Docs / Biases
Every sales team knows the story — month in: the team updates their estimates, month out: they miss their quota. Making an accurate prediction can cause frustration for the salesperson and sales manager alike. This isn’t the fault of the salesperson, however…
Discovering the thinking patterns that cause us to miss our sales estimates is the beginning of fixing them.
When dealing with subjective deal probabilities, estimating the current month is difficult enough, and predicting several months in advance is out of the question! In sales management, there are biases that can cause the salesperson to overestimate their committed wins. Below we lay out some of these biases, and a proven strategy for making those deal probabilities objective.
Recency BiasActivity BiasSize BiasAge BiasStage BiasNearly-There BiasLatest Sale BiasPre-Qualified BiasConfirmation BiasSidestepping these BiasesStarting to be Objective
A salesperson is likely to overestimate the value of newer deals in the pipeline, even if an older deal has a higher probability of closing. This is because for the new deal, the salesperson hasn’t yet learned of the obstacles specific to that deal. The deal looks like an open road — and open roads feel great! Unfortunately, this is often wishful thinking.
Deals which involve a high amount of emails, phone calls, and other activity are likely to be overestimated. This is because to the salesperson, it feels busy and engaging, but activity itself does not necessarily correlate with higher probability to win. Intuitively, we know that a lead who never replies will never be a win, but this does not imply that a lead who replies often is more likely to win. It’s deceptively easy to feel better about deals with high activity, even when the data show otherwise.
Large deals have outsized impact on hitting quotas, tempting salespersons to overestimate their likelihood to close, even in cases where the large deal is less likely to close than a smaller one. One might think, “If I can just close this one deal, I’ll have a great month!” So salespersons tend to spend a lot of time on these deals, thereby overestimating them. It may be the case that a smaller deal is more likely to close.
Age bias is recency bias flipped on its head — the salesperson may underestimate the likelihood of closing an older deal. Working on a deal for a long period of time may cause it to seem "stale" if there has not been any recent activity. Age bias may strike even on the verge of winning a deal, when all hope seems nearly lost — and suddenly the lead decides to move forward.
Sales teams using pipeline stages to track work and probabilities may be way off in their estimates when they’re assuming accuracy by the mere fact they are using stages. Typically, the team will assign an inaccurate, higher probability to later stages. This is because most teams have too many stages. If the stages do not create a proper funnel, then the probability to win is not increasing with the stages. CRMs such as Salesforce which link stages to probability are the most vulnerable to this bias.
When a deal gets very close to the finish line, this is a common moment that salespersons overestimate the deal. They think, “It’s so close, it must be closing soon!” - but then the its so close feeling drags on week after week, month after month, until finally, they accept that the deal is not moving forward.
Whenever a salesperson wins or loses a deal, the outcome of it is likely to bias their perspective. This is because our minds weight recent events in our memory higher than past events. If the latest sale went well, they are likely to think that the other deals in the pipeline are better than they may actually be. On the other hand, if they recently lost a deal, then they may have an overly pessimistic view of the current pipeline.
When deals have not yet been Qualified, the sales person is likely to over estimate the likelihood of winning the deal because they haven’t yet learned of the facts inside the organization. “No news is good news” in this regard, and pre-qualified deals are a great way to pad the funnel and look like there is sales activity happening. But only Qualified deals are deals which can actually be won, and so Pre-Qualified deals have a much lower probability of winning.
Every salesperson has to determine where to spend their time most wisely. This takes the form of choosing which target clients to pursue, when to quit following up, and when to disqualify a lead. In choosing where to spend time on what works, they are necessarily making an implicit choice on where NOT to spend their time. This is where Confirmation Bias can cause mistakes in perceptions. If they believe that something will not work, they may never try, thus they confirm their belief without having actually obtained any real world data — this is the confirmation bias. It's important to be aware of confirmation bias so as to not miss out on valid opportunities. Confirmation bias is diminished by having consistent sales processes. You should treat every customer/lead the same way regardless of beliefs about the quality of the lead. For example having standard criteria for what qualifies and disqualifies a lead, having a standard process of following ups, and following the particular sales funnel consistently for every deal.
Fixing these biases requires that the sales team upgrade from a subjective estimation process to an objective estimation process. Instead of asking salespersons for their subjective opinion on the probability, with OSM, we measure objective probabilities based on the historical performance of the team. Objective estimation requires analyzing the 4 Factors of historical Flow, Average Sale, Conversion Rate and Time to Close to give an accurate estimate of what deals are likely to close. These are the core metrics that we track in Objective Sales Management.
To make an objective estimation of the pipeline, there are only a few factors necessary to record for every deal: Qualified Date, Closed Date, & Amount.
The Qualified Date is when the deal was Qualified. This is often different from the date the deal record was technically created.
The Closed Date is the date the deal was won or lost.
The Amount is the value of the deal.
With these 3 values, we can calculate the aging, conversion rate, average sale value, and new deal flow — allowing us to determine an objective pipeline value, and free up salespersons from having to spend precious time estimating their deals.
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