What is Opportunity Management? CRM 101: How to Make a Selling Conveyor

How do I find new customers? How do I sell more to existing clients? How do I make sure that my sales reps aren’t missing a single opportunity to sell? How can I get better visibility into my business’s most critical part – Sales?

Some say that sales is an art, while others say it’s a process that can be documented and almost completely automated. In reality, the truth, as always, is somewhere in the middle.

In this article from the CRM 101 series, you’ll learn about one of the most important aspects of business: closing more deals, attracting more clients, and how to manage that process. This is all about Opportunity Management.

Here’s what we’ll cover:

• What an Opportunity is and what Opportunity Management entails.
• Key terminology, including Sales Process, Conversion Rate, and how Probability and Forecasting work.
• When it’s the right time (and when it’s not) to implement Opportunity Management.
• Practical tips and decisions you need to make to implement Opportunity Management in your company.

Ready to get a clear picture of Opportunity Management? Let’s dive in!

Understanding the Basics

Let me start with the definitions.

An Opportunity is a potential business deal with an existing or new client. It’s also sometimes known as a Deal, Prospect, or Sales Prospect. Essentially, these words all mean the same thing: it’s a chance to win business.

But there is a reason why the word Opportunity is a much better term. Because Opportunity in CRM software is not always used to describe potential sales. It’s an opportunity to reach the desired result.  

The Oxford Dictionary defines “opportunity” as “a time when a particular situation makes it possible to do or achieve something.” This could be a sale, a new supplier, a new partnership, or any other commercial or non-commercial goal you have. It’s an entity used to document your attempts to reach your goals.

I’m sure we all know that to achieve success, we have to make multiple attempts before we succeed. Opportunity tracking is designed to track those attempts at a corporate level across your team.

The most common use case for Opportunities in CRM systems is tracking sales and prospecting, which makes it a great time to cover our next topic: terminology.

Terminology 

Sales Process  

The most important and central term of Opportunity Management is the Sales Process. A sales process is a series of steps that a sales rep has to take to close a deal. A well-thought-out sales process usually has no more than 5 to 7 steps.

I always like to compare it to a cooking recipe. A great recipe is one that’s easy to make and tastes great. The same applies to a sales process: a great sales process is easy to execute and gives good, predictable results.

Normally, a sales process consists of a requirement-gathering or discovery phase, making an offer, negotiating, and finally, closing. This leads us to our next term: Qualification.

Qualification

In the Opportunity Management process, Qualification is the initial phase. In theory, it comes before discovery; in practice, it is the discovery. In this phase, you try to learn if the opportunity is worth your time. Does the client meet your so-called ICP (Ideal Customer Profile)? Is the opportunity’s value high enough? Can you deliver what the prospect is looking for?

I can’t emphasize enough how important the qualification stage is. This year, I made a mistake that cost me two months of work. A lead came in from our company website, and I engaged in a conversation with the prospect. I started setting up workshops, gathering requirements, and documenting everything, spending around 30 hours in total with them. Only then did I discover that I forgot to ask one very important question at the beginning: “Which CRM are you planning to implement?” Apparently, they were looking for something we couldn’t offer.

Closing  

Closing is a very important word in Opportunity Management. Normally, 8 out of 10 opportunities are lost. This isn’t a sales training article, so I won’t tell you that all the stages preceding this should help you close. I’ll discuss this from a CRM perspective.

In CRM terms, closing means both losing and winning opportunities. This word is used to exclude opportunities from your pipeline. It frees up your resources to focus on new opportunities. Closing opportunities is as important as registering and qualifying them.

Just think about it for a moment: every closed opportunity narrows down your focus to those that are still open and creates space for new opportunities to come in.

Another reason why closing is important for your CRM software is because it’s one of the ways to collect data. If you store all your historically won and lost opportunities, you can perform analysis and see market trends.

I, for example, create a report at the end of each year to reflect on what opportunities we had, what we lost and why, and what could be done better next year. For example, I recently decided to retire one of our services because we were losing too many opportunities with it without winning anything. I realized we weren’t competitive, so why should we keep going with that product?

As I said, closing plays an important role in data analysis, which leads us to our next term: Conversion Rate.

Conversion Rate  

Conversion Rate is your “Won Opportunities divided by Lost Opportunities.” It’s a ratio of won versus lost.

But don’t jump to conclusions. T There are many more conversion rates than just won versus lost. While the conversion rate is a very simple, easy-to-calculate number, it plays a very important role in your sales forecasting, which I’ll talk about in a moment.

The conversion rate is one of the key indicators of your sales pipeline’s health. If your conversion rates are low – it means your lead generation strategy is headed in the wrong direction, your sales reps are not performing well or your product is not positioned well in the market. If conversion is abnormally high – it indicates that your sales reps are registering only Opportunities that are highly likely to close. Both are bad and both are reasons to inspect your pipeline.

There are many different types of conversion rates, depending on what you’re trying to figure out about your process. For example: 

• Quote to Cash Сonversion Rate. This shows how many quotes have led to business that brought cash.
• Lead to Cash Conversion Rate. This conversion rate uses Leads and Opportunities combined to show how many of your Leads are converting into paying clients.
• Opportunity Stage Conversion Rate. You can and should calculate the conversion rates for each of your stages. It gives you a very important number that indicates how likely an opportunity at a specific sales stage is to convert. 

