Ok, I need someone to explain this to me.
Almost every CRM package that I look at has a report that looks like this:
| Forecasted Sales | x Probability of Closing | = Potential Sale |
| or | ||
| Value of Opportunity | x Probability of Closing | = Expected Revenue |
Does anyone believe this math? Worse yet, is anyone making decisions based on "expected revenue"?
Although it is possible to win a portion of a job, most businesses that I know either get the sale or they don’t. The probability of closing the sale is (should be) related to the progression through the sales process and feedback from the customer. I have yet to meet a small business owner who collects a portion of the sales amount for completing 80% of his sales process.
| Opportunity # | Opportunity Value | Prob. of Closing | Potential Revenue |
1 | $25,000 | 80% | $20,000 |
2 | $100,000 | 40% | $40,000 |
When the opportunities are broken out separately like above, it’s pretty obvious what’s going on. But I constantly see reports with "potential revenue" figures aggregated by sales stage. These are the typical sales funnel reports that you see. In my opinion, these numbers are useless at best and can lead to poor decision making.
Suppose I happen to be one of the rare small business owners who is concerned about cash flow <g>, should I spend my time chasing the potential $40,000 or the potential $20,000? If I have been realistic about assigning my probability of closing, I should focus on opportunity #1 first to make sure I’ve done everything I can to close that deal.
The other piece of information missing here is determining what steps need to be completed in order to get to a decision. I may only have a 40% chance of landing deal #2, but if I get the decision maker on the phone he may be able to make a decision today. Conversely, I may feel confident about deal #1, but it will be 3 weeks until the decision maker returns to the country to give me any answer. My point is, there are several pieces of information that are vastly more useful than the potential revenue figure calculated above.
I understand the value in knowing my potential sales and the progress of those sales in the sales process but I can’t find any value in the "potential revenue" calculation that I see on these reports. If I am missing something, please let me know.
Reminder to self – just because you can measure something, doesn’t mean you should. And just because a report is pretty, doesn’t mean it’s useful.
