May’s Forecast
WMMM #061 - This week, I share some tips from a recent engagement.
Jeff Keplar Newsletter April 20, 2024 8 min read
For many of us, this upcoming week is Week 4 of 13 in Q2
It's also the last week of April.
What are we calling for May?
What is our call for Q2?
For some of us, May is the last month of our fiscal year.
May's Forecast was submitted three months ago.
The forecast we submit in May is for Q1.
Q1?
We can't wrap our heads around Q1 yet.
We are trying to close everything we can in May.
We plan to "drain the Pipe" to take advantage of the incentives in the comp plan.
We have yet to receive our quotas for next year.
Anything we call for Q1 now will be little more than a guess.
Whatever number we call will have a lot of risk.
A forecast without risk is not a forecast. It's a Closed-Won Report.
Whether it's Week 4 in Q2 or entering the final month of our fiscal year, forecasting has its challenges.
Yet forecasting sales is an integral part of business.
Sales professionals are expected to forecast their business accurately.
The executive suite expects it from the sales team.
Investors expect it from the executive suite.
In this week's edition of Win More, Make More, I share tips to help us better forecast.
The Basics
The top two methods of forecasting are deal-based and territory-based.
I've used deal-based for most of my career, so let's begin with territory-based.
We may lack the time to thoroughly inspect each deal due to the large number of deals in each period.
We typically see this in less complex sales with shorter sales cycles.
Also, for whatever reason, we do not want to have control over our sales process,
Territory-based works well for situations like these because it applies formulas to the pipeline to calculate the forecast.
Even when not in control of the sales process, we can accurately capture data, such as when a prospect requests information, signs an NDA, views a demonstration, downloads software, provides us information with buying signals, and signs a purchase agreement.
With this information, we can assign each opportunity a stage representing its position in the buying process.
As the Prospect progresses through a buying process, the stage changes.
Each stage is assigned a numerical value called probability, representing the likelihood of the deal closing.
This allows the probability, expressed as a percentage, to produce a calculated dollar value for each deal in your pipeline.
Adding these calculated amounts together can be used to produce a forecast.
Some CRM software can do all this automatically.
Otherwise, a salesperson manually updates the system.
Another territory-based forecasting formula is the use of conversion rate.
Conversion rate is calculated by using historical data from your prior periods and determining how much of your Pipeline converted to Closed-Won business.
Closed-Won divided by Pipeline produces conversion rate.
Use the number of deals or a dollar amount to represent the Pipeline and Closed-Won data elements.
Multiply your historical conversion rate by your current Pipeline to produce a forecast.
Deal-based Forecasting
Territory-based is a numbers game.
We are using data and formulas to run the business.
Probability, conversion rate, and the law of averages are good enough.
It works.
But what if we don't have historical data?
What if we don't have the talent or resources to put something like this in place?
Or, what if we want to be more than "average."
What if we want to win more deals than the law of averages predicts?
What if we want to accelerate revenue at a rate faster than it would come naturally?
What if we aspire to be best-in-class?
Deal-based forecasting works well for situations like these because it is a bottoms-up approach that inspects every opportunity,
Deal-based forecasting presumes that we use a sales process that enables us to control the sales cycle.
Without control, we are far less accurate in forecasting when we will close business, and we typically don't know when we're losing until it's too late.
Like territory-based forecasting, deal-based forecasting uses data.
Deal-based data comes from the Prospect and is obtained by human-to-human interactions versus algorithms.
Requiring sales skills that establish equal business stature between salesperson and Prospect, deal-based places a premium on qualifying each opportunity that we pursue.
Eliminating unqualified opportunities reduces the number of "No Decisions" and improves conversion rates.
Reducing the number of deals in our pipeline enables us to invest more time in each remaining deal.
What other benefits do we receive?
How about less of our sales time (updating the CRM, scheduling calls, performing research, sending correspondence) wasted on unqualified opportunities?
What about fewer company resources (technical and subject matter expertise attending meetings and performing demonstrations, and legal reviewing NDAs and RFPs) wasted, too?
Qualifying and Forecasting
The process we use to qualify a Prospect feeds directly into our approach to forecasting.
We must determine the situation that caused the Prospect to speak with us.
We must uncover why this is occurring and how it impacts their world.
The Prospect must be willing and able to invest resources to resolve the situation.
Key components are what they are willing to invest, who is able, and when and why they intend to take action.
Finally, we have to know how they will make their decision.
What process will they use?
Who will be involved from both parties?
What are their priorities? (Every evaluation criteria is not equal. What is most important, then the next, and so on?)
Once we have our qualification data, we can map our sales process to their decision process.
The objective is to help them make an informed decision, not sell our products and services.
Our success rate increases exponentially when we help the Prospect self-discover that they want to buy from us.
A story for children (Aesop's Fable) eloquently illustrates this life lesson.
The North Wind and the Sun
The North Wind and the Sun had a quarrel about which of them was the stronger..
While they were disputing with much heat and bluster, a Traveler passed along the road wrapped in a cloak.
