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

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’.

The 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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Who should carry out the Sales Negotiation?

 

I have run Negotiation Skills Training for more than 20 years.

 

BMAC Consulting ExtraOrdinary Negotiation Skills are based upon:
Game Theory Strategies and Verbal Behaviours. These have both been Validated by a wide range of academics and practitioners.

“The proof of the pudding is in the eating”,
   and sometimes I noticed it didn’t work!

People who had attended the training and who had done well in the Classroom ‘failed’ to “transfer” the skills to the Real World.

I have followed up on this quite extensively
and noted the following paradox:

 

 

after training People knew what to do, but didn’t always do it!

It is irrational, but it is also true. They had the tools to create win/win outcomes, but they were often sub-optimizing the outcome. They were too “soft” in some situations, Customers, Family and Friends and too “tough” in other situations Shops, Restaurants or with complete strangers.
On examination, these “Skilled” Negotiators were failing to use their skills appropriately;
in fact their behaviour was ‘unaligned’ to the outcome.

The missing factor was ‘empathy’.

In situations where they had strong empathy,
they were failing to align their behaviours and use appropriate strategy.

In situations where they had little or no empathy,
they were simply going for the single win, a “Bully” strategy.

Neither was particularly effective.

 

What does this mean?

It means that Low to Medium empathy seems to be the right amount to provoke correct strategy and aligned verbal behaviours. This level of empathy is more usual in second line staff, Sales manager, Financial Director or CEO.

When we come to negotiation (not Haggle) then,
the Salesperson is NOT always best.

Check their empathy for the Account
BEFORE you let them negotiate!

 

 

 

 

And, check the Sales Manager, FD or CEO for SKILLS
before you ask them to negotiate, instead of the Salesperson.

 

 

 

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"shortening sales cycles"

The most effective way of shortening the selling cycle is to arrive at the very end of the buying cycle. If your buyer is going to decide tomorrow, you will have a selling cycle of less than 24 hours!

Usually, in fact almost always, you won't get the deal.
But, the upside is you have only lost one day!

Other sales people, who started a year before you,
they will have wasted a whole year!

I once visited the flight deck of a 747 Jumbo Jet.
I was overwhelmed at the number of dials and indicators. The Captain patiently explained to me the purpose behind each one.
Fuel Gauge and Fuel Burn Rate.
Altimeter and Vertical Speed.
Air Speed and Forward Looking Radar. 
Each Indicator or Measure giving critical information for the effectiveness or the security of the airplane and their passengers.

 

 

 

But there was one gauge, not mentioned,

marked from 40% to 100%,
with Green, Amber and Red zones.

Pointing to this colourful gauge, I asked “what is that one for?”

“That’s the External ‘Humidity’ Gauge.” replied the Captain.

"But, what is it for?" I persisted

The Captain smiled widely and then answered
“That’s so we can answer a head office Executive’s question, ‘Is it raining outside?’”

“But, that’s not really relevant, is it?” I asked.

“No, but in Sales you have head office Executives who pour over
the ‘Sales Cycle Time’ figures don’t you!”  He replied.


I have to say that, this is the same Aircraft Captain who caused Kaplan and Norton
to write their book “The Balanced Scorecard”, and create "Dashboards"
in response to the Captain flying from New York to London
using ONLY his Altimeter.

They had however, booked a flight from New York to Chicago!

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The problem of Sales and Marketing Alignment

 

I always smile privately while reading Sales-Marketing or Marketing-Sales Alignment Problems Blogs and Reports.

An exception
is the great advice given by:

http://blog.eloqua.com/sales-alignment/

However, Forrester, a respected Research and Publishing House. The author has a Marketing background, but he lacks that ‘Grunt’ experience. Having been a ‘Grunt’ that worked and educated himself to General Management, I know how essential that experience was, and I know how important to have perspective on the “Problem”.

The ‘shocking’ conclusion is:

“Sales and Marketing Alignment starts at the Customer”,

forgive me but I feel as though a Consultant has just borrowed my watch,

told me the time, billed me $500 and then kept my watch!



The Problem is in Marketing, they can’t keep up.

Marketing cannot keep up with Social, Technological, Economic, Political or Competitive change!
Sales, at the ‘front-end’ attempts to use out of date marketing content, are directed to inappropriate leads, and most importantly are blamed for failure and then discredited for their success. I long for the return of Sales and Marketing Directors, Marketing Communications, PR, Customer Events,
Golf balls and Umbrella give-away!
I would trade both my SFA and CRM for them, and settle for just MS Outlook.



