Question: We”™re trying to figure out what we can count on for sales this year. We”™re struggling with optimistic estimates and timing. People get excited when they talk to new prospects, and we”™ve lost our share of “sure winners” we were certain we”™d get. How can we plan for growth under these circumstances?
Thoughts of the day: A robust sales function is essential to the growth and development of every company. Not everything you expect to sell will close; that”™s where probabilities come into play. Figuring out how to focus on the likely closers, instead of wasting time on the sexy ones, will help everyone feel more successful. It”™s a matter of dividing the sales job into smaller buckets and then tackling each one separately. Having more than enough possibilities allows your company to choose the best.
How do you know if you have a robust enough sales operation going? You collect information about all the prospects everyone is talking to, including the stage of sales they are at (introduction, qualification, proposal, negotiation or closing) and the size of the potential project(s) being proposed. You track progress, building that prospect list and moving prospects through the sales cue.
Each sales stage has its own discrete probability, based on history. For example, of all the prospects you”™re introduced to, you may close only one in 10, giving the introduction stage a 10 percent probability. If you close one proposal for every three that get sent out, that gives the proposal stage a 33 percent probability. The negotiation stage may have a 50 percent probability if you find your company is closing one of every two prospects that get to final negotiations. If you find that not all clients actually implement, use the closing bucket to account for those losses. For example, let”™s say there”™s a 10 percent fall-off once clients agree to come on board; that closing stage has a 90 percent probability.
Put all of your prospects into one spreadsheet. Ask people to estimate the size of each job or client. If a client has multiple opportunities, list each one separately. Put a date on expected date to close. Compare the stage of the sale to the closing date, and don”™t be afraid to challenge what”™s there. For example, if the prospect is listed in the introduction stage, and the close date is next week, the forecasted closing date may be overly optimistic. If the person charged with selling to the prospect only lists a few big opportunities, when they typically close lots of smaller ones, find out why there isn”™t much listed and why the size of the prospects listed is so much large than what your salesperson typically works on.
Challenge everyone in sales to describe what it will take to move prospects through the funnel of sales activities, from intro to close. Keep track of prospects that seem to have stalled and discuss what else can be done to move them along. Look for patterns ”“ what closes, what doesn”™t. Develop qualifying questions to help salespeople home in on the “best fit” prospects.
Practice, practice, practice. The more you and your sales team work with a forecast and talk about the gaps, the better you will all get at determining what”™s likely to happen and what”™s “pie in the sky.”
Break down the big task of forecasting what kind of revenue will come in this year. Work by category. Answer these questions to appropriately focus the sales effort. What kind of rollover already is on the books? What additional business will come from existing customers? How many new customers need to be found? What size? By when?
Don”™t expect to be 100 percent correct with the forecast. Know how many sales are needed to hit this year”™s goals for profit and growth. Use the forecast to get into the ballpark of what”™s likely. Figure out early on in the year if you need to beef up sales efforts or can make do with what you have.
Trust your gut. If the forecast feels right, keep on planning. If something feels off, go back and look at the details until you fix your gut or figure out the problem.
Also look at history. If you traditionally close most of your business in the first quarter, but the forecast is pointing toward big third and fourth quarters, consider moving the closing dates out.
Add on 30 to 90 days or more to allow time from close to collecting your money. Once things do close, get invoices out immediately. Call to verify invoices have been received and approved and ask for a date when invoices will be paid. Add that on to the back end of your forecast so you have some idea of how funds will flow.
Gear your business to have more sales than it could possible make use of. That gives everyone in the organization the luxury of turning away less-than-perfect opportunities. Low margin bids? Turn them down. Unrealistic demands from potential customers? Forget it. Requests for things that are so out of the box they”™re unlikely to generate any profit? Send the lead to some other firm to waste their time and energy. That”™s what you get to do when you have more leads than you need to meet the year”™s goals.
Looking for a good book? Try “Sales and Market Forecasting for Entrepreneurs” by Tim Berry.
Andi Gray is president of Strategy Leaders Inc., strategyleaders.com, a business-consulting firm that specializes in helping entrepreneurial firms grow. She can be reached by phone at 877-238-3535. Do you have a question for Andi? Send it via email to AskAndi@strategyleaders. Visit AskAndi.com for an entire library of Ask Andi articles.
