The Myth About Sales Pipeline
Most sales managers or Sales VPs will tell you that in order to meet their quota, they must have a pipeline of X. Whether it is a three X, five X or seven X pipeline, these sales people have a formula that they follow that knows what they need to get them to their stated goal. Having worked with many sales professionals over the years, this X Factor is closely monitored and is one of their top KPIs. However, what if this approach was wrong? What if the whole idea of a three, five or seven X multiple in pipeline was misguided?
I am not advocating that sales managers and Sales VPs not monitor or be concerned about pipeline. What I am advocating is that heads of sales should be much more stringent about what they allow to be put into their pipeline.
Many sales pipelines today are full of “opportunities” that will never close, yet they are in the system and calculated as part of an X Factor. The way most companies deal with this is they reduce the percentage of that deal closing based on the stage of the opportunity. However, what if that deal never has a real chance of closing? If this is the case, it does not matter what stage it’s in or the percentage probability assigned. . . . it’s still bogus.
I was speaking with a company this week that was saying their close rates on qualified leads was less than 30%. Pretty anemic if the leads are indeed qualified (we will not explore this on this post as this is not the overall point). If less than one in three deals are closing for this organization the typical sales approach would be to have a three to five X in pipeline to play to the odds that from this large pipeline, quota will be met. This approach is faulty (and just a bad business practice) as salespeople are now spending time chasing deals that will ultimately yield nothing — or perhaps continuing to include deals in their pipeline that they know are simply not going to close.
How would the game change if — in addition to the qualification criteria assigned to leads that were passed to sales from marketing — sales were more stringent on those leads that were developed into opportunities? Let me explain a bit further.
I recently worked with one client who took a very different approach to lead qualification. In addition to the typical lead qualification criteria, we established a certain set of criteria – a litmus test – on the sales side that would be used for every potential deal. Throughout every phase of the process, sales was required to look for certain signs and signals that would indicate if this qualified lead would, ultimately, make a good customer.
Sales was trained to find out early on if the customers were bought into the organizations approach, if there was alignment among the decision makers, taught steps to take on how to circumvent potential competition, etc. Each step along the way this criteria was applied and <insert gasp here> there were a fair number of qualified leads that were told they were not a good fit, and that it was not in the best interests of the company or the potential customer to try and work together in the near or long term. This is integrity in selling!
A few things happened as a result of transforming this organization’s sales approach:
– The long-term relationships with clients greatly improved
What used to be a vendor-customer relationship turned into a partnership, and was spoken of positively by many of their customers. As a result, there was an exponential improvement in customer lifetime value.
– Sales win rates increased dramatically
By not having to worry about chasing down deals that would never close simply to satisfy the X Factor requirement of the pipeline, sales was able to focus on the deals they knew they would close, which caused their win rates to climb to approximately 80%.
– Pipeline measurement changed
Sales management was no longer worried about a “five x multiple” (the goal they had previously). With stringent criteria being applied and as one sales leader stated, “we only issue SOWs to those that we know we will win” – the entire pipeline measurement has changed.
– Improved alignment with marketing
As sales continued to hone their approach, the information was shared with marketing, which then implemented changes to the lead qualification process and standards. This resulted in a much higher qualified lead delivered to sales, thus reducing time wasted on deals that may have a number assigned, but not have a true chance of closing.
– Average sales prices increased
As the sales organization truly became more consultative during their sales process and was more “selective” in the deals they engaged with, they were able to sell a long-term approach and saw the average deal size increase dramatically.
Focus on reality, not the myth of the X Factor sales pipeline.
The impact on this organization has been dramatic and the sales team has truly been transformed in the process. The days of measuring a multiple within the pipeline are gone and the company is seeing benefits in terms of record bottom line revenue. Sales organizations need to be willing to change their approach, define what customer success looks like and sell to that, rather than stuffing a pipeline and hoping the odds pay off in their favor.