Businessman forecasting a crystal ball in the office
In the context of selling complex solutions to complex organizations, most CRM systems are not able to successfully determine forecasts and offer an objective assessment of the pipeline. Provided they can adapt to the sales practice of each industry (selling banking software follows different rules and mechanisms than selling packaging for the cosmetic industry), they fall short at removing subjectivity.. CRMs have been built to automate processes and to gather data but they are designed to replicate our current thought process instead of leveraging what technology can bring.
In this article, we will look common root causes of poor forecasting and give some keys for a better and more effective approach.
The majority of the CRM systems are able to show a number of analytical measures, standard or customized. They provide an average to good understanding of the health of each opportunity. Less frequently, they offer ways to look at the velocity or pace of a sales process by looking at what needs to be done and when the deal is expected to close. Conventional CRM systems almost never do it in the light of how it typically works, statistically, for a given organization.
With some workarounds, we imagine they could get there. The one thing that they however never do is to strip subjectivity away from the way firms evaluate opportunities and generate forecasts.
How things work today ?
From small to super-large organisations, we observe a common pipeline analysis behaviour: the Sales Exec is asked by his manager how he feels about the deals he has in his pipeline for the current and next quarter. One part of the answer will likely (or hopefully) rely on an honest and factual assessment based on what the sales person knows. But the problem is in the question itself: the biggest part of his response will often be a function of what he believes, of what he feels :
- What the Sales Exec anticipates, or what he supposes, may first differ from reality. Often sales people take for granted what they have been told by one person, even more so if this is what they wanted to hear. Having positive information coming from supporters within the account should be seen as a red flag and would need to be cross-validated by other stakeholders. Being told that everything is on track may not even be what that person really thought. There can be a not so rare situation where that prospect, maybe wrongly seen as a coach, said all was going fine simply because they did not want to go into the difficult and lengthy conversation where they would have to explain why the deal is far from certain, challenged by stakeholders, not on the priority list, not fully budgeted etc…
- What the Sales Exec thinks is an opinion. Sales people, and even more so the good ones, are optimistic by nature. They often managed to navigate in between most of the rain drops and they think that this will happen forever. Successful sales people will tend to describe sales opportunities in the light of what they often experienced rather than has been cross-validated.
- Other factors are likely to skew the reality of where sales opportunities are standing. On top of this list is the way the sales exec wants to be seen. For many reasons such as ego and self-confidence, fear of having difficult conversations, fear of losing their jobs, the picture they might draw can be a very optimistic version of the reality. Weak performers are sometimes tempted to show that failure to deliver is now something of the past. They will build up stories to hide what common sense would describe as red flags. Alternatively, because some have been questioned too many times about their tendency to create positive expectations about deals they fail to close, the way they assess some of their opportunities is underrated. They may want to avoid once again to sound overly positive. The impact is negative on two accounts: forecasts become actually lower than it should be, and by doing so the support required from other parts of the organization may be directed to opportunities which are objectively less likely to be won.
When asking people what they think of their pipeline for the quarter to come, the problem is also in the way questions are formulated.
Once the Sales Manager has collected from his team the input she / he was asking for, he/ she will also go through the process of tempering the information received. Some questions will be asked. Some tasks will be assigned to obtain additional validation. The Sales Manager will also amend the numbers received based on personal perceptionof the likelihood of closing some opportunities, e.g. the fact that some sales executives can be trusted more than others, etc… Once done, she / he will deliver her / his own numbers.
Depending upon the size and form of the sales structure, the same process can repeat itself as each level is asked for forecasts. The same kind of distortions will happen over and over again all the way to the Global Head and Sales before making its way to the Board. And even if it doesn’t, having subjectivity introduced at one level can introduce significant skewness that play on other levels.
Some other factors come into play:
- Even is the info is clean, scrubbed and validated, the larger deals will tend to be treated differently. They represent large numbers, so the impact of winning or losing is significant either way. They will most likely be not accounted for in the forecasts unless a top executive is involved. In the latter case, deal size may or may not make the deal more likely to close but it will probably make it look more likely to happen for a longer period of time.
- Managers, Sales Directors, MDs have additional constraints they need to factor in. Out of all the territories they are managing, some may under-perform. Human nature kicking in, issues will likely be honestly reported but the drop in expected numbers will be probably compensated by something else For example, many of us are familiar with the “what is your backfill?” (One can wonder why that something wasn’t there in the first place but it’s a different topic.). This effect impacts the forecasts in a different way. As the good performers are asked to cover for the weaker ones, they will be asked to inflate their projections, often by bringing forward the closing quarter of some of the opportunities. Yet again, this is forecasting on thin air.
