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Wednesday, 30 March 2011

Sales forecasting and the “likelihood to win” - A ‘probability’ score.

barometer

To really understand
Sales ‘forecasting’  or Weather ‘forecasting’

you need to understand ‘Game Theory’.

 

In particular the “Game” which is called
“The Largest Number Game”,
sometimes it is called the “Luring Lottery”.

You can look it up on Google.




It starts with a ‘premise’, that every one contesting has an equal chance of winning. Then people can vary their behaviour through the use of Rational and the Irrational behaviours in an attempt to
“Increase the odds” of them winning.

Sales forecasting is a “Game”, in the absolute sense of Game Theory.

  1. Some Players believe that their “Activity”, increases the likelihood of winning.
  2. Some Players base their ‘Strategy’ on enhanced “Functionality” and hope to win with a better product.
  3. Yet other Players trust in their “Relationships” with ‘Key Players’ in the Account,
    who are given name tags like “Coach”, “Fox”, “Ally” or “Enemy” and just plain “Insider”.
  4. A large group of Players base their likelihood of winning on the “Financial” offer,
    this can be TCO, ROI, or Discounted Cash Flow (DCF) based.
    A popular way of phrasing this is to make a “Value Proposition” which will be literally:

    “Make them an offer that they can’t refuse!”

So, what do we know about Sales forecasting?

Well, surveys and research shows it to be pretty ineffective.
The likelihood of the Sales “forecast” for any individual deal being accurate is about the same as
the weather forecast for rain in the Desert or sunshine in Manchester. Sometimes they get it right!
What about “Collective” or “Aggregate” forecasting? 
Well, even if you do sell aggregates or collectives, they are not much use!

Like the lottery, the more “tickets” that you buy then the more likely you are to win.

Does this apply to Sales?
The more deals you try to close the more likely you are to close ‘some’?

No? Well no, not really.
It doesn’t work that way.

We know this because of the Sales People and their Sales Managers who worry about Activity, Functionality, Financial offers and Relationships. If these are not ‘right’, then your likelihood of success is diminished.
We didn’t even include the Competitors;
if there are THREE Competitors then TWO of the Sales forecasts are going to be wrong by definition!
We live in a Complex world, ‘forecasting’, especially Sales Forecasting could be characterised as:
“Calculated Chaos” or “Controlled Disorder”. In fact, Sales Forecasts are needed to give a semblance of Control; and Control is needed so that Planning can be ‘fulfilled’.

oracle-delphiThe truth is Forecasting has not progressed much since Greece 2,500 years ago.
Where the Oracles at Delphi, (now known to be intoxicated by the ‘Volcanic’ fumes)
made predictions.
We still believe that prophecy, that is given by “talented seers”, even if removed from the hurly burly can foretell coming events.

 

 

Magic!

 

 

 

 

 

 

What is really produced is ‘pseudo-information’ about relationships, function, finance and activity, which is then processed through ‘intuition’ and ‘calculation’ to generate a number.

The oxymoron springs to mind:

“A long range weather forecast should be obtained before leaving,
  as weather conditions are extremely unpredictable!”

My belief is that Sales Forecasting, especially long range forecasting is a manifestation of anxiety-relieving superstitious behaviours.

 

Sales forecast reviews are no more than “magical rites” to make a chaotic world seem stable. These rites are practiced by the Executive Management Tribe to induce us (sales people) to take action, at least when the ‘Omens’ are favourable.

The use and abuse of sales forecasting simply preserves a Status Quo.

Weather Forecasters talk of unexpected “Turbulence”, and Sales VP’s call it “Downturns”.

I have previously Blogged about the Forecasting method which I use that,
given all the truths above, it is as useful as any,
and a lot better than most “systems”.

 

http://brianmaciver.blogspot.com/2010/07/sales-forecasts-its-numb3rs-game.html

 

No doubt,
many people with ‘systems’ and ‘solutions’ will disagree with me.


But, before you buy,

ask them to bet their House and Pension on it,

before you bet your Company on it!

.

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