Expected value calculations can prevent sellers from wasting hundreds of hours on low-probability deals. Yet most sellers make costly decisions by ignoring this fundamental concept, focusing on potential upside while overlooking probability of success.
Here’s the thing: a lot of poor decisions made by sellers comes from a poor understanding of “expected value.”
Let me get nerdy for a minute. Expected value equals a predicted value of a variable, calculated as the sum of all possible values each multiplied by the probability of its occurrence.
Put more simply: How much value you actually expect to get from something based on “what COULD it be worth” and “what are the odds we actually get that outcome?”
Example: Someone offers you $100 if a coin flip comes up ‘heads.’ $100 (potential value) x 50% (probability of ‘heads’) = $50 expected value.
What Is Expected Value in Sales?
Expected value in sales equals deal size multiplied by win probability, helping sellers prioritize opportunities with the highest mathematical return on time invested. This framework applies to two big decisions sellers make constantly: which deals to focus on and which job to take.
When you look at extreme examples, decision making off of expected value seems obvious. If you spent 8 hours wandering the streets of a major city, you have a 99.99% chance of finding a penny. Nearly guaranteed success – but you wouldn’t do it. Because 1 cent × 99.99% probability of success = less than a penny of expected value. Not worth the time.
If I offered you $10,000,000,000 if you were to make one hundred 50-foot putts in a row, you wouldn’t quit your job and take up golf. The odds of making that many long putts in a row is worse than 1 in 97 quadrillion, which makes the expected value effectively $0. The high payout is made obsolete by the impossible odds.
But less extreme examples lead to worse decision making – and that’s where thinking like a buyer becomes critical for realistic probability assessments.
The $500K RFP vs. $100K Qualified Deal: A Real Expected Value Comparison
A $500,000 RFP with 2% win probability has lower expected value than a $100,000 deal with 30% win probability. Sellers know they probably aren’t going to win that RFP, but the big number in their pipeline makes them spend hours crafting the response that won’t even be read.
If they calculated expected value: $500,000 deal size × 2% win rate on RFPs = $10,000 of expected value.
Instead, they’d focus on the $100,000 opportunities where they have a 30%+ chance of winning: $100,000 × 30% chance to win = expected value of $30,000. A deal ⅕ of the size… but 3x the expected value.
The key is accurately assessing win probability rather than guessing. Most AEs delay expansion conversations until the last months of the license, which kills their chance at upsell because renewal budgets are planned well in advance. To maximize customer expansion, ensure you are working with your customer well in advance of their renewal date.
If you are successfully solving the problems they purchased you to solve, you’ve earned the right to solve additional problems. This systematic approach to qualification – understanding what buyers care about, how they’re measured, and how you help – directly impacts your ability to calculate realistic win rates rather than making optimistic guesses.
Startup Equity: When $3 Million Becomes $90,000
The “big equity” outcome has wasted many years for many talented sellers and leaders. Let’s look at expected value: Series A companies have a ~3% chance at a successful exit (acquisition/IPO with meaningful multiples).
That “your equity could be worth $3,000,000 at IPO” expected value is $3,000,000 × 3% = $90,000.
I’m not saying don’t take your shot – but I would say “don’t sacrifice tens of thousands a year in base/variable comp to get a $3,000,000 equity package that has an expected value of $90,000.”
But What If I Hit the Lottery? Addressing the Gambler’s Mindset
“But Kyle – I just have to win one of those RFPs and I make my year! Isn’t it worth my best effort, just in case?”
“But Kyle – this startup role could end up being the next Anthropic! Isn’t it worth the risk?”
I’m just sharing the odds. Maybe you can shift them in your favor, and increase your expected value. Or, maybe you are better off prioritizing deals/jobs where the expected value is naturally higher.
The reality is that avoiding the gambler’s mindset is one of the core traits of successful AEs. Top performers make decisions based on mathematical probability, not wishful thinking about hitting the lottery.
You can run your job like the lottery – or you can maximize your expected value and tie your income to the highest probability outcomes.
The choice is yours. But the math doesn’t lie.
