The key to better sales forecast, plans, and resource optimization
Our blogs “A Tale of Three Knobs” and “Great Win Rate Expectations” discuss flaws in the ways businesses measure win rates. Why is this so important?
The output and productivity of your sales process is defined by three factors: win rate, deal generation rate (how frequently you start new deals), and deal size. (Wondering "what about sales cycle?" We'll get to that shortly.)
These are reasonably within your control, and they have a direct result on your sales. Want to sell more? Those are the three knobs you can turn to achieve a goal.
To use those knobs effectively you need to understand the effects of changes in them on your business. And to do that, you have to measure them—accurately and independently. Careful measurement helps you identify the significance of potential changes. And you can use the knobs to model your entire sales process to help you improve sales productivity, forecast better, plan better, and sell more.
Measuring deal generation rate and deal size is straightforward (although there are subtleties). Win rates are more complicated because they involve both time (how long you've worked deals) and proportion (percent of deals at each point in time that were won). And that's why sales cycle is not an independent forth musketeer. If you measure win rate as a function of time, then sales cycle is intertwined with win rate.
Because they are hard to measure, it's easy to end up with flawed win-rate measurements. Typically, businesses use win rates that suffer from selection bias (producing optimistic and volatile estimates); that mix win rate and deal generation rate (volatile); or even rates measured across shifting sets of deals. Those win-rate measurements are wrong. You can’t use them to compare one group against another, to identify trends over time, to forecast, or to plan.
Even though accurate measurement might be a little tricky, the results are simple, intuitive concepts that you already understand: win rates, deal generation rates, deal sizes.
Once you get win-rate measurement right, you can use the three knobs to build a model of your sales process that helps you answer questions like:
What can we expect to sell this quarter? Next quarter? Next year?
How much deal generation do we need to meet our plan?
Which business segments are most productive?
When is the right time to engage with prospects?
What’s the right quota for a salesperson? Team? The company?
Where do we have sales process inefficiencies and how can we correct them?
All that from a sales model? Yes.
Learn how to compute win rates correctly:“Great Win Rate Expectations.” (Includes Excel example with detailed instructions.) Better yet, do all these things in minutes with Funnelcast.