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Be Rep-Realistic!

To evaluate prospect portfolio, a common practice is to ask sales reps to estimate success probability (chance). For example a $ 30,000 opportunity with 70% chance worths $ 12,000. On the other side most sales reps provide wrong (usually too optimistic) success estimate, so expected portfolio value is possibly wrong.

Here is a simple heuristic for adjusting the chance (success probability) provided by sales reps. I have used it with excellent results in many B2B cases. A spreadsheet is also available to demonstrate computations.

To perform the adjustment we will use two variables (for each rep) each time a prospect or opportunity is concluded. Computations are as follow:

SC_ALPHA and SR_ALPHA are two smoothing constants, I have always used them with value 0.3, you possibly change them to fine tune your case.

Let C be the success chance sales rep had given to the opportunity. Divide by 100 if percentage, thus 12% = 0.12.

Compute R (Result) = 1 if opportunity is closed with success, 0 otherwise.

Compute SC (Smoothed Chance) as follows:

• if no previous concluded opportunity exists then SC = C

• otherwise, being SC_OLD previous value of SC:

  SC = C × SC_ALPHA + (SC_OLD) × (1.0 – SC_ALPHA)

Compute SR (Smoothed Result) as follows:

• if no previous concluded opportunity exists then SR = R

• otherwise, being SR_OLD previous value of SR:

  SR = R × SR_ALPHA + (SR_OLD) × (1.0 – SR_ALPHA)

Repeat previous computations for each rep's concluded opportunity in the order they were concluded. Usually you add two fields to your database that are updated whenever an opportunity is concluded (or put in an external table if you use an external CRM application).

Now, for all still pending opportunities you can computed the adjusted chance as follows:

1. AC = C × SR ÷ SC

2. if (AC > 1) then make AC = 1

To express AC as percentage multiply it by 100, this 0.13 = 13%.

 Here is an example:

 

 

This rep has concluded 6 opportunities to which he (she) gave 60%, 90%, 70%, 50%, 40% and 70% success probabilities. Only second, third and last were concluded with success. As result SC and RC are now 0.6052 and 0.4749 respectively.

So a pending opportunity he (she) gives 60% success probability has actually only 47.09% realistic chance:

AC = C × SR ÷ SC = 0.6 × 0.4749 ÷ 0.6052 = 0.4709 = 47.09%

Thanks to exponential smoothing this model automatically adjusts itself wen rep makes more realistic estimates.

Find here a spreadsheet that adjusts chance of all pending opportunities.

If yous sales process is slow (months) associating variables to pairs of reps × stage of sales funnel will give better results. So, when an opportunity or prospect is closed, you will update SC and SR considering chances supplied at each stage.

And now that you have better portfolio metrics...

Lucky sales!

 

 

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Posted at 04:12PM Oct 04, 2009 by admin in Sales & Marketing  |