There are 10 sales forecasting methods that help companies build out an accurate sales pipeline. Of the 10 sales forecasting methods, opportunity stage, and roll-up forecasting are the most widely implemented. Companies that want a more in-depth analysis can use complex forecasting methods such as regression analysis, multivariable, and AI forecasting, however, these methods are extremely costly. This article will give you an in-depth understanding of Opportunity Stage Forecasting (OSF) and how it can help forecast reps’ sales. By the end of this article, you should be able to implement the opportunity stages successfully.
Sales Forecasting in a Nutshell
Sales Forecasting is defined exactly as its sounds, forecasting your company’s sales. Sales forecasting methods allow companies to make informed business decisions and forecasts based on information gathered through their sales team’s pipeline.
These decisions have a companywide impact that influences the company’s financial, operational and marketing decisions. Making accurate sales forecasts is crucial to a company’s success; which is why it is crucial that the sales forecasting methods that you choose to implement are easily deployable.
What is the Most Commonly Used Forecasting Technique?
Some companies end up over/underestimating sales. This can cause them to either over-forecast and spend excessively, preventing them from being able to recover financially or under-forecast and miss out on additional potential revenue opportunities. Either scenario can muddle the sales forecast because forecasts map opportunity stages into forecast categories.
OSF will help you reduce these errors by identifying potential errors early on, allowing you to make more realistic sales forecasts.
Opportunity Stage Forecasting Explained
Opportunity Forecasting is when you take your entire pipeline as a whole and break it down into digestible stages that allow you to make specific calculations within each stage. This conducts an overall sales forecast of all of the sales that were made within a specific quarter or the fiscal year. By breaking it down , you can accurately predict the chance of you closing a specific deal. Another way to think of OSF is to think about a sales cycle.
Selling to a business isn’t as simple as going to a store and picking out a shirt to wear. Each sale, from start to finish, goes through different stages within a sales cycle before the deal is closed and the product is purchased. Sales forecasts are determined based on the outcome of each individual deal.
Now you might be wondering what exactly these so-called “stages” are. Traditionally, when a sales executive uses OSF, he or she breaks the pipeline down into 8 stages: prospecting, demo, investigating, trial, proposal, roadblocks, negotiations, and closed win/loss.
Keep in mind that different companies will have slightly different opportunity stages to better reflect their pipeline.
With each stage of the sales cycle, sales executives draw on past sales data to predict the chances of their reps “winning” that specific deal. By breaking down the pipeline into different stages, the sales reps have the “opportunity” to improve their sales tactics along various stages – allowing them to successfully close more deals.
What are the Stages of Opportunity?
Keep in mind that these are our stages and yours don’t have to have the same. The following will explain why each stage is important for your team and why you should implement it. The purpose of each stage is to carry a different weight within the sales process.
More weight is given to the opportunity stages that are further along because the weights determine the likelihood that a deal will close. This helps a rep identify which leads will become opportunities and helps the team create a sales forecast for that period.
In this stage, you are researching the potential company and trying to schedule a meeting. The purpose of this stage is to find opportunities that will go through all of the stages – from prospecting to closed win. The main outcome here should be making the decision to pursue the opportunity.
Some Questions to ask during this “prospecting” are:
● Is there a potential opportunity here?
● What are the chances of winning this deal?
● Is the deal worth my time and effort to pursue?
● Why do we want to win this deal?
Don’t worry about going in-depth when trying to answer these questions. All you need is a general idea of whether this opportunity is worth it.
Demo is the initial interaction stage with your opportunity. In this stage, you are going to have your initial meeting where you will demo the product. This is the make or break stage of your deal. Your job at this point is to understand the clients’ needs and the challenges they are facing with their current product.
Marc Wayshak has a short 12-minute YouTube video where he goes into detail explaining what the right questions are to ask a potential client. This video will really put things into perspective and help you identify the client’s needs. This is essential when you are moving forward through the stages because it will help determine the outcome of the latter stages.
In this stage, during the meeting, make sure you take a lot of notes because they will come in handy in the following stage.
You’ve had your initial meeting with a client so now what’s next? In the Investigating or Customer Discovery stage, your job is to go back and reflect on your initial meeting. This stage is where you take all of your notes and figure out if your product fits with the customer’s needs.
Questions to Consider:
Does the customer have a bona fide need for my product? Your job is to create a demand/need for the product with the potential customer.
How can we stand out and win the deal at the price we want? With this question you have two options:
Do you want to stand out and differentiate through your sales process and customer engagement?
Do you want to stand out and differentiate through your product?
It doesn’t have to be one or the other; if you’re feeling ambitious, you can address both questions with your potential customer. Remember the main job of a rep is to persuade a potential customer and convince them that your product will change their life and that it is something that they can’t find anywhere else.
This stage will vary from company to company. At this stage, customers would try the product and see if it is a good fit for their company. The duration of this stage will vary from product to product. Some companies might not even have a trial period.