"Let us agree," said the Sun, "that he is the stronger who can strip that Traveler of his cloak."
"Very well," growled the North Wind, and at once sent a cold, howling blast against the Traveler.
With the first gust of wind the ends of the cloak whipped about the Traveler's body.
But he immediately wrapped it closely around him, and the harder the Wind blew, the tighter he held it to him.
The North Wind tore angrily at the cloak, but all his efforts were in vain.
Then the Sun began to shine.
At first his beams were gentle, and in the pleasant warmth after the bitter cold of the North Wind, the Traveler unfastened his cloak and let it hang loosely from his shoulders.
The Sun's rays grew warmer and warmer.
The man took off his cap and mopped his brow.
At last he became so heated that he pulled off his cloak, and, to escape the blazing sunshine, threw himself down in the welcome shade of a tree by the roadside.
Gentleness and kind persuasion win where force and bluster fail.
All Forecasts Have Risk
The application of good questioning skills enables us to help the Prospect self-discover.
We help them progress through their decision process, learning more and gaining influence at every step.
Once an opportunity is qualified, we can move it to Pipeline.
Some disciplines call this a Sales Qualified Lead (SQL.)
When we have agreement with the Prospect that our solution is a fit and remedies their situation, we can move the opportunity out of Pipeline and into the Forecast as Upside.
While the next step in our sales process likely involves obtaining approvals from various stakeholders across the enterprise, the deal remains in Upside.
When we receive a verbal from the Prospect to get the contract signed by the agreed close date, we move the opportunity out of Upside and into Commit for the quarter of the verbal close date.
Even when our execution is flawless, every opportunity and every Forecast contains risk.
Unknown and unforeseen risks include:
Employee turnover involving one or more stakeholders in their decision process
M&A activity that temporarily delays all spending
Changes in the Prospect's priorities due to market conditions
Action by a competitor of ours that interrupts the Prospect's decision process.
This is why we continue to work throughout our process to de-risk the opportunity.
We do this by frequently asking questions designed to provoke answers from the Prospect to the following:
Why Buy Anything
Why Buy from Us
Why Buy Now?
Notable Exceptions
If the account has purchased from our firm before, it may have established a behavior pattern we can call upon to predict a close date and reduce our risk.
If the account has an impending event that is so compelling (strong WBN? Material cost to Do Nothing?), forecasting without a verbal close date is less risky.
Known Risks - Self-inflicted
In high-growth companies, we expect to see stretch management applied to the sales team.
This practice employs a "grow-at-all-costs" mentality, frequently forecasting deals before they reach the Decision stage in the sales process.
This introduces "known risk" in addition to the unknown risk already discussed.
The bet made is that when the sales team receives the verbal, the close date will fall in the quarter that the deal was forecasted.
If not, the sales team is expected to use its skills to motivate the Prospect to accelerate the decision and contract execution.
Known Risks - Lack of Sales Execution
Another area of known risk occurs when we have missing or receive inaccurate data.
Not every salesperson has mastered the art of using questions to understand as much as they can about what's going on in the Prospect's world.
There are plenty of those who think that sharing their subject matter expertise is the key to selling.
How does this introduce known risk?
For example, if we do not know the Prospect's decision process because we did not ask, the deal should not be in the Forecast.
If it is, we have a known risk.
If the salesperson is asked for the Close Date for a deal in Commit and responds with
"I'm gonna guess it's next week,"
"It will take about a month," or
"I feel like this will go down to the wire and close the last day of the quarter,"
the deal should not be in Commit.
Why?
The salesperson has not asked the Prospect for their answer to this question.
We need to know that we have a verbal decision to buy from us and a commitment to work to get the contract signed on an agreed date (Close Date) within the fiscal period.
We are looking for something other than the salesperson's opinion.
It doesn't matter how much the salesperson knows about the industry, how it works elsewhere, or what they think the Prospect will say.
No mind-reading.
We need to know how the Prospect responds.
We can't possibly know what someone else is thinking.
A Jack Story
Donna: Louis, have you ever heard of A Jack Story?
No? Well, it's time you did.
A man gets a flat tire, on a country road.
He sees a house in the distance.
He walks up to the house, and along the way he starts thinking,
What if they don't have a jack?
What if they have a jack, but they want to charge me for it?
And if they do, how much would they charge?
A hundred dollars, two hundred, a thousand?'
Louis: That's ridiculous!
Donna: Right? So by the time the man gets to the house, rings the bell, and they answer the door, he tells them, 'You know what?
Keep your goddamn jack.
h/t: USA Network's Suits, Season 6, Episode 9
We can't possibly know what someone else is thinking.
Ask questions and listen.
Lessons Learned
1) Establish your right to ask questions
2) Qualify like a maniac.
3) Get control by using their Decision Process
4) Only qualified deals, with Fit, Intent, and Timing, make the Forecast.
5) No mind-reading.
Thank you for reading.
Jeff
When you think “sales leader,” I hope you think of me.
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