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Why Your Forecasts Are Always Wrong (Find & Eliminate the False Positives)

by Doug Davidoff | Dec 3, 2012 8:19:00 AM

The underlying system of sales is designed for failure. This is supported by the way companies manage, track and review their sales pipeline. Inadvertently, companies are making sales growth difficult, choppy and unsustainable as I discuss in my presentation The 7 Steps to Achieving Effortless Growth, I share that one of the primary reasons that is that the underlying system is designed for failure. Below are steps you can take to reduce false positives in your forcasts.

When the focus is on why people should buy, rather than on the barriers to buying, false positives (the belief that a prospect will behave positively and fails to) increases.  Salespeople, who are naturally optimistic to begin with, know that as long as they can find a reason that someone should buy, there’s hope (and they can keep their sales manager off their back).

The problem with false positives is they dramatically increase the noise associated with predicting future business, and cause poor decisions made in every facet of a business.  As Nate Silver shared in The Signal & The Noise (a great book that every business and sales executive should read, and that I will be reviewing on my blog later this month), false positives cost millions of dollars in lost opportunities and poor resource allocation.

Early in the sales cycle (where false positives are most prominent), a false positive rate of just 25% (which for most companies would be quite good), will cause sales management and salespeople to overestimatethe likelihood of a customer closing by 4 – 8x.

While you’ll never totally eliminate false positives from your process, a good goal to set is for them not to exceed 5 – 10%.  This requires a rigorous approach to pipeline management, necessitating that it be built into your sales process.

Here are the first steps to take to begin reducing false positives:

    • Review

      • Review all the sales opportunities that you’ve lost in the last two years and create a list of what caused you to feel confident they would buy.
      • Looking at those opportunities, be completely honest with yourself and identify potential false positives.  In other words, don’t rely on the excuse, “They went with a competitor who sold it for less.

    • Reward

      • Spend more time focusing on the barriers to a sale, and praise the reps who bring honest feedback.
      • Encourage reps to share their concerns about making a sale.

    • Reinforce

        • Keep track of your pipeline forecasts and revisit those forecasts with reps every quarter.
        • Don’t ask your reps to make a single forecast.  Ask for different time periods (ie 30 days, 90 days, 6 months, etc.) and different probabilities (20% best case, 50% and 80%).

Focus on these three areas, build them into your sales system and you’ll see the sales soar.