Traditionally, trial periods last either 14 or 30 days. Studies have shown that companies that have a 14-day trial have a higher success rate of closing the deal than companies that have longer trial periods.
The purpose of the trial period is to give the potential customer time to try out the product to see if it satisfies their company’s needs. It is recommended that you check in with your client during this stage every so often so you can address any questions they might have.
This period will also give you an idea of whether or not the customer will continue to progress through the channel.
Once the trial period ends, it is time to send a proposal with the amount. It will be up to your company to set the price of the product.
One thing to keep in mind is to not make any promises to the customer about giving them discounts. If you make any discount suggestions, you as a rep will lose leverage with the potential customer because they will expect the discounted rate indefinitely.
To make things simple, offer the initial price and see if they will be satisfied with that offer.
Once the proposal has been sent, the potential customer will get back to you with the roadblocks they are experiencing. Roadblocks can come in any shape or form – from the price point to the product not meeting their expectations.
Your job here is to see what you can do to accommodate the needs of the potential client to close the deal.
Here, you and the potential customer need to come to a mutual understanding of a closed plan to the deal.
This stage will require legal paperwork and the terms and agreements to the contract.
This is the formal commitment from the customer to go ahead and complete the process and close the deal.
The customer has progressed through all the stages and the deal has officially been closed. All the necessary paperwork has been signed during this stage.
Once the deal has been won, it is time to calculate the conversion rate of the deal. Here, sales managers can take each individual sales rep’s win rates for closed deals and compare it to the company standards.
The purpose of this is to see what the win rate for this specific sales rep is compared to other sales reps. To calculate this number, take the number of deals won and divide it by the total number of deals. You can do this for each stage to get a better understanding of how the sales rep is performing.
This gives sales managers insight into which opportunity stage is where the reps are losing deals. It will allow the managers to fix issues that sales reps are having that are preventing them from closing the deal.
If you hit this stage, it means that the customer is not proceeding with the deal. This could be for a number of reasons such as budgeting and timing, to the customer preferring a competitor’s product over yours.
This can happen at any stage and it means that the deal has officially been marked as closed and that there is no opportunity there.
The Opportunity Stage
When you are breaking down your pipeline into the various stages to reflect your customer’s buying process, the best way to do so is to approach it from a customer’s perspective. As a customer, what will my journey be through this buying process? In other words, the stages should essentially reflect the number of interactions you will have with a customer.
As a general rule of thumb, if you have more than 8 stages, you are overcomplicating the sales pipeline and going to produce inaccurate sales forecasts. Remember the purpose of using OSF is to simplify your sales forecast. You don’t want the opportunities to become a needle in a haystack situation.
Step by Step Example for Designing the Perfect Opportunity Stage Forecast for Your Team
To better understand OSF, let’s take an example. Suppose you are a sales executive of a SaaS company. Your job is to implement OSF for your team. How do you do it?
- Suppose on average it takes about 3 months to close a deal. This means that your stages should reflect the entire deal from start to finish in three months. Keep this in mind for the next step.
- Create a hypothetical customer to implement your stages. For example, Tim’s Electronics is interested in buying your product.
As a sales executive thinking about the sale from Tim’s point of view; what will be the different stages that will need to take place for me to close the deal with Tim? Create a list and then see what stages you can consolidate so you hit the magic “8 or less” number.
- Now that you have looked at your stages from the customer’s point of view, analyze the Opportunity Stages from a sales rep’s point of view.
Ask yourself, as a sales rep, what is my journey through the sales process? Keeping this in mind, make the necessary adjustments to your stages.
And Voilà! your Opportunity Stages are complete!
Now that you have your complete stages, how can you measure the success of your reps and accurately forecast weighted sales projections?
The magic formula to calculate the weighted sales projections is:
Size of the deal * likelihood of closing the deal
This formula helps determine the chances of that deal closing at that moment in time. An important concept that reps often lose focus on is that not every lead will turn into an opportunity. if your lead is at one of the beginning stages, the chances of it closing at that moment in time are less than a lead that is towards the end stages.
One very important thing to keep in mind is that the only way this formula will give you accurate numbers is if your sales rep updates his or her journey through the stages in real-time. Your sales rep must update their pipeline as they progress because this will determine the probability of the opportunities turning into wins.
Another thing to consider is that the more deals that you have, the stronger your company’s sales forecasting will be. Like with any statistical-based projections, the more deals you have the stronger the sales forecasting will be. OSF typically is used in conjunction with other forecasting methods such as scenario writing, historical and intuitive sales forecasting.
Common Problems That Come With Opportunity Stage Forecasting
We’ve briefly gone over one of the problems with Opportunity Staging; which is when reps don’t update their stages in real-time. In addition, some other things that can be a hindrance to OSF are overconfidence and unrealistic likelihood.
As previously mentioned, reps tend to get caught up with meetings and trying to meet their sales goals and often forget to make appropriate changes to their pipeline in real-time. This can cause problems, not only for the sales executive but for the reps as well.
