As a CRO, I need to have the right process to forecast deals effectively.
The problem is that without a data-driven or analytical approach to forecasting, most companies’ sales teams are not able to forecast effectively. It’s can be simply called “speculation” to run a forecasting in a qualitative manner (based on gut feelings as a “finger in the wind” approach) without the right metrics and factors that are truly predictive. In Daniel Kahneman’s book “Thinking Fast & Slow”, there is a study of almost 300 economic and political experts and their predictions on outcomes – Kahneman said about this study: “The experts performed worse than they would have if they had simply assigned equal probabilities…” to the outcomes. Seems that even experts over-estimate their predictions.
Thus, to reduce the downside of this problem, and to optimize effectiveness of the sales forecasting process, over the years I have developed a spreadsheet that gets me to a high-level of forecasting accuracy where I typically get 90% average accuracy on deals that I can manually view as committed within a forecasting category.
What has helped me in the past outside of discussing deals with the front-line sales managers or reps are these 7 factors:
- Expected Close Date – is it ahead or is it still in the past (i.e. rep may be dropping the ball)
- Next Step Date – is it ahead or was the ball dropped and it’s in the past
- $ Amount – is it 2x+ of our typical won $Avg Deal Size
- Age – if the # days in cycle is already over the typical won Sales Cycle
- Days to Close – if it’s within the next few weeks but you have 3+ risk factors
- Days w/ No Engagement Activity – lost momentum if >20% of the sales cycle (i.e. 1 month w/ no activity for a 3 month sales cycle)
- Push Counter – the deal has stalled twice or more
- BONUS #8: “Just 1 Meeting” – if you have had just 1 meeting then it’s not likely to close [Alternatively, if you had 2 to 3 meetings or, for many Mid-Market deals if you had 5 meetings then the “Confidence to Close” and correlation to a Win within a Win Cycle Duration – with low risk across 1-7 – goes up to nearly 90%+]
What else? What are some other risk factors you use as formulas in Excel to help you increase forecasting accuracy?