The funnel/pipeline is a fundamental tool for sales professionals and managers. It’s the tool that helps us understand whether we are on target to meeting our goals. I spend a lot of time looking at funnels. I’ve seen all sorts of issues and potential games (inadvertent and purposeful) that are played with pipelines. I thought I’d spend a little time on a few of them.
We all know the funnel provides us a number of key metrics and indicators about the overall health of our business. Let’s look at a few key elements.
The first is overall shape in structure: Are we pursuing enough opportunities to make our number. To determine this, we need to know our average transaction value, the number of deals we need to close to make our number, and our win rate. From these, we can determine the number of deals we need to carry in our pipeline. We can refine this to look at distribution of opportunities throughout the stages of the pipeline.
So we want to make sure we have enough opportunities and the are spread through our pipeline. Sometimes, managers set goals (often semi-arbitrary). For example, they say your pipeline needs to have three time coverage. The logic behind this is the close rate is around 33%, so three times coverage in the pipeline should provide the right number of deals. So far this is OK, not great, but workable.
The problem is, when our funnels start looking a little lean and managers start hammering on sales people for the right coverage model. This is where all sorts of destructive things happen. As a sales person, it’s pretty easy to get my manager off my back on this one. All I have to do is stop qualifying my deals. Let a little garbage into the pipeline, let a few less qualified deals into the pipeline, I hit the number of deals my manager wants in the pipeline, she’s off my back for a while.
This is the start of a terrible cycle. When we start reducing the quality of the deals in the pipeline, our win rates start to decline. When our win rates start to decline, the number of deals we have to pursue to make our number goes up. It’s a vicious cycle, pretty soon we have pipelines filled with nothing but garbage. It’s really self defeating. We chase more and more bad deals, we waste our time, we waste that of our customers.
It's critical to maintain the integrity of the pipeline. We must fill it with high quality, qualified opportunities. That's the only way to maintain or improve win rates. Relaxing the quality of what we allow into the pipeline is nothing but trouble. Whatever you do, don’t sacrifice pipeline integrity or quality.
Note to managers: If your people don’t have a sufficient number of opportunities in the pipeline, coach them to increase the number of qualified opportunities. Help them understand how to prospect and improve. Pay attention to what’s filling the pipeline, make sure you maintain quality!
So we have the right number of opportunities in the pipeline. We have a high quality pipeline—or at least think so. The customers are qualified, they are in our sweet spot. Thing should be perfect.
Except nothing is moving! We look at the time that deals have been in the pipeline, comparing them to our average sales cycle. Not long ago, I was reviewing the pipelines of a sales team for a major company. Their sales cycle was 180-250 days. They had what appeared to be a “healthy” pipeline. There were sufficient numbers of opportunities in the pipeline, but when we started looking at the “aging,” over 27% of the opportunities had been in cycle for more than 500 days–some over 1000 days.
Clearly, none of these deals were real. Possibly they were real at some point in time (I tend to guess they weren’t), but they were no longer real, in some cases, we discovered the customer was no longer with the company!
So velocity or flow through the pipeline is critical. We have to look at aging, days in each stage, days in the total cycle. We have to continually seek to compress the cycle. We might have the right number of deals, but if they aren’t moving, then we won’t produce anything.
Which brings us to another game we play on ourselves, we lose sight of the “trees, for the forest.” Usually, it’s the other way around, but we don’t pay attention to the details. We, both sales people and managers, focus on the overall numbers. Do we have the right funnel over all? The gross numbers seem right, but then as we look at the details we see huge numbers of problems.
It’s important to look at the detail. Every opportunity in the pipeline must have activity–next steps. If we can’t define activities for each deal we are working on, then they are likely to be dead.
So we can’t fool ourselves. We have to look at the big picture for our pipelines–do they have the right shape, is there good flow, is there good distribution of opportunities through the pipeline, are we continually looking to compress the sales cycle, are we maximizing our probability of winning? But we have to look at the details as well. Do we have defined next steps that our customers are committed to in each deal?
Note to managers: You don’t have to look at every deal, but look at selected deals to test this. If you start seeing deals with no next steps, then dive more deeply into the details of the pipeline. You may need to start coaching the individual deals or opportunities. Doing this will build the integrity of the overall pipeline.
There are lots of other games people play with the pipeline, but I’ll stop here. It’s senseless to play these games, we’re only fooling ourselves and impacting our own productivity. It’s crazy behavior!
Dave has spent his career developing high performance organizations. He worked in sales, marketing, and executive management capacities with IBM, Tektronix and Keithley Instruments. His consulting clients include companies in the semiconductor, aerospace, electronics, consumer products, computer, telecommunications, retailing, internet, software, professional and financial services industries.