IMAGINE THIS SCENARIO. Half-way through the financial year, your boss asks you for an updated forecast of the year-end sales figures. You know exactly what has been booked to date, but now you have to identify what is in the pipeline to complete a projection for the next three months.
Two of your sales executives are close to finalising small deals, but they are already factored in, and you approach the third team member for news of the big account he has been working on.
The feedback seems positive: another meeting has taken place with the client’s project team, detailed terms have been discussed, and a response is awaited. The salesperson puts the probability of winning the account at 80 per cent and mentions possible revenue of $10 million.
Based on this information, you submit a report committing yourself to exceed the original year-end sales target. Two months later however you hear the news: the big account has signed with a competitor. This means there is zero chance of hitting the revised sales target.
Unfortunately, this scenario is all too common. But what went wrong?
For a start, there were too many uncertainties in the discussion. The 80 per cent was a “gut feeling”. The estimate of $10 million was probably, as usual, overstated.
Looked at closely, the figures turned out to be an unscientific combination of market rates, instinct and optimism. And in assessing the chances of success, the focus was on what had been done already, and not on what still had to be done to secure the deal.
Such a situation could be avoided If the sales manager had a tool to measure the probability of winning the business. Such a system must look ahead, and not simply focus on progress to date. This allows a good sales manager to know when a salesman has misjudged a client’s level of commitment and to concentrate on the tasks essential to securing the contract.
The best way to manage sales opportunities is to divide the “projecting” phase of the sales pipeline into four qualifying levels. These can act as an ongoing report that includes information about things such as contract value, decision dates, probability of winning the business and the next steps to take.
For a potential client to move up to the next level, there should be clear criteria and agreed on measures of progress.
With this “tough” approach, you will have a better view of how far you have come and what lies ahead.
Here are some suggested criteria to use for the different qualifying levels:
Level 1
At this stage, it is important to have three key criteria. They are: being sure an opportunity genuinely exists, holding initial discussions, and knowing your company can provide a viable solution.
To understand these criteria, you should be able to answer the following questions in the affirmative: Have we met with at least one person with the authority to give us a clear understanding of the client’s requirements? Can we address those requirements? Is our solution likely to be acceptable?
When a potential client has met these criteria, assess the initial chances of winning the business. The figure is up to you, but around 10 per cent is a good starting point.
Level 2
To move forward and increase the probability to 30 per cent, you need a good understanding of the client and the situation. Determining factors at this level include understanding the business drivers, key players, time scale and decision-making process. At the same time, you should develop a sales strategy and implementation plan. To assess how things are going, ask yourself a number of questions. Do you fully understand the client’s industry? Do you know enough about the incumbents and likely competitors for this contract? How does this project fit into the client’s business? And have you obtained the necessary details about the available budget, project start date and the main decision-makers?
Level 3
Here the qualification criteria become more specific. You can assume you are on the shortlist, the proposed solution is acceptable, and that there is regular contact with the key influencers and decision-makers.
If that is the case, you should check whether the client’s team has identified the aspects of your proposal they like or dislike; whether any competitors have been eliminated and why, and whether you have clearly communicated your selling points and justified the price. Assuming things look positive, some may argue for increasing the probability rating to 50 per cent, others to 70 per cent.
Level 4
This is the final stage before signing a contract. The qualification criteria should include a verbal commitment and a fixed date to finalise terms. Business can still be lost at this stage, so make sure you have met the needs of all the key players. If you are confident you have done everything possible and are just waiting for word from the decision-maker, the probability of success can be set at 90 per cent or higher.
But remember – it is not a done deal until the contract is signed. Even then, there is no guarantee the business will kick in immediately or that it will match the original forecasts.
This sales pipeline report provides a framework that can be adapted to suit each business and industry. When using it, look at your sales opportunities and, based on the criteria and leading questions, decide which qualifying level they have reached. You may be surprised how many of your “70 per cent” prospects are really at no more than level 2.
The pipeline report gives sales professionals a tool to help them focus on their next steps and allows management to forecast future revenue more accurately and realistically.
By understanding the actions required to move a prospective client to a higher qualifying level, the approach to sales can become more strategic, and it will be easier to convert clients from having probability scores to be actual customers.
Any worries about forecasting sales figures will become a thing of the past.
TIPS TO WIN
Building your report
There are a number of software applications available to manage a sales pipeline report. Some companies invest in customising something to meet their precise needs, while others find that a good Excel spreadsheet or even a Word document will do the trick. However, as a bare minimum, the report should include the client’s name, type of work involved, the value of the contract, decision date, probability, pipeline value (value times probability) and the next steps. The real focus should be on the next steps, so you can plan specific actions needed to move the client to the next level, ultimately increasing the probability of winning the business.
Conservative versus optimistic
Debates over the probability of success with certain clients and the qualifying level they have reached can be endless. Any decision should be based on the industry, the length of the typical sales cycle, the number of potential clients you have and the value of each project. Each company can decide their own system of rating but should concentrate on being consistent and accurately assessing the true value of opportunities in the pipeline. An optimistic approach may look great on paper but can prove to be a problem if you keep losing prospects previously classified as 70 per cent or better. The probability percentage allocated to each level does not have to be set in stone. Start with ratings that everyone understands and fine-tune them if necessary, to reflect the real situation.
Avoiding mistakes
The sales pipeline can easily be distorted. For example, during your sales activities, you may meet a decision-maker who clearly communicates what he or she likes about your proposal. Since you have explained your unique selling points and learned which companies you are competing against, you feel the qualification criteria have been met to put the client in level 3. But you may not have found out that the prospective client has no start date in mind, has not yet secured a budget, and that one key influencer has still to be involved. Basically, these are qualification criteria for level 2. Do not get ahead of yourself and assign a higher probability if you have not answered questions which apply to a previous level. Only after meeting all the qualification criteria at one level should you move the client up to the next.
Sales Qualification Tool
Simitri has a simple but useful lead qualification tool, if you would like to receive a copy, please email to guy.mason@simitrigroup.com and reference this article.