How do you predict Sales Revenues?

Predicting sales revenues, and therefore the future revenues of your organisation, is vitally important.  It will enable you to predict when to fund new projects or expansions, or even when to cut back. The $64,000 question is how do you do it and how do you do it with enough accuracy that will actually reflect reality?

There is no ‘magic bullet’ or crystal ball process that will provide 100% accuracy on future sales revenue, but I can provide you with some tips on how to get as close as you can.

Using probability

To determine an approximate future revenue figure, take the estimated sales value, and multiply it by your probability figure (expressed in terms of a percentage). This final figure will then give you a reasonable estimate of how much revenue you can expect.

Always be conservative

If your sales wins are measured in months, add another month to the estimate. Take your estimated probability down by 10% from your final estimate, and always review your revenues.  Always ask yourself whether the figure is right. For example, if you are predicting a 50% chance of winning, ask yourself, do I really have a 1 in 2 chance of winning this deal?

Don’t include gut feel! Gut feel gets in the way of any accuracy in predicting sales revenues!

Start at a low probability.  For example, your estimated sale price may be $20,000 but you don’t know much about the opportunity, give this a priority of 5% (i.e. one chance in 20 of the revenues actually coming through your door). The actual revenue at this stage would equate to 5% * $20,000 = $1000 expected revenue in [insert month or week here].

Strive to know everything

Make sure that you have recorded everything there is to know about the opportunity, especially how much revenue you estimate it will sell for, and when you will actually sell it.  The more you know, the higher the probability of you winning the deal (once you know everything, you probably will have won the deal!).

By everything, I mean everything (and in many cases, we don’t get to know everything). As a general rule, add 5% for everything you know, but take off 5% for things you don’t know.

Things you should know include:

• Are there other decision makers involved?
• What is their role within this particular deal (not their title), (+ 5% for each decision maker)?
• How many of your ‘widgets’ do they want?
• What are they really after (eg Are  they $ conscious)?
• What are you actually selling them (i.e. you are selling them the outcome – so you don’t actually sell a drill, you are selling the hole!)?
• What are their personal interests?
• Will you need to get out on the golf course with them to win the deal (this has been done!)?
• Will your competitors also get out on the golf course to win the deal (-5%)?

Dealing with competition and other barriers

Any information that you know that your competitors don’t will also help you increase the probability of winning (+10%).

Barriers to winning are not just in external competitors, but can also be internal to an organisation or relationship. It is your job to find out these issues, and add them to the mix, and determine whether you can do anything to fix the problem (+5% for each issue solved).

Where did the deal come from?

Was it from a public advertisement of some sort (such as a government tender)? In that case, give yourself a lower chance of winning (30% maximum).

Do you know the people involved? Did they come to you and ask you for your product or service? In that case, I would give you a higher probability of winning the business, but be careful; they may have asked others as well!

Was the work referred to you? If so, I would give you a higher chance of winning the business, as your prospect has proof of your quality from a trusted source, namely their friend or colleague (+10%).

How long before the win?

If it is close (i.e. a few days to a few weeks), then give yourself a few more percentage points that if it will close in 6 months or a year, as time can change a whole lot of factors (-5% for each month out).

Is your price cheap or expensive for your market?

If cheap, it can increase the probability of winning, as not as many decision makers have to be involved in the decision. The more expensive it is, the more decisions have to be made, and the less likely it will be that you win. Be careful with this one, as cheapening the product may also cheapen your brand!

This isn’t the end!

This is a general guide to predicting future revenues for your business, and of course there are many ways that this can be refined. I am always happy to discuss this, and how it can better suit your business. Feel free to comment, or contact me for a cuppa at http://www.salesinnovation.com.au.