I have to admit, I’ve never been able to figure out the value or meaning of the weighted pipeline and forecast. It’s one of those things that is embedded in every CRM system, it’s one of those things that I see in all sorts of reports, but I have yet to figure out what it means.
I suppose the weighted pipeline is supposed to be some sort of indicator of overall pipeline health, but most processes for assessing probability are hugely flawed. Take a look at virtually every CRM system and the default methodology for determining probability. It’s based on where we are in our selling process. As we move from qualifying to discovering, to proposing, and finally to closing, our probabilities increase. So while we are measuring progress through the sales cycle (e.g. 25%, 50%, 75%….), we have no indication of the propensity to buy.
Sure, I’ve seen companies with sales processes that include increasing customer commitment as they progress an opportunity through the process, but most of these criteria are either loosely enforced or still don’t measure a customer propensity to buy—-just because a customer has committed to a demo or benchmark, just because they like our proposal, just because they say our proposal meets their requirements, or even if they say we are the preferred vendor, we don’t know the customer will buy or whether they will select our solution. The numbers become meaningless in terms of a commitment to buy.
Then anyone who remembers freshman statistics knows the sum of probabilities can’t exceed 1 (100%). That is, if we are competing against two other organizations, they are moving the same deal through their selling process–pretty soon each of the three competitors is in the closing process–each projecting a probability of something like 85% or more. Somehow, this doesn’t align with my understanding of statistics–if each is projecting 85% probability of winning, the aggregate is 255%????????
So as a pipeline measure, I’ve never really gotten it–what does 45%, 55%, 75% or whatever really mean? What does the aggregate of these weighted deals really mean? How does it tell me whether I have a sufficient number of opportunities in the pipeline? How does it tell me that there is sufficient flow or velocity in the pipeline? It seems to me, looking at the pipeline based on historical performance of winning/losing and sales cycle time give a much better indicator of pipeline/funnel health.
Then we move to the weighted forecast. What does it really mean to the business to say, “I have a $1 M deal that I’m projecting at a 75% level, so I’m committing $750K to the forecast.” If we win the deal, we’ll get $1M, so why are we forecasting $750K? What meaning does the 75% provide? When I sit down with people committing deals to the forecast, we review each deal. We talk about competitive positioning, the attitudes customers have toward our solution and the alternatives, the urgency of the need and business case, and a whole number of other things. Based on the assessment–deal by deal–we determine whether we are prepared to commit the deal to the forecast–and we commit $1M.
Some people think the weighted forecast gains greater weight in larger organizations. Frankly, I don’t buy that. Regardless the size of the organization, the forecast is a roll-up from first line managers. If you aren’t training and coaching managers, at all levels, in forecasting and pipeline management–then you have bigger problems than forecast accuracy. So the roll-up should have reasonable accuracy–naturally, each level of management is going to want to have serious discussions about the commitment to forecast.
In some organizations, particularly those with subscription businesses, run rate businesses, or something similar, analytics and trend analysis may provide a more accurate forecast. The base forecast may be based on these, with the forecast adjusted for major deals.
What do you think of weighted pipeline and forecasts? Where have you found them to be useful?
I recently read an article from someone I respect, “Revenue Is Not A Metric.” To be honest, I was confused–as I read the article, there was some clarification–”revenue is a result….”
As I usually do, when I see something that’s a little confusing, I go to the dictionary to see if I may possibly misunderstand the way a term is being used. I went to Wikipedia to read up on performance metrics:
“Developing performance metrics usually follows a process of:
1. Establishing critical processes/customer requirements
2. Identifying specific, quantifiable outputs of work
3. Establishing targets against which results can be scored”
As much as I can figure out, Revenue is a metric. Revenue is an output of what sales people do, it establishes a target against which results can be scored.
I think, however, revenue is not the most meaningful metrics against which we manage and drive performance (at least in complex/long cycle sales). Too many corporate and sales executives use revenue as the key performance management metric for sales. There’s no doubt it’s important and we need to be held accountable for producing those outcomes/results.
The challenge, as we know, is revenue is a trailing metric. That is, it measures the end result of our efforts, so that by the time we are reporting on revenue and whether we have met our goals, it’s too late to do anything about it–at least for that week, month, quarter, year.
We need to look at the appropriate balance of metrics–leading metrics that show we are on the right path to achieving the desired outcomes/results, and trailing metrics–those that show our attainment of the results.
I like to look at 4 categories of metrics: Business Management, Strategic/Customer/Territory, Operational, Personal Development. They are tied together, providing leading metrics and some of the traditional trailing measures.
Here’s a quick overview:
Business Management Metrics: These are some of the more traditional goals and measures, Revenue, Orders, Growth, Gross Margin, Customer Satisfaction. Most of these are trailing measures–by the time we know our attainment against a target, it’s probably too late to do anything about them.
Strategic/Customer/Territory Metrics can be both trailing and leading metrics. Sales needs to execute the corporate strategies. Having these metrics in place helps assure the things sales does are aligned with the overall priorities of the organization. These may include product line, market segment, customer retention, customer acquisition, and share goals.
