Opportunity Probability is the estimated percentage chance that you think you will win a sales deal. By giving each Sales Opportunity a probability you can produce a sales weighting forecast that will give you a fairly accurate idea of what your sales will be.
How Opportunity Probability Works
If you have won an opportunity you could say the percentage sale probability is 100%. If you have lost an opportunity the percentage probability would be 0%. The Sales Pipeline Opportunity is, therefore, anything in between these two.
- Won Opportunity – 100% Probability
- Lost Opportunity – 0% Probability
- Pipeline Opportunity – 1 to 99% Probability
When you create a new opportunity your probability might be only 10%. As your opportunity moves through the sales funnel you can update the probability. For example, once you have qualified the opportunity you might increase the probability to 50%. Then once your sales has come in you can change it to 100%.
To forecast your sales, if the value of an opportunity is multiplied by the probability it gives the Weighted Value. The value of the Opportunity without multiplying by the probability is the Unweighted Value. The Unweighted Value is the total sale you will get if the individual sales close. And if you add up the Weighted Values of all the Opportunities then you will get a statistically valid value of what you are likely to sell in total.
Calculating Sales Weightings
For example, if an opportunity has a value of 10k and a probability of 40% of closing, then the unweighted value of the opportunity is 10k. The weighted value would be 4k (10k x 40%).
If you add up all the unweighted opportunity values, that gives you the total value of your sales pipeline.
If you add up all the weighted opportunity values, that gives you your likely actual sales figure. However, this only works if you have a lot of opportunities and they are are all of similar value. If you have only a few opportunities, and some are much bigger than others, then this doesn’t work so well.