This naturally leads us to our next topic: Probability.

Probability  

Probability is how likely a deal is to close, expressed as a percentage. It’s probably the most controversial number in Opportunity Management, but if done right, it could be your tool to get a very clear estimation for your pipeline.

Probability should always be calculated based on your historical data. For this purpose, it’s important that you enable Opportunity Status field historical tracking. Some systems, like Salesforce, enable you to store how historically your stages were changing, which enables you to report on them and figure out each sales stage’s probability.

For example, I’ve been doing sales pipeline analysis for my company for the last 8 years. Even though I’ve changed three companies, I remain in the same industry and see comparable conversion rates. For instance, every time I send an offer to a client, I know that the probability is around 37% because everything that preceded that offer is a significant resource investment from the client’s side. In contrast, if I get a lead, I know that my lead-to-cash conversion is only around 6%. It depends on the season and the source of the lead, but this gives me precious information about what to expect.

Probability has a direct impact on our next topic: Sales Forecasting.

Forecasting  

Forecasting is a special type of reporting. It’s about trying to predict how many sales you are going to make. It’s like a weather forecast, but for sales.

Salesforce says that sales forecasts on their platform are within a 10% accuracy range 50% of the time. Basically, half the time they are accurate.

Forecasting works with four main numbers:

• Opportunity Amount: Since opportunities are prospecting deals, they have some sort of amount. That amount could be expressed in monetary value or quantity, depending on what you’re targeting. Some companies target a specific amount expressed in currency, while others target sales in certain quantities. For example, car dealers mostly track the number of vehicles they have sold instead of the sales amounts.
• Closing Date: This is the date when you think a deal will close. You can figure out your estimated closing date directly from a customer (e.g., by asking, “When do you plan to make a decision?”) or by estimating it based on indirect indicators.
• Probability: We just talked about this.
  

These three numbers are summed up in a report showing you when and how  much you are estimated to sell. You multiply your Opportunity amount by probability, display it on a timeline and then compare it to our fourth number.

• Sales Quota: This is how much you need to sell within a certain period. In some countries, it’s called a sales plan. A sales quota can be expressed in monetary or numeric format. Just like with amount, some track money value, some track quantities of goods sold, hours they’ve worked for a client, or anything that has a commercial sense for them.

What do we get as a result? A sales forecast that can help you predict how much you could sell. 

When is Opportunity Management Needed?

Now let’s briefly talk about when you may need to implement Opportunity Management. The answer is as simple as it is difficult.

Usually, I tell my clients: “When you feel things are falling through the cracks, it’s the right time.”

I know some consultants say you should do that before things start falling through the cracks, but let’s be honest. Have you ever seen someone prioritizing and planning for future challenges on time? If you feel your sales are reasonably tracked, or you have too few opportunities that easily fit in your notebook, that’s fine.

Here are four cases when you may need to start looking into Opportunity Management:

• When you have 3 or more sales reps.
• When you have too many opportunities to remember. 
• When you need to report to your investors or managers.
• When you need better transparency and control over your sales process.

Or any combination of these, which leads us to our next topic: how to implement Opportunity Management.

Implementing Opportunity Management

Sales Process

First, you’ll have to decide on your sales process. While process design is a whole separate topic, there is one rule of thumb you can follow to verify if your sales process makes sense:

“Every next step in the sales process should increase the probability of closing a sale.”

In other words, every next step in your sales process should move the deal closer to being closed – won or lost, and with every new step the probability of winning an opportunity should grow.  

Define What a Sale Is

Next, you have to decide what a sale means. What does a “closed and won” opportunity mean to your business? What are the consequences? Does a closed-won opportunity create an order? Does it mean a customer has made a payment, or does it mean a contract has been signed? It should be a state where you are 100% sure that you have achieved your commercial target for this opportunity.

Remember, do not mix the delivery process into your sales process. As a rule of thumb, you should always keep the delivery of value and sales separate. If you sell bananas, you should first close a deal, sign a contract, and agree on a payment, and only then ship the bananas. The shipment is not part of the opportunity.

Do Other Homework

Next, you need to do some homework. You’ll have to make sure you have clearly defined:

• How you qualify opportunities.
• What data you want to know about every opportunity.
• What reports you will need.

Once you are clear with that, you will have to choose a CRM system.

Choose CRM system  

You’ll have to decide which software will support your process. Remember: you first do your homework, and only then do you start looking for software solutions. I personally, at the moment of writing this article, recommend Salesforce. Right now, it looks like the default option with minimal risks, but it’s your company and your process, so you decide.

Final Thoughts

That brings us to the end of this article on Opportunity Management. Let’s quickly recap:

• Opportunities help track potential business deals.
• Key terms include Sales Process, Qualification, Closing, Conversion Rates, Probability, and Forecasting.
• You should implement opportunity management when sales become too complex to track manually.
• Proper implementation involves defining your process, clarifying what a sale means, doing your homework, and choosing the right CRM system.

Now it’s time to move from theory to practice. If you’re looking to streamline Opportunity Management and get the most out of your CRM, reach out to us. We’ll help you build a system that closes deals faster and smarter!