Operational Metrics: These are the measures that tell us whether the things we are doing today are the things that produce the right levels of revenue or other measures we’ve discussed in the prior two categories. In this category, pipeline metrics are those we are most familiar with. Ideally, our pipeline goals align with the business management and strategic goals we have established. Other operational metrics may be activity related, prospecting calls per week, customer meetings per week, proposals completed per month, and so forth.
Personal Development Metrics: These focus on assuring our people have the skills and capabilities to achieve their goals in each area. They may include training goals, certifications in certain areas, experiential goals, and others.
All these measures should be related to each other. Typically, we may start at the end–for example with our business management goals and measures, working backwards, establishing the leading metrics and goals that produce the outcomes needed. As we execute, we track our performance against those goals. Pipelines with inadequate volume or flow will eventually show up as revenue misses. But we can see those pipeline challenges sooner (in close to real time), correct the situation, giving us greater assurance of achieving our revenue measures.
We can’t rely on a single measure against we monitor/track performance. We have to find the small number of interrelated measures, addressing each of the areas identified above. Collectively, they help maximize our ability to meet our goals.
Things are so much easier when they are black or white, when there is a “right answer” to every question or issue we face. Unfortunately, in the real world of buying and selling, there are no right answers, there is no clear direction–either for us in selling or for our customers.
One of the most important skills of high performing sales people is the ability to deal with ambiguity–both in how they work and in engaging customers, facilitating their buying process.
I get calls and emails every day; I sit in meetings where people are looking for help and direction, “Dave, what’s the right way……” or “What’s the best way to ……?”
My response is always, “It depends.” It frustrates a many people. They want answers, too many sales people want to be told what to do and how to do it. They devour “how-to” books and articles. They do what is recommended, struggling when the advice inevitably doesn’t work out the way they expected. Usually, they go looking for another answer–it spares them the time and complexity of figuring it out themselves.
Perhaps, some feel asking for the answers or the right way of doing something absolves them of responsibility when what they do doesn’t work. “I did exactly what you told me to do! It’s not my fault!”
Perhaps, being busy or being pressed for time is an excuse. We don’t have the time to figure out what will be most effective, so we want to be told exactly what to do.
Perhaps it’s a management issue. Management prescribes the approach–”Do it this way, don’t vary from the process.”
Perhaps management does this because they don’t trust people to think for themselves, doing the right thing–or because they haven’t taken the time to coach, developing critical thinking and problem solving skills.
Our customers struggle with ambiguity, as well. With ambiguity there’s uncertainty and risk. It’s difficult for our customers to make a decision, they don’t want to make the wrong decision. Their jobs may be at risk, the performance of their organizations or companies may be threatened.
High performing sales people, while ambiguity may be discomforting, deal with ambiguity–both for themselves and with their customers. They know there isn’t a “standard answer.” They know they have to figure it out themselves. They have sharply developed critical thinking and problem solving skills. They aren’t constantly in react or respond mode, but they take the time to analyze, reflect, get advice from others, collaborate. They develop the answers for themselves, executing their plan, adjusting it as necessary. They know things won’t be perfect, but they are confident in their ability to figure it out.
High performing sales people understand how customers struggle with ambiguity. They struggle with the risks of change, they struggle with understanding what the best course of action is, they struggle with the questions they should be asking to find the answers they need. High performing sales people know the greatest value they can create is helping customers deal with these issues, becoming comfortable with the absence of “right answers.”
Are you looking to be told the answers? Are you comfortable with figuring it out for yourself?
Do you recognize the challenges your customers face?
Are you comfortable with ambiguity, critical thinking, and problem solving?
As sales professionals, we’re obsessed with the “numbers.” Where are we year to date, what’s the forecast, what’s the pipeline look like, what are the activity levels, how many qualified leads do we have, and on and on and on.
We’re constantly measuring, tweaking, analyzing, measuring. We look at numbers from all type of views–increasingly we leverage analytics to give us different perspectives and insights to the numbers.
There’s no doubt, numbers are important.
But all they are is numbers. The numbers help us identify issues, opportunities and problems. They are yardsticks to measure performance. Numbers don’t solve problems or improve performance. They make us aware of potential problems, but nothing happens until we do something about the problems we want to solve.
As crazy as it seems, too many organizations spend too much time focusing on the numbers and doing to little about fixing them. That is, identifying what needs to be done, developing a plan to achieve the goal, and execution!
Sometimes, organizations take comfort in hiding behind discussions about performance and the numbers. It’s much easier to talk about them than to do something about them.
When your number indicate you have a performance problem, how quickly do you identify the central issues and corrective actions?
Once you’ve done this, how quickly do you actually start executing your plan?
Do you monitor the performance, correcting course to achieve results (Hmmm–we’re back to the numbers again.).
What percent of your time (and the organization’s time) do you spend monitoring and talking about the numbers versus doing something about them?
Numbers are important, but they aren’t what enables us to achieve our numbers. They’re the signposts on the way, but it’s what we do that counts.