Why An Expected Revenue Sales Forecasts Stands Up to Scrutiny | With Video & Examples
This article is a complete guide to using Expected Revenue in Salesforce.
Why is this topic critical for sales managers?
It’s vital because Expected Revenue delivers a reliable revenue forecast that stands up to scrutiny when used correctly. It’s the sort of sales forecast you can defend in front of the board.
Expected Revenue also lets you know whether the funnel is big enough to hit your current sales quota.
Nevertheless, some people dismiss Expected Revenue as irrelevant.
That’s a pity. After all, inaccurate revenue forecasts and poor target visibility are the banes of many sales managers’ lives.
In this detailed guide, I explain:
- The formula for calculating Expected Revenue.
- How it’s different from the Weighted Pipeline.
- Why you should use this powerful tool for sales forecasts.
- How the metric predicts target performance.
- Where to get a free Expected Revenue report for Salesforce.
With that, let’s start.
The Expected Revenue Formula
You calculate the Expected Revenue of an opportunity by multiplying the deal’s value with the probability of a successful outcome.
This calculation gives you a dollar value for each opportunity. Sum these numbers to get the total Expected Revenue for all deals.
For example, let’s say you have an opportunity with a June close date. If the deal is worth $50,000 and the probability is 25%, the Expected Revenue is $12,500.
Increase the probability to 30%, and your Expected Revenue is $15,000.
And adding up these dollars for all your deals closing in June gives you the total Expected Revenue for that month.
Naturally, you can sum the Expected Revenue in the same way for each month, quarter or year.
Expected Revenue versus Weighted Pipeline
You might be thinking:
The Expected Revenue formula sounds like the math for the Weighted Pipeline. What’s the difference?
It’s this:
The Weighted Pipeline refers only to open deals. In other words, you only have opportunities that are in the funnel in your Weighted Pipeline report.
In contrast, Expected Revenue includes your pipeline deals AND opportunities you have won.
Of course, the probability of winning a deal that is already in the bag is 100%. Consequently, your Expected Revenue report includes these deals at their total value, plus the weighted amount for each pipeline opportunity.
Let’s take our earlier example.
We have a pipeline opportunity in June with an Expected Revenue of $12,500.
However, let’s say we have already signed a deal in that month for $15,000. That means our total Expected Revenue for June is $27,500.
Calculating Expected Revenue in Salesforce
Fortunately, you don’t need to open Excel or reach for pen and paper, to calculate the Expected Revenue in Salesforce and most other CRM tools.
The system does it for you.
In Salesforce, the field on the opportunity is, you guessed it, Expected Revenue.
Nevertheless, there’s an odd quirk in Salesforce. When you get started, Salesforce hides the field from all users.
Make the field visible by updating the field-level security.
Doing this will also make it available for reports and charts.
Why Some Executives Dismiss Expected Revenue
Here’s the view some sales managers take:
Opportunities are binary. You either win the deal, or you don’t.
For example, let’s say you have a pipeline opportunity for $10,000. If you win the deal, it’s worth $10,000. On the other hand, it’s worth zero if you lose it.
These managers say Expected Revenue is irrelevant because it doesn’t reflect this binary outcome. Rather, the report shows a figure for this opportunity of between $1 and $10,000, depending on the probability.
Instead, they say, the report should show $0 or $10,000 based on whether or not you are forecasting a win.
But wait a moment.
Why Expected Revenue Makes Sense
Let’s say your team has 50 deals due to close this quarter.
You know you will win some and lose some.
But here’s the unfortunate problem:
You can’t be sure which you will win and which you will lose. As we all know, it’s pretty darn tricky to predict the outcome of sales deals confidently.
Of course, if you know in advance which deals you will win, your sales forecast will include these deals at 100% of their value. And you wouldn’t bother chasing deals you know will be lost.
However, life isn’t like that, unfortunately. No matter how good your qualification process is, we all know it’s hard to predict the outcome of a sales deal.
Nevertheless, we are still under pressure to produce reliable sales forecasts despite the uncertainty.
That’s why Expected Revenue is a powerful tool. Taking the weighted value of each deal reflects the uncertainty we all face and produces a sales forecast we can explain and justify. It reflects the probability of winning each deal rather than taking each opportunity at 100%.
Of course, like all good things, there’s a catch.
Superb Pipeline Visibility and Sales
Performance Metrics from this free Dashboard.
Video: How And Why To Calculate Expected Revenue For Sales
Expected Revenue and Opportunity Probability
Here’s the catch:
A reliable Expected Revenue report depends on having realistic probabilities for each pipeline opportunity. (We don’t need to worry about won deals, we can take their value at 100%).
However, the probability isn’t always as dependable as it can be. That’s because, in most cases, the figure relates directly and only to the Opportunity Stage.
In other words, if the Stage moves forward, the probability auto-increases. That happens even if your chance of winning the deal hasn’t changed.
What does this mean? You can significantly improve the reliability of your Expected Revenue reports by taking a few simple steps.
