Why your sales team stinks at forecasting – part 2
In Part 1 of this series, “Here’s why your sales team stinks at forecasting revenue”, we reviewed the facts about just how bad we are at forecasting. We self-diagnosed “why we stink”. And, we outlined three steps to redeeming ourselves as sales professionals and leaders. In order to help companies dramatically improve forecasting, we must:
1. Review and re-define the qualification criteria and sales pipeline stage definitions that are at the heart of weak pipelines and poor forecast accuracy (in this post, Part 2)
2. Re-qualify every deal, reclassify the deals based on the new sales stage definitions, and clean out the rubbish…and methodically apply these criteria in real time, forever (part 3 of this series).
3. Create a new sales culture and cadence that focuses the majority of discussions around building strong pipeline, rather than forecast (part 4 of this series).
The Old Way Leads to Misery
So, new pipeline stage qualification criteria… What’s wrong with the current stage definitions? In a word, everything. Nearly 100% of sales teams define their sales stages in terms of their own selling activities.
Here’s a typical example: “Stage 2 – We had a Discovery meeting”, “Stage 3- We did an Assessment, “Stage 4 – We did a Demo of our software”, “Stage 5 – We delivered a Proposal”, and “Stage 6 – We are Negotiating”. We need look no further than the sales stage definitions in Salesforce.com or some other CRM to validate this point.
The flaw in this approach is made obvious by the following example (using the Stage definitions above). Suppose we conduct a demonstration of our solution (Stage 4) and deliver a proposal (Stage 5) to a customer. Most sales organizations assume that when the customer “loves” the demo and asks for a proposal/pricing, the deal is now in the negotiating (Stage 6) and becomes available to consider when compiling the forecast.
In some cases, this is true. The customer buys in the next 30 days, as expected, and everyone is happy. But, what if you believe you are at Stage 6, but the customer only needed the pricing to establish next year’s budget? Or, maybe the customer just needed pricing to justify a business case that must now be reviewed against 17 other projects… all seeking new budget. (Or, maybe the customer just asked for the proposal to get the Sales team out of his/her office.) These deals tend to linger at an advanced stage in the pipeline for a LONG time. And, those are the kinds of deals that ultimately make up the deals that are available to support a sales person or manager’s forecast. Clearly, these pipeline stage definitions are disconnected from the customer’s processes.
What if a customer needed pricing to justify a business case? What if the customer just asked for a proposal to get the sales team out of his/her office?
So, one might deduce that the correct stage definitions are not selling activities, but buying activities. Good point! A few good sales training companies and consultants have started moving in this direction over the past 5 years. For example: “Stage 1 – Customer has a Stated Problem”, “Stage 2 – Customer has identified possible solutions/vendors”, “Stage 3 – Customer is considering Proposals from Short-listed Vendor Candidates”, etc. These stages are certainly more connected with the buyer’s process than our previous sales stages. While buying activities are superior to selling activities for stage definitions, there is something even better!
A Much Better Way
At TechCXO, we believe strongly that the best stage definitions for pipeline and opportunity management are based on a concept we call Rising Level of Customer Commitment. It measures how committed the customer is to 1) making a purchase, 2) your solution, and 3) your company. And, as you will see, these stages can actually be verified by the customer. Perfect!! As you will see, the customer’s growing level of commitment is a fantastic indicator for deal progress and the a great forecasting barometer for the likelihood of the customer completing a purchase.
Can your pipeline define a “Rising Level of Customer Commitment”?
Here are some example pipeline stage definitions that you can use as the basis for your new stage descriptions, based on customer-verifiable activities (credit: Brad Milner and Rick Nichols, TechCXO). Notice how each successive stage describes an increased level of commitment to your company and solution.
Stage 1 – The customer has not yet engaged in an opportunity that we have identified.
Stage 2 – We have a scheduled meeting on the customer’s or prospect’s calendar in the next 30 days.
Stage 3 – Out Customer contact has fully verified 1) a need for our product or solution, 2) budget availability, 3) timeline for purchase, and 4) the decision-making authority or process.
Stage 4 – All decision-makers have verified the criteria in stage 3 and have also verified that we can meet their requirements.
Stage 5 – All decision-makers have told us “you won this business”.
Stage 6 – Closed won. Contract signed.
Try it Yourself
These definitions might need to be tweaked to fit the buying process of your particular customer segments or industry. But, by changing the focus of the stage definitions from our own selling activities to customer-verifiable buyer commitment, we remove much of the risk that exists when we try to predict when the customer will ultimately say “yes” and purchase. The removal of this risk is unbelievable benefit of this methodology and can’t be overemphasized.
So, if we just change the definitions of the pipeline stages and reclassify the stage each deal in the pipeline, things get better, right? The answer is… absolutely! Implementation of these simple definitions will help with better insights into deals, help you ask better questions, and should create better dialogue between Salespeople and Sales Leaders. Feel free to give these stage definitions a try, and reach out to one of us at TechCXO if you have questions.
That said, we aren’t done. While new definitions are definitely necessary to improve our pipeline health and forecast predictability, they are not sufficient for maximum Sales performance. It turns out that we need a new pipeline management process to go with our new sales stage definitions. In Part 3 of this series, we’ll walk through the steps on implementing the new stages and investigate the challenges.
Matt Oess is a TechCXO on demand sales executive in its Atlanta office. You can reach him at: email@example.com. See his full bio and other articles here.