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Stop Guessing! Sales Accuracy Redefined: Accurate Forecasting Using a Sales Pipeline

Welcome to our Stop Guessing! Sales Accuracy Redefined article series. In this piece we’ll revisit the concept of a sales pipeline and, more specifically, explain why it’s vital to create an objective percentage measurement — versus the subjective ones used too often by sales teams. Read on to change the way you view your pipeline and your ability to forecast success!

It’s common for leaders to measure their sales pipelines by the probability of the deal closing. And, a common mistake. Probability of close is a subjective measurement that requires the sales rep to make a judgment about their chances of making a sale. It requires interpretation, bias and is ripe for abuse. Instead, you should be measuring the progress of a prospect through your sales pipeline, with each stage representing the percentage of the way through the pipeline the opportunity has reached. A complete sale is defined as one that’s either closed or lost.

The seven-stage pipeline is a good example of how measuring the percentage of progress through the pipeline can assist with sales forecast accuracy.

In this pipeline, we have several phases:

We start with 1.Opportunity Creation (pipeline 10% complete) and then move into 2.Qualification (pipeline 25% complete) — checking on a prospect’s budget, timeframe and the decision makers for the process - 3.Solution Development (pipeline 40% complete)

A fully qualified prospect reaches the 4.Presentation stage (pipeline 60% complete) to discuss pricing, goes through 5.Negotiation (forecast – pipeline 75% complete), and then enters 6.Verbal Approval (forecast – pipeline complete 90%) and, finally, the 7.Closed stage (signed – pipeline 100% complete). Whether the deal is won or lost, it’s still — in the end — closed.

Measuring an opportunity in terms of the percentage of the pipeline completed, instead of the probability of the sale itself happening, helps emphasize that sales pipelines and forecasts are objective, scientific tools that require sales reps to follow a very specific process.

When a seller thinks that moving an opportunity through the pipeline increases its probability of closing, they’re less likely to use that pipeline accurately. They’ll hold back on moving deals into fully-qualified stages until they’re convinced that they’ll close. This then limits the opportunities they put into the pipeline in the initial stages because they don’t want to use the pipeline to manage deals they might lose. They arbitrarily change the probability percentage to match how they “feel” about the opportunity.

However, when the measurement is changed from probability of close to percentage complete, sellers will use the pipeline to track all opportunities and you’ll have an accurate measure of how opportunities convert from inception to close.

This change requires a shift in thinking, of course. Saying that a negotiation is 90 percent complete no longer means that it’s necessarily 90 percent likely to close. You may only close 60 or 75 percent of the deals you negotiate, which is something that you’ll know based on past data and history.

In rethinking the sales process this way, every step of the process represents a set of tasks or activities that have to be completed in order to move the deal through the pipeline. It’s no longer about the probability of closing — a subjective opinion from the sales rep — but the percentage completed in the sales cycle, which is an objective statistic based on facts.

If the sales team is properly using the pipeline, then sales leaders can get a truly accurate view of the conversion ratios between one stage and the next. After watching these conversion ratios for a few quarters, you’ll be able to create an accurate forecast based on historical facts. From there, you can develop a forecast that’s within five percent accuracy every time. One of our clients in the industrial supply industry even manages to get within three percent of the quarterly forecast!

By applying this fundamental change of measuring percentage complete, as opposed to probability of close to your sales process, not only will you gain accuracy in your forecast…You’ll encourage your sales team to utilize the sales pipeline the way it’s supposed to be used and you’ll have the most visibility into your opportunities.

In our next article in this series, we’ll take a deeper look into the specific stages of the sales process. And, at how applying percentage complete can help your team move through them.

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