Instead, I have to suffer the indignity of the CMO,
we might as well have had Sales report to the CFO, 
as at least in Finance they understood the Financial Offer!  
Marketing are there to serve the Sales-force, not the other way round!

Marketing Deliverables are the Sales-force requirements to SELL,
not a ‘price list’ with a product brochure and an inoperable website.

Then, God forbid, a plethora of Sales ‘Disablement’ content, SFA and CRM software, FAD training programs, Market Focus meetings and the fatal blow a “sales strategy” based on a (wrongly labelled) Boston Matrix,
a SWOT analysis that left out the Key Competitor and was based on the wrong Market segment
and a no longer sold Product.

Within 5 minutes of meeting a CMO, I can tell if they have any comprehension of Selling or not.  If they don’t think much of Salespeople and if they believe that Customers are naïve, then they are unlikely to align.


I have been much more measured in my assessment of their Marketing and CMO skills, waiting a full 18 months,
to see what they achieve.
In ITC my expectation is 35% year-on-year at the top line.
This is rarely achieved by CMO’s unaligned to Sales and Customers!

 

What is often achieved is the complete disengagement from both Sales and Customers;
to the point that the CMO believes that “they are in the ‘wrong market’.”

When CMO’s directly manage Sales, as “Sales” Management this has been disastrous,
with the loss of Market share, Key Employees, and inconsistent Sales Strategy of both Product and Position.

 

The outcome is OVERT Marketing - Sales - Customer misalignment.


I have reached a different conclusion, than Forester, Sales and Marketing misalignment is the CEO’s fault!

Sales and Marketing misalignment
is completely the CEO’s fault.

The structure of a ‘disintegrated’ Sales and Marketing Department is wrong, it doesn’t work. 
It’s not about ‘alignment’; it’s about “Integration around the Customer”.
Sales, Marketing and Service integration,
which delivers Customer Acquisition, Retention, Development and Substitution the FOUR Sales Strategies!

 

My advice to 'misaligned' CEO’s is  this month spend
at least 20 hours with Customers LISTENING, not talking.

Then do the same thing with the Sales and Marketing Departments,
Fire the CMO and any other Marketing person with a title that doesn’t have the word “Customer” in it.
Fire all Marketing people who do not spend at least 10 hours per month with different Customers.
Fire all Salespeople who don’t spend 40 hours per month eyeball to eyeball with different Customers.

More on integration at http://brianmaciver.blogspot.com/2010/09/sales-and-marketing-integration.html

Hold a series of Meetings with the Integrated Sales and Marketing Department,
ensure they know and have agreed the Ideal Customer Profile (ideally based on real customers),
they have agreed the definition of a Sales Ready Lead,
as well as an agreed handover and hand-back process for Sales [un]Ready Leads.

 

Good Luck!

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Failing during the down turn.

I wrote of my dear friend who is succeeding in the down turn, http://bit.ly/gDW2lD and he continues to thrive 15% Y on Y growth, from a changing product mix and a growing market. His Cash disciplines and customer focus continue to pay-off.
However, we play golf with another Businessman. He, and his two daughters, runs a Machine shop, Precision Engineering and Custom Chromium Plating. 18 months ago he thought the downturn would only last a year. He had the cash, so he simply bunkered down.
He kept his employees, employed.
He gave extended credit to his customers.
And, he waited!

Now he is running out of Cash, and Cash counts.

It is not too late, he still has a core business, but his material suppliers want cash up front, and not all of his customers pay, many pay late.

 

He asked me to help sell.

But, the sale to cash cycle is 7 months and he no longer has 7 months of Cash.

Bank loans? Mortgage? I had to tell him, that the way he currently operates, in his real market, he will lose his home as well as his business.

Madness, is doing the same thing and expecting different results.

How do you recover?

Cash Control is number one, both cash spend and cash collection.

He has to size the workforce to the business, and he has to stop being his Customer’s Bank. NOW.

A quick product/Market scan showed his best Customers, in Cash terms are in France, moderate Margins but good payers.
I’ve sent HIM on a sales call.
All Customers 10,000 € in arrears are now on credit stop pending payment. No shipments until the account is cleared, and future “deals” are 30% on order, 30% on manufacturing start and 40% on completion. This represents his business cycle of Material purchase, Worker hourly rate, and Margin.

