A 19% difference in the forecast of a single sales opportunity in complex B2B sales may not sound a lot at first glance, but with the forecast of an entire company, this can easily make a big difference to sales management, forecasting, and liquidity. Let us see where this 19% comes from and how to prevent it.
Who does not know this situation from the daily business of a salesperson?
The phone rings and a potential customer is interested in our solution. I patiently listen to the requirements, ask questions about the well-known problems, and am happy about a new project that will help me meet my sales targets this year.
As usual, I feel we have great chemistry, and I slowly start to tell our story and include the benefits of our solution smartly. Finally, I promise to send the requested documents as soon as possible and say goodbye in a friendly manner.
But first, everything has to be entered into our CRM system. So, I create a new sales opportunity and put in all the information about the inquiry.
Then comes the big question: “What is the probability of success?” based on a single phone call. I reflect:
- The first conversation was positive
- the chemistry between us was good
- we can solve all the requirements
- and the decision shall be taken soon
My gut feeling tells me that we will manage this, and due to the early sales phase, I only enter a probability of success of 30% into our CRM system. Weighted by the expected sales of around €400.000, this will increase my pipeline for this year by at least €120.000.
What is the problem?
As a non-salesperson, this scenario could quickly lead you to conclude that everything is fine. But let us go back to the beginning. What information was given in the initial meeting, but more importantly, what information is missing for a realistic evaluation of the chances of success?
It is a fact that there is a new project with requirements that most likely fit into the supplier their solution portfolio. However, not clear is:
- Who are the decision-makers, and what are their opinion of the solution approach and the supplier?
- Is the chemistry between the two persons good, or were the signals misinterpreted?
- Who are the competitors, and how can you win against them?
These three sample questions illustrate that a subjective assessment of the chances of success based on gut feeling is not very helpful.
How do companies deal with this problem in sales practice?
According to a study by CSO Insights, about 80% of B2B companies rely on gut feeling to estimate the chances of success in their sales processes. A smaller proportion uses formal review processes and sales methodologies as best practice approaches or specifies milestones for each sales phase.
Why is accurate forecasting important?
Predicting expected revenues is fundamental for strategic planning and controlling operations. For example, if a company achieves only half of the expected sales forecast in a quarter, this can have a major impact on financial planning. In a worst-case scenario, it can even jeopardize the company’s working capital.
A realistic perception is the basis for efficient sales management
An accurate assessment of the chances of success and thus of the sales situation is essential for efficient sales management. If a salesperson has the perception that the relationship with the prospect is good, there is no need to improve it through appropriate sales activities.
This logic assumes that a good relationship is relevant for the potential buying decision, and that there is a common understanding of the term relationship.
So, we need questions that every salesperson understands in the same way and reliably determine whether an opportunity will be won or lost. That leads us back to the initial scenario and the lack of information to predict the probability of success.
The “Sales Forecast 4.0” study: derived success factors
The study “Sales Forecast 4.0” developed a psychometric questionnaire based on a sample of 188 sales opportunities from 82 experienced B2B salespeople from 62 companies. This questionnaire systematically measures the relevant criteria that influence the buying decision.
The result is three higher-level success factors:
- The success factor Relationship & Commitment reflects various aspects of the relationship with the prospect. (7 questions)
- Competitiveness takes into account the relative strength of the strongest competitor. (5 questions)
- The factor Requirements & Ideas shows to which extent the solution matches the requirements. (4 questions)
The questionnaire uses a 5-point Likert scale from “strongly disagree” to “strongly agree” for the responses.
Based on the rated success factors, the sales team controls the sales process in a target-oriented manner. Furthermore, they provide a quick overview of the problem areas of a sales opportunity. If there is more than one filled-out questionnaire, the history of the predictions show where the chances of success increase, the sales process stagnates, or the deal might start to fail.
The way to calculate a realistic probability of success
Salespeople and management need to get an accurate picture of the chances of success. The best way to calculate would be to use only information associated with the potential purchase decision.
This is where the deployment of an AI-based forecasting model comes into play. The answers to the questionnaire combined with the gut feeling provide a perfect data basis for this purpose.
To get the best prediction accuracy, the forecasting model should only use the part of the information from the questionnaire and gut feeling, which is directly related to the buying decision. With this AI approach, it is possible to “filter out” information like unwanted influences such as perceived pressure to succeed or bad moods.
Conclusions: 19% make a difference
Applying the AI-based forecasting model to the described scenario results in a probability of success of 11%. Compared to the gut feeling, that means a difference of 19% or a weighted turnover of €67.000.
The key indicator of the success factor Relationship has a value of 3.1. Statistically, with a value of 3.1 or less, just 1% of sales opportunities have been won.
The study “Sales Forecast 4.0” showed that the success factor Relationship is overrated by many salespeople and the success factor Competition plays almost no role in the subjective evaluation of sales opportunities.
To achieve an efficient sales management, a holistic and realistic view of the sales situation is essential, the success factors must have a demonstrable relationship to the potential buying decision.
The psychometric questionnaire enables this holistic view and does not force the salesperson to speculate as in the scenario described above.