To create true sales predictability (and avoid Sales Whiplash), it’s critical to consider both independently, and to have your pipeline numbers influence your forecast output.
Drastically Refine Your Sales Pipeline This Year
Understanding that no two sales pipelines are exactly the same, there’s a general flow that most follow.
Typically, pipeline models start with some forms of discovery, prequalification, and qualification, before they move on to stages like solution design, customer evaluation, and proposal delivery.
Lastly, there’s generally a stage (or stages)for negotiation and closing.
Yours might follow that format exactly, or it might have more (or fewer) steps.
But that’s a pretty standard pipeline — leads go in the one end and they come out the other.
In between, they’re nurtured and developed to improve their chances of progressing through the pipeline.
But you knew that already, didn’t you. So why am I attempting to bore you with an elementary-level sales refresher?
Because, unfortunately, many organizations confuse their pipeline with their forecast, and vice versa.
Or maybe they don’t recognize that there’s a difference between the two at all.
That’s a big problem, because to create true sales predictability (and avoid Sales Whiplash), it’s critical to consider both independently, and to have your pipeline numbers influence your forecast output.
At its core, the sales pipeline is simply a view of all of your opportunities.
As such, it must show everything — from a newly identified opportunity all the way down to an opportunity in which there is a verbal agreement that’s simply waiting for a signature to make it official.
Ultimately, tracking both of those types of opportunities and everything in between helps you better measure, manage, and evaluate your sales pipeline, and create more accurate forecasts (more about that later).
The Real Risk of Confusing Your Pipeline with Your Forecast
When some salespeople and sales professionals think about their pipelines, they think only about the middle and latter stages (proposal delivery and negotiation, for instance).
The reason? Salespeople don’t like to put things into the top end of their pipeline because they think it’s their forecast and they fear committing to deals they aren’t certain about.
As such, they only want to put deals in their pipeline when they’re sure that they will close.
The problem with that, of course, is that it makes gauging pipeline health impossible for sales managers and executives.
Our work shows that most companies have a 33 percent closing ratio when it comes to qualified leads in their sales pipeline.
So, to hit its quota, a company must have three times as many opportunities in its pipeline as it needs to reach its revenue targets.
Now, if you manage a sales team whose salespeople only put deals ready to close in their pipelines, you might think the business is in serious trouble because your metrics suggest that two-thirds of those opportunities won’t close.
That system may not cause a short-term financial problem for the business, but it will prevent you from:
Accurately predicting future revenue
Objectively coaching your team and analyzing its strengths and weaknesses
Implementing strategies to improve your team and your pipeline.
Let’s be clear, your sales team needs to remember that putting deals in the top end of the pipeline has nothing to do with them being real sales.
It has everything to do with revealing the true quantity of opportunities in the marketplace, and measuring your true closing ratio.
And the only way to do that is to put all of your opportunities (prequalified and qualified) in the pipeline from the very beginning and analyze how many of them convert to each stage and, eventually, real revenue.
Ultimately, this discipline will allow you to create accurate forecasts, which are true reflections of your revenue potential from well-qualified deals that are in the later stages of your pipeline.
One Simple Change to Make to Your Pipeline
Now that you understand why it’s critical to put all opportunities in the top-end of your pipeline (even if you’re not confident they will eventually close), here is the nuance that will help you make a meaningful change to your pipeline management process this year:
Stop talking about probability of close at each stage, and start talking about percentage complete in the sales cycle.
As you move through your pipeline, every stage represents a step that’s been completed and a new step that’s beginning.
What you want to see as a sales leader is that your team is moving deals through pipeline, completing each stage properly, and gradually changing the prospect’s mindset.
When an opportunity moves to the next stage, their percentage complete increases.
And when opportunities reach the stage that you define as your “fully qualified” stage, it’s probably safe to assume (as I mentioned previously) that one-third of them will close.
Simply put, that calculation will yield your forecast.
By arriving at that number through an objective measurement of percentage of pipeline stages complete (rather than the subjectivity of “probability to close”), your forecasts will be significantly more accurate, and you’ll have an objective coaching tool to use in sales meetings and reviews.
Best of all, this pipeline model will mitigate your chances of suffering from Sales Whiplash.
If you’re using a 33 percent closing ratio to calculate your forecasts, you will be accurate within 5% of your forecast each reporting period and it’s certain you’re your team will never under deliver.
As a plus, if you happen to have a month or quarter in which your team closes 50 percent of its highly qualified opportunities, you’ll significantly overachieve.
As a sales leader, creating revenue transparency, consistency, and predictability is critical for numerous reasons, not the least of which is your — or your boss’s — sanity and stress level.
About the author
Colleen Francis, Sales Expert, is Founder and President of Engage Selling Solutions. Colleen Francis…