High Stakes and High Visibility
Just when have we engaged with the client, the quarterly earnings hit the street. It wasn’t pretty. Expectations of strong revenue growth vaporized into questions of long-term viability. The CEO, who previously trusted sales forecasts, blamed the sales organization. “Our forecasting and pipeline estimates proved to be overly optimistic,” she said. What she meant was that sales had fumbled their forecast. Our project quickly morphed from a sales assessment project to a pipeline and forecast inspection and refinement. Forecasting and pipeline processes alone won’t prevent a miss. But they will avoid the surprise, which can be just as traumatic.
Sales forecasting and pipeline management are always important. But at publicly traded companies, the stakes are higher. The street expects current-quarter estimates to determine earnings, but out-quarter estimates also take on a significant role. Out-quarter estimates tell a story of future growth potential. These expectations ultimately set the stock price. A big out-quarter downward revision sends share prices tumbling. If it’s an especially hopeless projection, executives should update their resumes. Download our Pipeline Inspection Checklist to ensure you’re doing these the right way.
Many of the top software companies we work with have a strong process when it comes to the current quarter. But when we get into out-quarter pipeline reviews, 75% lack a structured process. By establishing a strong pipeline process (defining pipeline as out-quarter visibility), executives will ease the quarter to quarter tension. Dips in production can be proactively addressed. Activities focused on generating early opportunities are emphasized, and surprises are eliminated.
How to Avoid the “Surprise”
So how does one stand-up to a Pipeline Review Process? Here’s how top Sales Organizations consistently produce accurate forecasts and use out of quarter pipeline to drive behavior.
- Define definitions for every forecast category and sales stage
- Promote a Data Hygiene Program
- Set a Pipeline Cadence with clear attendees
- Create a Pipeline Review Process
- Use SMART actions to increase close probability
Set the Standard on Definitions
One of the primary causes behind poor pipeline transparency is a lack of consistent definitions. “Commit” varies from theater to theater. Some BUs may omit or skip forecast stages. World-class pipeline management begins with formal definitions that are understood by everyone in the sales organization. Management “inspects” these forecast categories by asking questions to vet the true probability.
How will you know this is the case? When reps stop saying, “I feel pretty good about this one.” They start saying, “We have the approval of the decision maker, established a budget and a compelling event that requires them to purchase a solution by month-end.” Objective criteria, not emotions, determine the forecast stage.
Promote a Data Hygiene Program
Without a data hygiene program, pipelines resemble a graveyard of wishful thinking and shattered dreams. That deal where the decision maker told you not now? Reps maintain the irrational hope of Lloyd in Dumb and Dumber “So you’re saying there’s a chance.” There are multiple red flags in the opportunity graveyard:
- Opportunities with ages twice the average sales cycle time
- Opportunities without an activity update for two months
- Opportunities with no assigned contact
- Opportunities without a price, product, or sales stage
Out-quarter opportunities are the molars of your CRM system. Without routine scrubbing, they will get filled with crud.
Set Dates, Send Invites, and Define Roles
The best organizations do not discuss Pipeline on an ad-hoc basis. They plan for it. At least three calls per quarter are dedicated to pipeline coverage against the plan at each level of management. We typically see these occur in weeks 1-10, before the last three weeks of the quarter turn into a frenzy of forecasting and deal closure.
The hosts of these calls should send them out at least 90 days in advance. Roles should be assigned, with a clear RACI to show who owns what. Here are the key parties we typically see invited:
- Sales Operations – Own management of the data and assists in creating reports needed for call
- Sales Leader – Runs the call and asks questions to the team to verify opportunities and check coverage
- Sales Attendees – Whether reps or managers, this group answers for the coverage in their territory or region, and towards large deals in the pipeline that need attention
- Marketing – Attends to talk about efforts to build out-quarter pipeline via programs and promotions
- BDR Leader – Attends to talk about prospecting activity and pipeline generated on behalf of the sales team
The contrast between a forecasting call and pipeline call is clear. A forecasting call focuses on opportunities that will achieve plan. A pipeline call focuses on generating the quantity of opportunities to hit plan.
A Good Pipeline Call Begins with a Sound Process
Many pipeline calls revert into a forecast call. They address deals, their probability of closing, and activities of sales reps. This is not a pipeline call. Here’s what a proper sequence for a Pipeline Call looks like:
- Pipeline Change From the Previous Call: How has our pipeline increased or decreased since the last call? Did it go up a significant amount to prepare us to hit our number?
- Opportunities Created: How many opportunities were created? Which parties created them (Sales, Marketing, BDRs)? Do we depend on 1-2 big deals or a more consistent batch of small deals?
- Pipeline by Stage: What is the dollar amount for each forecast category? Is the mix healthy with lots of commitment? Or lower level best case and early-stage deals?
- Pipeline Multiplier (a.k.a Pipeline to Quota Ratio): Based on our historical win rate, will he hit the number? (E.G., An organization with a 33% win rate would need 3x pipeline coverage at minimum)
- Marketing and Sales Prospecting Efforts: What has marketing done to help us with pipeline coverage? What has our team generated through self-sourced efforts?
Pipeline Calls Should Drive Action
The purpose of a pipeline call is to drive behavior. Is a rep light in their coverage ratio? There should be an action to re-focus on prospecting activities. Is there one huge make-or-break deal within a territory? Actions should be given to maximize the change of closure. The purpose of the call is not to “report the news” but to identify risks and mitigate them.
To solve for this, action items should be distributed at the close with owners, dates, and activity. During the next pipeline call, these activities should be reviewed to ensure completion. Pipeline calls are only valuable if their information is acted upon.
Are you conducting Pipeline Calls the right way? Download our Pipeline Inspection Checklist to measure yourself against top organizations. Eliminate the “surprise” and know your business inside out. By inspecting pipeline, you’re setting expectations for a stable future.