Coverage Metric: 5 simple steps to determine if you’re positioned to hit your sales forecast
For my friends in start-ups or at high-growth mid-market companies that want to add some basic discipline to the sales forecasting process, the Coverage Metric report is a great place to start.
Applying the Coverage Metric to your sales pipeline takes you a step beyond using historical averages and/or probabilities to determine the amount of closed business for the quarter. More importantly, it does a better job of holding your sales team accountable for driving specific pieces of business by instituting a Commit culture.
Coverage Metric Illustration
First step, assuming you’re using salesforce.com, your sales team must differentiate their Opportunities not only by ‘Type’ (the pipeline stages of prospect, engaged, consult, negotiate) but also identify their Opportunities with the additional layer of ‘Forecast Category’ (Omitted, Pipeline, Best Case, Commit, Closed).
The following are simplified definitions for each term in ‘Forecast Category’:
- Omitted – does not contribute to your forecast (e.g. Closed-lost)
- Pipeline – usually early stages of open Opportunities. These are SQLs (sales qualified leads) that are under evaluation for alignment and fit
- Best Case – Opportunities that have great fit and alignment, yet a timing to close is still undetermined
- Commit – Opportunities set to close with a high degree of confidence in the forecast time horizon. The Commit helps you determine the quality, accuracy and effectiveness of your sales rep because it forces them to win specific pieces of business and just not relying on making quota via historical averages.
5 simple steps to setting up the Coverage Metric report
- Select your time horizon, most likely the quarter
- List your team/regions and their Quota for quarter
- From your sales pipeline, sum the dollar volume of Opportunities in each Forecast Category by sales rep/team/region
- Calculate your Coverage Metric by dividing the Forecast Categories by your Quota
- Coach those that do not have 2X to 3X coverage in the sales forecasting report
The goal of the Coverage Metric (CM) in sales forecasting is to have 2X to 3X your quota in the Best Case and Commit categories. For coaching purposes, I tend to sum the Best Case and Commit Opportunity amounts and divide by the Quota to determine a ‘Best Case + Commit’ Coverage Metric.
As you can see in the illustration above, Daryl has the best CM at a 3, yet the bulk of it is in Best Case. Michonne appears to have a shot at squeaking out her quarter by a thin margin with a coverage metric of 1.75. She is carrying a large commit at $75,000 and has enough in the Best Case to support her position. Maggie has a large Best Case, but she may be overly optimistic. She should be coached to identify the deals with the best line of sight. Rick is just weak – plain and simple. He will need some major coaching and support to build up his pipeline.
You also have several options to expand on the usefulness of this report by adding wins/losses and % to plan. If you have any questions on sales forecasting or would like the original excel sheet with formulas (that are so simple) please email me at Jeff.Herrmann@SalesQuants.com.