Tuesday, October 19, 2010

Expected Values

I had coffee this afternoon with Rick Shea of Optiv8 , always a rewarding and educational experience. I am a firm believer in the dictum “Management Measures”, and Rick is an expert at putting this into practice. (From which you a free to infer that I am strong on theory but weak …).

Chris Greaves the prospector and Chris Greaves the salesman.

Chris Greaves the prospector can measure his progress daily, should he choose to. Ten phone calls, one meeting, twenty phone calls, two meetings. Instant gratification.

Chris Greaves the salesman with a much longer wave-length needs a different tool for measurement.

Chris Greaves the salesman has chosen expected values as his tool.

For every contact in the his database, Chris Greaves assigns a dollar value to the potential project, and a percentage probability of achieving it.

After the first face-to-face meting (“Hi! How are you”), no project is mentioned, so the dollar value and probability are both zero. The contact is valued at $0.

Three months down the road the contact phones or emails asking about a tool to do something-or-other. Yes we can do that. Immediately Chris Greaves makes an educated guess that the project, if it comes off, might be worth $5,000, and the probability of it coming off is 10% at this stage. The expected value is, therefore, $500.

A meeting is arranged at which Chris Greaves demonstrates a proof-of-concept of the process, and the client keeps saying “send me a quote”.

After this meeting Chris Greaves might consider the project worth $8,500 and the probability 75%. The expected value is, therefore, $6,375.

Once a month, Chris Greaves sums up all the expected values in the data base (actually he generates an Access or Excel report!) and submits this figure as the potential worth of the contact database in its current state.

Of course, Chris Greaves the Chief Financial Officer wants to know how much marketing expense the other two Chris Greaves incurred to generate all these expected values, and whether those marketing efforts are working. You see, Chris Greaves wants to hold Chris Greaves and Chris Greaves accountable for how they spend his time, or something like that.

(If Chris Greaves the Chief Financial Officer gets really picky, he can set the initial value at $-30.00, because Chris Greaves the Prospector spent that much on taking the prospect out to lunch!).

You can learn more about this technique from Rick Shea of Optiv8 .

He is the expert, not I.

Talk to Me !

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