Proactive Forecasting

By Lain Chroust Ehmann

Despite growing sophistication in many areas of business economics, most organizations fall back on two main forecasting methods, says Kevin Temple, president of ValueVision Associates in Del Mar, CA. They either assign a probability-of-close percentage to each forecast item, or they assign a fixed percentage – typically 30% for steady-state organizations – to some portion of the pipeline, says Temple.

While these methods can provide a reasonable estimate of the total probable outcome, “they can completely miss the boat when it comes to identifying which line items will actually close, or what to do if an opportunity is not fully developed,” explains Temple.

As a result, companies might not be able to accurately forecast demand for specific products or services, which in turn affects inventory, staffing and resource allocation. “There’s impact on your inventory and on your ability to deliver,” explains Temple. In addition, there’s no mechanism for helping the sales team increase the probability of winning a sale.

Instead, Temple suggests forecasting from a different perspective. He breaks down the sales process into six interdependent steps, each of which must be accomplished to increase the likelihood that a sale will close in a given time period. The forecasted item starts off at 100% probability. For each of the following steps, 100% is multiplied by a factor of 1 if the step has been successfully completed or by the factor indicated in parentheses below if it is incomplete.

  • Identify and confirm the business issue that will be addressed for the prospect with the product or service. (.9)
  • Confirm the prospect’s view of the people, process or technology problems to be resolved. (.9)
  • Confirm the differentiation of their solution with the prospect. (.9)
  • Confirm there is enough value in resolving the problems from the prospect’s perspective to commit to a purchase. (.9)
  • Develop the value and vision to address a significant business issue with a qualified decision maker. (.5)
  • Develop and confirm a next-steps plan with the customer, which, if successful, will result in a commitment. (.9)

    By following the interdependent steps a salesperson must take with the prospect during the sales process, the sales rep and manager can target specific tactics to increase the likelihood of the sale.

    Temple says this method also helps in resource allocation. He gives the example of Cadence Design Systems in California, which was transitioning from a product company to a product and services company and wanted to determine staffing and resource allocation. When ValueVision started working with Cadence, the company chalked up $1 million in services. Within a few years that number hit half a billion dollars. By using this forecasting method, Cadence was able to hit a utilization rate of 76% — quite high for the industry, says Temple.

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