Business review after business review, QBR after QBR, all these behaviors we see have a simple outcome: projected numbers will significantly differ from the realized ones. During any given quarter, the expected closing number for the following one is likely to be high and on plan. As soon as that specific quarter starts, reality hits and forecasted revenue is decreasing week after week. The poorer has been the performance so far, the more this phenomenon will be obvious. Offering more and more discounts may help the deals to close but it will also negatively impact the revenue.
There is only one culprit, the one thing that CRMs fail to capture: subjectivity. Because some opportunities are pretty straight forward and some less so, it also means that the distortion created by subjectivity varies dramatically depending on the opportunities. The way a particular deal is analyzed therefore not be similar to the way another possible sale is being evaluated. What it means is that subjectivity and gut-feeling prevent the fungibility of the opportunities. Having forecasts built out of heterogeneous perceptions will not project correct numbers.
What to do, and for what benefits ?
All sales opportunities can be characterized by a few factors:
- is that deal aligned with my sales strategy ?
- what do I consider as an ideal prospect ?
- how do I know the prospect is willing to buy for real ?
- how close is what I am selling to what the prospect wants to buy ?
- what are the objective measures of an ideal sales process ?
- how do we benchmark this against past successful transactions managed by one or a group of Sales Executives ?
Each theme needs to be translated into a series of questions that are truly meaningful. They need to objectively answer the questions being asked and must properly map both the steps defined in the sales process and the particularities of the industry it is been sold into.
Once done, an algorithm needs to be built, calibrated and benchmarked against past and current opportunities. It needs to provide likelihood of success which is not only accurate but also leaves room for automatic adjustments over time as selling practices evolve.
Once everything is in place (and Salesmetry would definitely be happy helping you getting there), benefits are huge:
- As the probability of success is performed in the very same manner for each opportunity, revenue projections become meaningful, forecasted revenue becomes truly tangible, homogeneous and consistent with the reality of each one the components taken one by one
- Having each opportunity evaluated with the same rational and invariable methodology becomes a very effective for sales management. It creates a common language fostering coaching and allows managers to identify red flags earlier in the process
- Defining what “good looks like” allows organizations to easily assess the velocity of each opportunity. This metric can be compared to the momentum of similar deals managed by the same Sales Exec, or by all the ones operating in a similar territory and or by the ones driven by the best performers
- Objective data and comparison of similar opportunities yields an unmatched ability to show objectively if an opportunity is likely to close at the expected date (or at least within the expected quarter), has no chance of closing ever or should be accelerated
- With chances of successfully closing deals being evaluated the very same way from one deal to the next, the resulting reliable forecast model also brings an unmatched and unequivocal ability to slice and dice forecasting data, presenting unique and precise insight on expected performance per region, line of business, teams or individuals
- Leveraging on an analytical approach of the likelihood of success over time could also yield unexpected benefits by showing that the one action that would the most logical, in isolation, to increase the chances of winning may actually not be the best move. As an example, even if prototyping or doing a proof of concept are actions that can make a difference of x% in improving the chances of winning, it might be more beneficial to work on improving client readiness of buying first, even the related activity appears less rewarding. In some cases, it may be better to have a sales process that produces greater certainty to come to a positive end than conducting a successful proof of concept when the possibility of the client buying something in the end be less certain. Another illustration can be that improving the relationship with one prospect (product quality, logistic, etc…) may be less rewarding, in isolation, than another action but create a positive momentum for several opportunities
- Last but not least, assessing the probability of wining in an objective manner without doubt provides insights on why an opportunity should be qualified out, even when the sales executive firmly believes it is winnable. In such cases, even if it is, the sale may require a fierce battle that requires heavy discounting or be so far away from the plan and the strategy that the resources required once signed would derail other commitments or the strategy itself.
Would such a tool replace a CRM ?
The short and brutal answer is No. It would not replace a CRM because a CRM is useful for many different things from storing an audit trail of activity and meeting minutes to keeping contacts, from sentiment analysis to predictive lead scoring, from Go-To-Market management to pricing and contract management.
If it can of course be used as a standalone solution, its most likely usage is to sit on top and be fed by a CRM.
In conclusion
The way most of the companies selling complex solutions conduct their business is different from one to the next. The businesses they are in, the way they operate, what they think is good for them, all of that is different. Yet, a common point is that subjectivity is harming the way they look at their sales opportunities, is not contributing to maximizing their revenue and generate forecasts that are made of personal opinions instead of objective figures.
There are not many ways to solve those pipeline management and forecasting issues. The Salesmetry Model and Dashboard are certainly part of the most valuable ones.