I have been handling Difficult Customers, and keeping “the family” away from them.
I am, with some success, offering 10% Cash Back for less than 30 day payments,
and I do mean CASH.

The ‘will not pay’ are not getting any shipments,
the 'cannot pay' I am looking at on a case-by-case basis.

This is not “hard headed”,
they should have been doing this anyway,
but now they have to do it.

It’s a good business, they are good people,
I hope we can save their business.
Then I can tell them about Flat worlds,
Facebook, Twitter, Blogs and Selling in 2011.
Right now it’s more basic than that.

Setting Stretch Sales Targets for 2016

One of the measures we use at BMAC is a firm’s “Maturity”,

their ‘Sales’ maturity is WHEN and HOW they use:

‘Stretch Targets’

  

Firms that use “stretch targets” outperform
their expectations and outperform their competitors. 

They are High Performing Companies.

 

Our measurement is M1 through M4,
based on Ken Blanchard’s “Leading at a Higher level”.

 

What is a “Stretch” Target?

Simply put it: It is what you NOW believe Sales can achieve,
based on the ACTUAL Sales Velocity or Run Rate.

A Stretch target recognises that ‘Forecasts’ are just predictions.
That things like Markets, Products and Competitors change;
as do the Economy, Laws, Technology and Fashions.

Therefore, “Forecasting” and “Targeting” a year ahead is often inaccurate.

Within my Clients over the last twenty years,

I have seen from 50% to 200% variation from forecast.

Then, is it their forecasts that are wrong?

By their very nature, forecasts are unstable.
You predict in December the result
for December of the following year
...no mean Task.

It is far easier to predict NEXT MONTH,
based on the last 3 months,
still prediction, NOT certainty.

 

How then do I use the M1-M4 scale, and what do I do with it?

 

What is the involvement of the sales people in setting Sales Targets?

 

• M1: the least mature Firm’s 12 months forecast,
  set the Sales Target then divided it amongst the Sales people
  and they NEVER modify it.
  They congratulate themselves for achieving any monthly, quarterly or annual milestone,
  and blame any salesperson who does not.
  There are three failings inherent in this system.

  • It de-motivates sales people
  • It is sub-optimal in that it accepts the Target as success, rather than overachievement
  • It has no strategy for failure, it simply repeats month after month

• M2: set a 12-month Goal, based on a 12 month Forecast,
  divides it amongst Sales Managers,
  who accept the Target after Consultation and ask for the resources to achieve the Target. 
  The Sales Managers seek to aggregate their salespeople’s results to achieve their Target.
  This can produce either a ‘Coaching Culture’ or the ‘Blame Game’. There are still three in inherent failings at this level of maturity.

• It continues to be sub-optimal in that the target is success,
  and any combination of sales result that meets Target will do.
• Sales are composed of ‘motivated winners’ and ‘de-motivated losers’.
• The Strategy for failure is to focus resource on winners and ignore losers

• M3, the Goal is set based on the Forecast and ‘deep dialogue’ with Sales Managers,
  which is then agreed by consensus amongst their salespeople.
  The VP of Sales owns the overall Sales Target; it will not be simply divided out,
  but will be apportioned according to the Consensus of the entire sales force. 
  It is based on an optimal result.
  
  The VP of Sales is tasked with using the resources in an optimal manner,
  reviewing Strategy on a Monthly basis:
  optimising People, Accounts and Opportunities into a ‘most likely to succeed’ scenario.

  • The major drawback at this level is finding a VP of Sales with the skill set of:

    Leadership, Creative Thinking and Sales Management,
    who is both capable AND motivated to do it.

• M4 the goal is to “Sell As Much As Is Profitable.” 
  Forecasting and Targeting are for planning purposes only,
  in execution each person within Sales
  from VP to a Sales Rep is fully engaged on “Sales Optimisation”. 
  The true M4, in fact, everybody is involved in Sales Optimisation. 
  [Usually, you only find M4 in Professional Services:
  Legal, Accounting, and Management Consultancy.]

You would do well to look at them.

In Ken Blanchard’s Book on Leadership,
his basis is “give the people (or the firm) the Leadership they NEED”.

However, in Sales, we tend to get the Leadership they HAVE, especially from the CEO.
Hence, most Sales Firm’s have the Maturity Level of their CEO’s Leadership Style.
The Forecast, Targeting and Goals, which is the CEO’s ‘preferred’ style.

