We’ve all been there. We look at a deal in the sales forecast with which we’ve been involved, see that the probability is set to a percentage that corresponds to one of the sales stages setup in our CRM system, and say to ourselves “WHAT?! I know that deal! There’s no way that deal should be at 75%! What is he thinking?” We then pick up the phone or pound out an email to the sales rep and/or his manager and ask for an explanation.

The response that we get is… sort of not terrible. When we listen to the explanation we understand how the rep could make a case for the later stage. We can see how they might feel that it’s further along than we believe it to be. We listen to the rationalization and it passes a loose sniff test. The logic may be a little flimsy, but we can see where they’re coming from. But here’s the problem:

 Sales Stages Are Not About How We Feel

There are two ways to structure sales or opportunity stages in our sales process: 1) based upon what our reps think the close probability is, or 2) where the deal is in the sales cycle based upon objective measures – upon what’s actually happened.

The first way is the wrong way. End of discussion.

Sales reps are, almost as if it were a law of the universe, prone to hearing what they want to hear and destined – absent any structure and discipline imposed by sales leadership – to think a deal is further along than it actually is. There’s a name for it – Happy Ears

Without a degree of objectivity, forecasting falls into a world where reps and their managers end up thinking “well, this could go either way. We’ve got a 50/50 shot right now. I feel pretty good about it. Lots to do, but it really does feel 50/50. So let’s forecast this at 50%.”

What happens is that we get a TON of deals forecast at 50%. And that throws off our forecast. It reflects the wrong numbers to the rest of the business.

I know this because I did it myself over the years, probably hundreds of times. Even when I knew better. I got too close to a deal and missed my blind spots. I was thinking positively because I wanted to hit my numbers. I became friendly with the project sponsor and trusted that it would get done even though I really had no idea of what their legal review process was or how long it would take.

Whatever the reason – left to our own interpretive devices, we become optimistic and over-confident and we start to feel that a deal is closer than it is. Then the end of the quarter comes, deals start to slip, and everyone is wondering what’s going on.

The Path to Accurate Forecasting – Objective Questions

I operate with a tight set of sales stages that correspond to a percentage probability (with amounts of 0%, 10%, 25%, 50%, 75% and 100%) and I have found, working with other sales leaders and colleagues, that the easiest way to move toward accurate forecasting is to overlay a set of objective qualifiers on top these sales stages. These are binary, black or white questions that must be asked and answered before the sales rep can move the deal to the next stage. Think of each stage as a column, with a clear question at the top. Ask that question to see if it should be moved to the next stage.

For example, an objective qualifier for moving a deal from 25% to 50% would be “has the prospect narrowed the competitive field down to three or fewer vendors and are we one of them?”

If the answer is ‘yes’, it can move. If it’s ‘no’, it stays.

It’s that straightforward. If there aren’t three or fewer vendors remaining, and we’re not one of them, the deal doesn’t advance to the next sales stage. It’s clear, it’s objective, it’s binary, and it is immune to subjective interpretation.

Here’s another example. To move from 50% to 75%, we must be formally advised that we are the selected vendor and we must receive a first round of redlines back from the account. These qualifiers have yes or no answers. Formally selected in writing? Yes – we have the email right here. First round of redlines back? Sure thing – we’ve sent them to our counsel. The deal can be moved forward.

Now, there’s a HUGE amount that happens between moving from 50% (field narrowed to three) and 75% (first turn of redlines.) A huge amount. And that’s the point. Which brings me to…

Why Sales Stages Are So Important – Reason #1

Deals are lost or slip because of things that we have missed. There are always a ton of moving parts. Managing to disciplined sales stages provides a predictable, repeatable system to apply to all deals so that things don’t get missed.

Some reps are great at discovery but start to fall apart during late-stage selling. Others are incredible at understanding the legal cycle and negotiations, but aren’t great at articulating business value early in the cycle. No one is great at everything. It’s natural for people to migrate to their strengths and avoid their weaknesses. No problem, as long as the gaps are covered – and a clear and objective set of sales stages with criteria for each stage helps ensure that a rep and their sales leader can formulate a plan to cover all bases and ask for help where needed.

Why Sales Stages Are So Important – Reason #2

Beyond giving a sales rep and her leadership a means by which to understand deal progression and priorities, the point of sales stages is to enable the business to have visibility into pending transactions so that the business can plan – plan for necessary resources (both human and technical) plan for spending, etc. It allows the professional services organization to forecast headcount requirements and staffing needs. It enables finance to get visibility into things that are critical to run the business, like how much cash can be expected to come in at any given point in time.

It would not be an overstatement to say that the entire functional operation of the business is dependent upon accurate forecasting.

When sales reps understand this – when it’s clearly outlined to them that sales stages aren’t simply a mechanism by which to have their chops busted by their managers, we get more accurate forecasting. Reps start to understand that the forecasting goes beyond them and that doing so accurately helps the business – and most reps genuinely want to help the business.

When you start to apply these objective questions, the organization can look at any deal by stage and know what has or hasn’t happened simply by a function of the stage in which the deal is found. Sales leadership can start to identify falloff points in the process, indicating areas that may be in need of more enablement. What it provides is consistency and predictability, which is the greatest gift a sales leader can bring to their finance and executive team.