OSF is a great way for a team to organize their sales but if reps don’t update the pipeline actively, it can skew forecasting numbers and under/over-represent opportunities. This can cause the sales rep to waste time and display inaccurate sales numbers which can lead to missed opportunities, inaccurate sales forecasting, and loss in revenue.
One common problem that often occurs is that the sales rep becomes overly confident when it comes to their chances of closing a deal. Overconfidence can be good motivation; however, it can also cause the sales rep to inflate their numbers – straying away from realistic expectations.
This is a problem that is caused by sales executives. Often the sales team lets the reps determine the likelihood of them closing an opportunity. This is an issue because not all opportunities are of the same weight.
To clarify, opportunities at different stages carry different weights. Opportunities that are at the beginning of the sales pipeline carry less weight than those opportunities that are closer to the middle or end of the pipeline.
How to Resolve Issues Within the Opportunity Stage
The best way to overcome this barrier is by drilling into the reps the importance of updating their pipeline. If you need to micromanage initially, do it. This will make things easier for you in the long run.
One way to prevent overconfidence is by training the reps to consider these three “does” questions when dealing with opportunities:
- Does my prospective contact have approval/ authority to make this purchase?
- Does my prospective contact have a targeted deployment timeline?
- Does my prospective contact have a valid reason for the purchase?
A simple way to overcome this is to create a standardized probability chart. A standardized probability chart is a chart that goes parallel alongside your stages. Different stages will indicate different probabilities of a sale being a “win”.
The best way to divide the probability for your stages is to use 10% increments. You want the numbers to be easy to follow. Traditionally, increments of 10 are easier to process than increments of random numbers.
For example, if you have 8 stages in your pipeline, a deal at stage 1 will have a probability of approximately .10 or 10% chance of “winning”. Similarly, a deal that is on stage 6 of 8 will have a probability of roughly .6 or 60% chance of “winning”.
Who Should Use Opportunity Stage Forecasting?
Opportunity stages can be created and used by anyone on the team from sales leaders to sales reps. OSF is a great way to break down the selling process into digestible stages that help both reps and sales leaders manage their sales pipeline.
For sales leaders, opportunity stages are a good way to organize the selling process for their team. The reality is a sales team is going to be comprised of experienced and inexperienced reps.
In order to be consistent, sales executives should have a pipeline that is easy to follow. This way, both experienced and inexperienced reps will follow the same guidelines when tracking their opportunity and can create realistic probabilities of them closing the sale.
Reps should use opportunity stages because it is the simplest way to organize a pipeline. Most reps have minimal experience with SaaS platforms like Salesforce and therefore need a quick and simple way to organize their pipeline so that they can manage their probability of winning sales more accurately.
When Should my Company Consider Changing to Opportunity Stage Forecasting?
The best time to switch over to OSF is during the start of a new sales quarter. Trying to implement opportunity stages during the middle of a sales quarter might be challenging and can produce inaccurate forecasts.
How can we implement Opportunity Stage Forecasting?
You don’t necessarily need expensive software like Salesforce to implement opportunity stages. You can create a spreadsheet that can track a rep’s progression through the pipeline. Either way, in order for the opportunity stages to be effective, sales reps need to update their pipeline in real-time or as frequently as possible.
If you decide to use a spreadsheet, don’t worry we’ve got you covered. Download our free Opportunity Forecasting Template that you can utilize for your team. We currently have a template built for reps with instructional videos on how to use each template.
As a rep, if your organization isn’t using Opportunity Sales Forecasting, you can use this spreadsheet for your own personal use to organize your own personal pipeline. As sales leaders, you will be able to keep track of your reps’ quarterly sales in an organized manner that will deliver realistic forecast numbers.
Mapping out opportunity stages is just as simple if you’re going to use Salesforce to implement the method. Check out this simple step by step breakdown through Trailhead where it breaks down the implementation into 8 easy to follow steps.
How do You Change the Opportunity Stages in Salesforce Lightning?
Recently, there was a new version of Salesforce that came out called Salesforce Lightning. Salesforce is already a complex tool that requires copious amounts of time to fully grasp and with the new version, it makes things harder for people because now they have to learn how to work with the latest Salesforce system.
In order to have a reliable sales forecast, you need to create a transparent and organized pipeline. If it’s cluttered and foggy, the forecasts won’t be accurate or reliable. Each one of the opportunity stages should be an accurate depiction of your products’ sales process.
While the weighted forecasting formula is a beneficial tool for companies that have a large number of deals under their belt, OSF is a great method to help any sales rep win a deal. The stages help clarify the steps and processes needed to win a deal. It’s a good method to implement, if implemented correctly, and can help even inexperienced reps close more deals than before.
By now you should be an expert in mapping out opportunity stages so go ahead and download our free, easy to use template to see how easy and reliable it is to implement OSF into your sales pipeline.