Forecast 2012 - Thirteen Truths of Pipeline Management

T H I R T E E N  T R U T H S  O F  P I P E L I N E  M A N A G E M E N T

Truth #1: The first truth of pipeline management is, as you might
expect, that a strong pipeline avoids the quarter end crunch. You
need enough qualified opportunities at each stage. One of the
important things about a pipeline is its shape. Imagine two funnel
shapes, one with a broad top and one with a narrower top. The same
number of leads are at the top of the funnel, the same number of
deals come out of the bottom. Which is the better pipeline? The
funnel with the broad top appears to have more coverage, and if you
answered this one, you would be wrong. When it comes to this idea
of coverage, ‘3 times’, ‘4.5 times’ and so on is not relevant. It doesn’t help you. The broad-top funnel shape means you’re spending more time on the opportunities you’re going to lose, and you’re not deploying your more
expensive resources on the later stages of the funnel where you really
need them.

Truth #2: This leads to the next truth, that pipeline velocity is more
important than pipeline volume. Sales effectiveness is about how
quickly you move business through the funnel, or the speed you move
sales through your business. You can have all the coverage in the 3
world, but it’s no use to you if it’s not moving, or if you don’t know if it’s moving, or in fact how it’s moving. A useful  thing to focus on is The TAS Group’s ‘Sales Velocity Equation’. We define sales velocity as a function of the number of qualified deals you work during a defined period, the average size of them, the percentage of them that close, and the average length of time it takes you to close them. Velocity is all about time. Let’s illustrate this with an example. Your goal is to travel 1 mile in 60 seconds, that’s an average speed of 60 miles an hour. If you hit traffic and only do 30 miles an hour for the first half mile, how fast do you need to travel to make up the time and get to your destination in 60 seconds? 90 miles per hour? 120 miles hour? If you only go 30 miles an hour for the first half mile, that’s your 60 seconds up, you can’t do it. In sales, if your deal hits the roadblocks, you can’t close it in time, you miss the deadline. Velocity is key.

Truth #3: Pipeline is a better predicter of the medium-to-long term health of your business than forecast. Don’t forget that forecast and pipeline are two different indicators. Pipeline looks at the sales cycle in total which should map to your customer's buying cycle, and is therefore truer. Forecast is based on your timeline - not your customers’ - and has artificially imposed time constraints.

Truth #4: Having too many stages in the pipeline is counter-productive. This will depend on your customers’ buying process and some of The TAS Group’s customers have more than one sales process to reflect the different buying processes of their customers. In our experience, and that of our customers, we have found that 5 or 6 sales stages is the optimum number for complex deals.

Truth #5: You can’t measure pipeline using ‘weighted average’ or ‘expected revenue’. It is futile to determine the value of a pipeline by multiplying the value of each opportunity by the probability of it closing. You rarely get a percentage of a deal. You’ll get either 100% of it or none of it. It’s much better to calculate which deals should close in the period, sum the value of those and ignore the ones that won’t close.

Truth #6: Marketing can’t fill the funnel for you. Maybe you feel they don’t fill it for you anyway, but there is no bad time to be prospecting; you need to be doing it all the time. In our experience you should expect marketing to
contribute to about 50% of your pipeline, but this can vary by industry, deal size and in a host of other ways. The rest is down to you. If you don’t look constantly for new opportunities, you lose control over where you’re going.

Truth #7: A healthy pipeline has the right balance of deals in terms of size. If you want to fill a barrel with rocks and maximize the usage of the capacity of the barrel, you have to fill the gaps between the rocks with stones or pebbles. It’s the same with your pipeline. The right balance means you’re not on the one hand hoping a couple of elephants are going to drop, and on the other hand, you’re not chasing your tail trying to close too many insignificant deals.

Truth #8: Pipeline sales stages have no value in and of themselves. It’s only the customer-related actions tied to each stage that give meaning to the progression of deals through the pipeline. Clear deliverables (based on
evidence of customer actions), what we at The TAS Group call ‘qualifiers’,must be linked to each stage.

Truth #9: You need an algorithmic measure for each stage of the pipeline to determine whether you have enough opportunities at each stage. Consider the time to close, the probability of closure, and the target revenue to  calculate the value you need. At a macro level you can do this using your average deal size, your quota and your average sales cycle length.

Truth #10. Deals that are inactive, meaning they have not been worked on for more than a defined period of time, again depending on your typical sales cycle, should be cleared out of the sales funnel and sent back to marketing for rekindling. Otherwise you’re given a false sense of the value of your sales pipeline. You need to know where you’re really starting from.

Truth #11: Customers (or prospects) are entering the sales cycle further down the funnel now as they are using Social Networks to research solutions before they invite sales people into the conversation. They are qualifying
themselves before you get a chance to do it. As we have discussed in Part 4, you need to be listening and contributing where they are playing.

Truth #12: Unless you’ve established yourself as part of the ‘recommendation chain’, many of these opportunities  will never enter your funnel. In the new paradigm, you won’t even have the chance to build your unique business value around their requirements. Buyers will find other people in their recommendation chain and the resulting opportunities will be closed by other people before you get to find out.

Truth #13: Networking has always been the best way to fill the funnel – now with Social Networks you can use OPM (other People’s Money) to generate buyers – not just opportunities. While marketing can’t necessarily fill
the funnel for you – see Truth#6 above – inbound marketing in the form of social networking, can.

THE THIRTEEN TRUTHS UPHELD IN A SALES PERFORMANCE AUTOMATION SYSTEM. What should you expect from your CRM system or sales performance automation system, to uphold these thirteen truths, and to gain some accuracy and predictability in your forecasts?