Manually Adjust The Opportunity Probability
Most salespeople believe the probability is for each Stage is fixed.
However, that’s not the case. You can change the percentage yourself on each deal, and all you have to do is type the new value into the box.
When should you do this? Well, for example, let’s say you are working with a long-time, regular customer. Usually, the chance of winning the deal is higher compared to selling the same products and services to a new prospect.
Pro-tip: Fine-tune the probability of each opportunity based on real-world factors and the salesperson’s intimate knowledge of the deal.
I recommend you assess the percentages on each deal in your pipeline reviews. Focus on the more significant opportunities, and check the probability reflects your judgment on the chances of winning the contract.
These simple steps have a high impact on the reliability of Expected Revenue reports.
Expected Revenue And Target Tracking
When measuring sales versus quota, you need to know two vital things.
First, did we hit our target in previous months and quarters? And second, will we achieve the quota in the current period?
Let’s think about that second question.
Whether you will achieve the target depends on how much business you have won in the current period, plus your weighted pipeline.
And guess what? That’s the formula for Expected Revenue.
That’s precisely how our popular GSP Target Tracker works. Let’s take an example.
Let’s assume we are currently in February 2022. Here’s the target record for Dave Apthorp for the month.
You can see that Dave’s target is $50,000 and that so far this month, he’s won $20,000. That’s a good start.
But will Dave hit his number?
His total pipeline for this month is $60,000. That sounds great. But hang on. The weighted value of that pipeline is only $25,000.
That means Dave’s total Expected Revenue is $45,000 (that’s $20,000 won plus $25,000 of a weighted pipeline).
Therefore, we are forecasting a $5,000 shortfall for Dave this month. You can see that in the chart on the right-hand side.
In other words, we are using Expected Revenue to make a reliable forecast on whether a salesperson will achieve their quota.
In this case, it looks like Dave has some work to do.
Follow the link below to learn more about the GSP Target Tracker app, including demo videos, screenshots, and a free trial.
Measure won and pipeline deals against
target and quota.
Auto-Adjust The Opportunity Probability
Your business can improve the accuracy of Expected Revenue by automatically updating opportunity probabilities.
You do this based on historical deal data.
In other words, rather than the salesperson fine-tuning the probability on current deals, you adjust in the background based on what you know has happened in the past.
I’ll explain how you can do this easily using a workflow rule or Flow.
Historical Opportunity Conversion Rates
When you make a personal investment, there’s often a warning that past performance is not an indicator of future returns.
However, with sales teams, it’s different. Past performance is an excellent indicator of future ratios, and we can use that to our benefit.
In other words, knowing the win rates from similar deals in the past means it’s possible to forecast future conversion ratios. As a result, we can predict the Expected Revenue with even more confidence.
Let’s take an example.
Comparing Win Rates
Look at the dashboard chart below. These compare the win rates between new and existing customers.
We can see that we won 45% of all opportunities with existing customers. However, only 30% of new customer deals closed successfully.
Remember, these are the overall conversion rates. However, it shows that the win rate for existing customers is almost 50% higher than for new customers.
As a result, we don’t need to stick with the pre-defined probability for each Stage. Instead, we can update the percentage based on whether the deal is for a new or existing customer.
For example, say the default probability on the Proposal Made Stage is 30%. We can auto-update this to 35% on existing customer deals and reduce it to 25% on new customer opportunities.
Let’s take another scenario. There’s a wide variation in win rates between salespeople or territory in some businesses.
Here’s the report showing the territory conversion rates for one company.
Again, remember these are the overall win rates. However, now that we know this information, we can auto-update the probability based on the territory.
For example, in Proposal Made, we might set the probability to 40% in the United States and 30% in Europe.
In short, automatically adjusting opportunity probabilities based on historical data improves the accuracy and reliability of your Expected Revenue reports.
Get An Expected Revenue Report For Salesforce
To create an Expected Revenue report in Salesforce, follow these detailed steps.
- From the reports tab, click New Report.
- Select and Opportunities Report.
- Include the Expected Revenue field in the report.
- Double-click on this field and select Sum.
- Optionally, deselect the Sum on other fields.
- Save your report.
I show you how to take these steps in my video about Expected Revenue.
Alternatively, you can install our free GSP Sales Dashboard. This dashboard includes the core set of reports and charts you need for proactive pipeline management in Salesforce.
What To Do Next
Here are five things you can do next.
- If you haven’t already, watch my video on Expected Revenue.
- Take a look at the GSP Target Tracker app. It makes excellent use of Expected Revenue to measure pipeline coverage versus quota.
- Install the free GSP Sales Dashboard. Use this as a template for creating your ideal pipeline management dashboard.
- Get salespeople to fine-tune the opportunity probability on their deals. Review these numbers in your upcoming funnel review.
- Ask yourself whether you need to auto-update the Stage percentages in your business.
- Consider which of the Four Ways to Measure Targets in Salesforce is most relevant to your business.
And of course, if you have questions or want to talk about any of the content in this article, you can get in touch with us.
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