This question was recently asked on the Focus Expert Network. A lot of responses noted that “probability” itself may be a bit out-dated, and some focuses on the definition of “forecasting.”
According to Swayne Hill, our CEO, it depends on what you mean by “forecasting” and what that forecast is being use for. If by “forecasting”, you mean somehow arriving at a company-level number which predicts revenue for a period, I suggest close probabilities are relatively insignificant. At a company level, forecast triangulation is critical, so you need to know at least three things: what the reps are rolling up (probability and weighting implied), what the managers are over-riding (subjectively handicapped) and what the data says. It’s the last part that brings a little science to the party. And it’s the area between these numbers that management needs to understand in order to create reliable forecasts over time.
If by “forecasting”, you mean the relationship between a sales rep, their deals and a sales manager, then close probability is critical. As a manager, you need to understand the ‘model’ deal behavior and push for the right balance of on-model and off-model of deals in the pipeline – don’t want to eliminate ALL risk. A subjective probability factor is the reps interpretation of the deal irrespective of the model-based Stage. I’ve found separating probability into two components useful for this – ‘close-probability’ and ‘win-probability’, where close probability is what we’re been talking here about and win-probability is a system calculated probability based on how close it is to the model (successful deal profile). Close probability is a necessary tool for managers to drive accountability.
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