There’s a famous adage, suggesting that “those who don’t learn from history are doomed to repeat it.” The best and most accurate sales forecasting methods subscribe to such a historical bent – there is simply no way of being able to effectively forecast and manage predictable revenue without having full visibility into what happened in the past.
To that end, knowing your historical sales stage conversion rates is absolutely critical in order to perform objective and accurate sales forecasting. The “data” in data-driven sales forecasting largely refers to historical statistics. Some of the sales metrics that are essential to track in your team’s history include the historic win rate by different sales funnel stages, the historical win rate by individual employees and the estimated value of each opportunity.
(For more detailed information about sales forecasting, check out our FREE eBook: The Definitive Guide to Data-Driven Sales Forecasting.)
The sales funnel is an invaluable asset in allowing top sales managers to forecast accurately, in addition to helping them understand the nuances of the opportunity pipeline value, how it’s changing over time and the stages in which deals and dollars are sitting in. It’s important to know your historic win rates by stage (what each stage’s conversion rate is to Closed-Won), not just the conversion rates from one stage to the next. Unfortunately, many sales managers find themselves in the undesirable position of not knowing their historical sales funnel conversion rates.
Take a look at the example below. According to these results, only 20% of all opportunities that this sales team worked on made it from the first stage all the way to a Closed-Won deal. However, a robust 83% of opportunities in stage 4 will ultimately turn into deals for your organization. A sales manager looking at this information to calculate the upcoming quarter’s forecast can be pretty confident that a vast majority of the opportunities that make it to Stage 4 will close successfully.
Without this information, sales managers are typically left to their own intuitive devices – hardly a reliable source of accurate sales forecasting. Historical stage conversion rates prevent sales managers from making dangerous assumptions based on past intuitions. “It seems like all of our late-stage opportunities end up closing” is NOT a solid basis for any sales forecasting methods that strives for accuracy.
Instead, historical stage conversion ratios, when used as part of your sales forecasting methods, should take into account an opportunity’s size, current stage and which rep is working on them. With such a wealth of information, along with the basics of the conversion rates between stages, sales managers can identify bad opportunities that are currently forecasted to close. Adding in ever-more detail about each opportunity – based on what you know about your stage, your rep and the size of the deal – will keep you honest. Some opportunities, even at the later stages, are simply not likely to close. With historical data at your fingertips, you can be more honest and therefore, more accurate.