In this post we will discuss how pipeline reviews can expose Sales Management.
Here is an example pipeline review between a Private Equity firm and Sales Leader. This Sales Leader had aggressive goals. The PE firm had invested significant resources to ensure aggressive growth goals are achieved. The PE firm wanted to know if he would Make the Number next quarter.
The conversation went like this:
- PE Firm: Your average sales cycle length is 150 days. Correct? Why have 30% of your opportunities been active for over 250 days?
- Sales Leader: Ummm…. Some of those are bigger deals that take longer. Also, some probably need to be removed from the pipeline.
- PE Firm: Actually, only 11 out of the 124 deals in that 30% are larger than $500k. Isn’t $400k your average deal size? If so, that means you need to do a lot of cleaning up.
- Sales Leader: Ok
- PE Firm: Also, 32% of your deals in stage 4 (the last stage before closed) are less than 30 days old. Why? Is that why stage 4 is almost as big as stage 2?
- Sales Leader: Sometimes my team enters deals into the CRM once they are ready to propose.
- PE Firm: You shouldn’t allow that. That may be shrinking your early stage pipeline. We need visibility to those deals.
You get the idea. Once the PE firm smelled blood, they kept digging. This Sales Leader’s credibility was called into question. SBI participates in tons of pipeline reviews across multiple industries. Avoid the common pitfalls we see on a regular basis. Knowing the top metrics will ensure you are prepared for success.
Sales Management continues to make a fatal mistake. They look at high level indicators when analyzing the pipeline. They don’t understand all the details that feed into those indicators. This approach can lead to uncomfortable conversations with your boss.
They ask their team questions like this:
- When will this deal close?
- Do you have enough pipeline to cover next quarter?
- How do we move the deal forward?
- What is your pipeline to quota ratio?
- Why did your pipeline shrink?
While these questions may be valuable, they can also drive the wrong behavior. They should only be looked at within the right context. To get the necessary context, a deeper dive is required. Here is an example. A sales rep has pipeline to quota ratio as a scorecard item. His ratio may appear positive because he keeps lifeless opportunities active. He looks good. But in reality, he’s holding onto dead deals to keep the pipeline looking flush. This inflates the indicator, but doesn’t help the result. Sales Management needs to uncover these situations and fix them.
Here are a few areas where Sales Management misses the mark in understanding the pipeline:
- Not understanding the sub-metrics – Every major pipeline metric has other smaller metrics that feed into it. For example, your average sales cycle length may be 150 days. But do you know the average time deals stays in each pipeline stage? How about the average progression rate from stage 1 to stage 2? These are the granular metrics which help you manage the pipeline effectively.
- Only focus on late stage deals – late stage deals have the potential to close sooner. It is natural to focus on them first. But sometimes you can’t help much because it is too late. The customer has what they need and it is a waiting game. The early stage pipeline could be easier to influence and progress. You need to be intimately involved with all stages.
- Can’t explain why it is in the stage – leaving stage assignment to the sales person’s discretion is a mistake. There needs to be some science behind the assignment process
- Don’t understand the anomalies – every pipeline has some irregularities. Managers should know what they are and be able to explain them.
Great sales leaders understand the pipeline inside out. This level of understanding inspires confidence when interacting with their superiors.