This may disconnect Sales from the Market reality;
instead Targets are based on the Risk Aversion,
Control Requirement and the “People Outlook” of the CEO.

• “Set Sales Targets 15% higher than aggregated Managers targets
  and then aggregated Managers Targets at 115% of the Firms targets” (Planning for Failure)
•  “Put up all their targets by 15% every year.”  ( High staff Turnover)
• “Set the targets low in order to meet them.” (No shareholders)
• “Set the Targets just out of reach, so we minimise bonus payments.”  (when the CEO listens to the CFO)
  
  or

• “Let’s go for it!”

How were your sales targets set this year 2015?

Based on the Market reality under an Umbrella Sales Strategy
with every Salesperson’s buy-in and commitment?

Or, were they dealt off the top
of the “Target Pack” after a shuffle.

 

Will you be happy to achieve ‘Target’ in 2016 or will you :
“Sell as Much as You Profitably Can”

BMAC Consultants offer a free Diagnostic Pack

“What is your Sales Maturity and
  What is your Sales Leadership style?”

Contact brian.maciver@googlemail.com

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Hunters and Farmers 2013

One of the most popular misconceptions in selling is:
that there are two kinds of Salespeople,
Hunters and Farmers, there are not.

 

If you believe that there are, and if you put this misconception into practice,
then you are losing much of your Revenue Opportunity and all of your Profits.

“Hunters”

e.g.  “New Business Development Executive”
“Hunters both prospecting and
qualifying sales opportunities.”

Farmers

e.g.  “Account Manager”
“Farmers servicing existing customers, identifying and closing NEW sales opportunities”

This has been used for about 35 years (maybe more).

Anyone that researches Hunters and Farmers Model finds that:

http://www.mckinseyquarterly.com/Using_your_sales_force_to_jump-start_growth_2781

By definition Sales “Hunters” take Business from Sales “Farmers”,

I would like you to think
of the whole idea differently.

It is NOT salespeople who are ‘Hunters’ or ‘Farmers’ with 'Buyers' as “food”.

In fact the TRUE MODEL is that:
BUYERS who are either “Hunters” or “Farmers”
and it is Salespeople who are their ‘meals’!

 

Do not confuse my use of the word ‘BUYER’ as a “Professional  Buyer” in the Purchasing Department,
I use the word ‘Buyer’ here in the context of ANYONE who a seller may sell to. 
ANYONE. Technical, Financial or User. 

Anyone in the Buying/Decision Making Model whatever their role,
could be either a Hunter or Farmer.

I have researched “Effective” Buyers, in Retail, High Tech, Financial Services and Government.
Using the model of “success” as the best outcome including Product Application, Cost of Acquisition and Ownership, and successful on-going relationship (for the buyer). 

These three criteria determine Buyer Success

• Cost, Application and Relationship.

Using the terms “HUNTER” Buyer and “FARMER” Buyer is not pejorative it is descriptive,

BOTH of these Buyer Types are doing a great job for their Company (and themselves!).

“Hunter Buyers” are predators; they are always looking for new ‘victims’. 

Their staple diet is inexperienced sales people, who think they have “found” a sale. 

The Buyer commences to eat the ‘Seller’ for breakfast!

 

 

“Farmer Buyers” have found their
‘meal ticket’ and nurture their
Account ‘Manager' with small gifts
(small orders). 
Meanwhile, ‘training’ the Seller to bring
best offer best pricing, special deals and
‘all in costs’ to “Keep the Relationship”.

 

When you run a Customer Profitability Analysis across your Customer base,
then some of the poorest performers are:

Long term Customers with a ‘Farmer’ (long tenure Account Manager)

or the new accounts brought in by your ‘Hunter’ sales people on a “Loss leader sale”!

Profitability ‘Pereto’ usually shows that 20% of your Customers are delivering 80% of your profits.  These Top Performing Profit Accounts have a newly appointed “Account Managers”,
or a Margin incentivised Hunter-Gatherer Sales people!

I have carried out extensive Behavioural Analysis on Buyers (3,000) sales calls.

Their Behaviour, verbal behaviour that is, follows clear patterns.

I have devised 4 categories over the years Hunter, Farmer, Poacher and Skinner.

The real question is:
how do I match my Sellers
to these Buyer profiles?

I will continue to Blog on this.