There is a lot of buzz currently circulating on the subject of “predictable revenue”; there are various authors and pundits who claim that revenue can be predicted with accuracy. In some isolated cases this might be true, but in most cases—especially in the higher-end B2B sales arena—it is a fallacy.
There is considerable difference between sales forecasting and predicting revenue and, while similar, these two terms should not be considered one and the same concept.
Prediction Itself Is Impossible
In the strictest sense of the word, to predict means “to declare or tell in advance; prophesy; foretell” (Random House Dictionary). That means if a company predicts it will bring in $200,000 in a given quarter, it is stating implicitly that that amount will definitely come in. Given the amount of variables in B2B sales, such a prediction is factually an impossibility.
Let us take an example: a sales rep for a database software maker has lined up a $10,000 sale to a prospect company. The rep’s initial contact at the company—the buyer—is mostly closed on the idea. Following a presentation given by the rep to the prospect company’s decision makers, they all seem to agree that the rep’s solution was the best one they’d seen for the price. At such a point the rep’s company might then “predict” that this $10,000 sale will come through.
But how many factors could go wrong here? Let us say that all decision makers at the prospect company are sold on the rep’s product—but the financial authority, when the purchase is forwarded to her for approval, sees something everyone else seems to have missed: that the database product won’t scale to match the growth the company is expecting in the next year. The sale, as a result, turns into just another lost opportunity. Or, a competitor comes in and makes a presentation after the buyer had told the sales rep that it looked like a done deal—and that done deal now comes undone due to the competitor’s considerably lower price for a comparable product. Or one of the decision makers had some undisclosed reservations and was not actually closed on the idea, and after the rep had departed thinking the deal was in the bag that decision maker managed to throw doubt into everyone else’s mind. As you can see, there are an infinite number of variables involved.
B2B sales are driven by the human element—there are human beings involved at every stage of the sales process, and human beings are by nature dynamic. Subjective value plays a large role in the overall process. Despite the best efforts of some of the leading scientific authorities in the world, human nature has yet to be totally pinned down and predicted.
A sales forecast, on the other hand, is in actuality an educated guess (called in science a hypothesis). It is typically based on a sales rep’s or a sales manager’s past experience in such sales. Because of this methodology, it can have a fairly wide margin for error.
A leading-edge CRM software solution such as Pipeliner, however, can bring several important factors into sales forecasts which make them considerably more reliable. For example, past performance of the salesperson based upon the sales reports can be taken into account by closing ratio. A history of past purchases of this particular product can be compared with lists of issues it solved, and a probability of purchase by the current company—based on the number of issues potentially solved there—can be arrived at. If the prospect company has purchased from the company previously, a history of those sales can be examined. These types of factors can be summed up into a rating for each sale which will make for a more reliable sales forecast.
Don’t confuse predictable revenue with sales forecasts. One cannot be done at all; the other can be of great assistance in enabling a sales force to prioritize and make sales goals.
A Few Helpful Links:
- Adjusting the Progressive Pipeline
- 4 Steps to Improve Sales Performance Management
- How to Motivate Your Sales Team