might have the funds, but would rather look at different projects outside of the one you are bidding on. In the case above, let’s say the chance of an order being placed with anyone at all is 50%. The competitive position remains at 80%.
The net result? The probability should be closer to 40%!
Ultimately, these are the two most important factors when assessing probability for a sales opportunity: Confidence of Winning & Assurance of Completion.
In ASPEC, we offer the answers of High, Medium, and Low to both questions. You could argue it should be Very High, High, Medium, Low, and Very Low. However, we believe that having three possible answers to each question is sufficient in being obvious and easy for the sales person to update, but granular enough to offer a meaningful probability.
In a later post, I plan on talking about the failure of Sales Stage in prioritizing which opportunity to work on first.