CTA-Banner_serious_business

Week 07 – Assess Your Sales Potential Properly – Chapter 02

There are sales organizations that regularly draw up lists of pending customer orders. The individual sales opportunities are neatly listed. Every opportunity is assigned an order value and—among other specifications—a probability expressed as a percentage. How do salespeople arrive at these figures?

This is in fact a question I’ve asked myself. Do they lay their hands meditatively on the conference table, waiting for a flash of inspiration? Do they close their eyes in silent devotion, so that the desired percentage appears before their inner eye?

Jokes aside, this is surely a matter of making an estimate. It is the salesperson’s goal to use her intuition to establish, if possible, safe assumptions about the probability of a sale. The methodology used, however, is wrong-headed. Why? Let me give you an illustration.

Think of all the people in your city or community that were married recently. What is the probability that these marriages surpass the ten-year mark? Let’s assume, though, that it’s about 60 percent. That would mean six out of ten will celebrate their tenth anniversary; the rest will get divorced before that.

Now, ask them individually right after they were married for an estimate. “What is the probability that in ten years you will still be married to your spouse?” What do you think the answer would be? Probably something like, “In our case – 100 percent.” If everybody you ask gives you this estimate, the result will necessarily be wrong. You can be sure that it won’t be 100 percent if them who will make it to ten years.

What would happen if we were to ask the same people the same question every six months? In this case, I don’t think all of them would answer “100 percent.”

At the same time, how likely would somebody say “In my case about 60 percent”? Not very. People are simply not in the position to intuitively give an accurate statistical estimate.

The Nobel laureate Daniel Kahneman presented several experiments in his book “Thinking, Fast and Slow”, that demonstrate that our ability to intuitively determine statistical probabilities is superimposed by an effect of similarity. Here is a synopsis of the experiment:

A group of test subjects were asked to estimate what the probability was that a randomly chosen student belonged to a certain academic field. As in many college towns there were many more Business Administration students than Computer Science students. So far so good. The person conducting the experiment then proceeded to give a description of the student that included typical traits of a computer scientist, like “intelligent but lacking in creativity,” “dull writing style,” “fan of science fiction.” The test subjects who were to determine which academic field this student belonged to, almost always gave Computer Science as their answer. Statistically, however, this is nonsense, because even among the students possessing those character traits, the number of Business Administration students was higher than the ones taking Computer Science. Therefore, the test subjects had fallen victim to an error in judgment. It is difficult to calculate the probability for an individual case. It is a lot easier to recognize similarities in familiar patterns. That is why in those situations we tend to make statistical misjudgments.
People tend to compare one situation to another and then make a this-must-be-like-one-before type of judgment. At this point, though, it no longer has anything to do with probability but with the euphoria or pessimism of the person assessing the situation.

How to Assess Your Sales Potential

How can we make a solid assessment of the state of the order then? We need a statistical protocol based on quantifiable facts, and this is how to create one:

Assess Your Sales Potential Properly © Fotolia 2015 / Coloures-pic

Assess Your Sales Potential Properly © Fotolia 2015 / Coloures-pic

  1. Draw up a system of measurement that charts the sales potential by different phases. For example: Phase 1: Initial clues, latent customer need. Phase 2: Concrete benefit identified. Phase 3: Decision maker reveals intention to act. Phase 4: Concrete negotiations and acceptable proposal. Phase 5: Verbal agreement to order. Phase 6: Order confirmed.
  2. Establish clear criteria in order to classify projects into corresponding phases. There should be no gray areas or room for interpretation. For the example above this would mean: Phase 3 can only begin once the benefit to the customer has been concretely identified in discussion. And phase 4 starts the moment the decision maker has been identified and has made it clear to you that she intends to invest in the near future.
  3. Determine how many projects are lost definitively and in what phase. From this you can then deduce the probability that a project will be successful given its phase.
  4. From then on, do not have your salespeople estimate in terms of percentages; instead have them spot the indicators defined by the phases of your system. Then match the determined percentage to the order values, thus attaining a valid probability for your orders.

 

Now it’s your turn!

Next week I will discuss a fourth key-feature of the professional salesman: What can you do to promote decision of your customer?

Best wishes,
Stephan Heinrich