The funnel/pipeline is a fundamental tool for sales professionals and managers. It’s the tool that helps us understand whether we are on target to meeting our goals. I spend a lot of time looking at funnels. I’ve seen all sorts of issues and potential games (inadvertent and purposeful) that are played with pipelines. I thought I’d spend a little time on a few of them.
We all know there the funnel provides us a number of key metrics and indicators about the overall health of our business. Let’s look at a few key elements.
The first is overall shape in structure: Are we pursuing enough opportunities to make our number. To determine this, we need to know our average transaction value, the number of deals we need to close to make our number, and our win rate. From these, we can determine the number of deals we need to carry in our pipeline. We can refine this to look at distribution of opportunities throughout the stages of the pipeline.
So we want to make sure we have enough opportunities and the are spread through our pipeline. Sometimes, managers set goals (often semi-arbitrary). For example, they say your pipeline needs to have three time coverage. The logic behind this is the close rate is around 33%, so three times coverage in the pipeline should provide the right number of deals. So far this is OK, not great, but workable.
The problem is, when our funnels start looking a little lean and managers start hammering on sales people for the right coverage model. This is where all sorts of destructive things happen. As a sales person, it’s pretty easy to get my manager off my back on this one. All I have to do is stop qualifying my deals. Let a little garbage into the pipeline, let a few less qualified deals into the pipeline, I hit the number of deals my manager wants in the pipeline, she’s off my back for a while.
This is the start of a terrible cycle. When we start reducing the quality of the deals in the pipeline, our win rates start to decline. When our win rates start to decline, the number of deals we have to pursue to make our number goes up. It’s a vicious cycle, pretty soon we have pipelines filled with nothing but garbage. It’s really self defeating. We chase more and more bad deals, we waste our time, we waste that of our customers.
It’s critical to maintain the integrity of the pipeline. We must fill it with high quality, qualified opportunities. That’s the only way to maintain or improve win rates. Relaxing the quality of what we allow into the pipeline is nothing but trouble. Whatever you do, don’t sacrifice pipeline integrity or quality.
Note to managers: If your people don’t have a sufficient number of opportunities in the pipeline, coach them to increase the number of qualified opportunities. Help them understand how to prospect and improve. Pay attention to what’s filling the pipeline, make sure you maintain quality!
So we have the right number of opportunities in the pipeline. We have a high quality pipeline—or at least think so. The customers are qualified, they are in our sweet spot. Thing should be perfect.
Except nothing is moving! We look at the time that deals have been in the pipeline, comparing them to our average sales cycle. Not long ago, I was reviewing the pipelines of a sales team for a major company. Their sales cycle was 180-250 days. They had what appeared to be a “healthy” pipeline. There were sufficient numbers of opportunities in the pipeline, but when we started looking at the “aging,” over 27% of the opportunities had been in cycle for more than 500 days–some over 1000 days.
Clearly, none of these deals were real. Possibly they were real at some point in time (I tend to guess they weren’t), but they were no longer real, in some cases, we discovered the customer was no longer with the company!
So velocity or flow through the pipeline is critical. We have to look at aging, days in each stage, days in the total cycle. We have to continually seek to compress the cycle. We might have the right number of deals, but if they aren’t moving, then we won’t produce anything.
Which brings us to another game we play on ourselves, we lose sight of the “trees, for the forest.” Usually, it’s the other way around, but we don’t pay attention to the details. We, both sales people and managers, focus on the overall numbers. Do we have the right funnel over all? The gross numbers seem right, but then as we look at the details we see huge numbers of problems.
It’s important to look at the detail. Every opportunity in the pipeline must have activity–next steps. If we can’t define activities for each deal we are working on, then they are likely to be dead.
So we can’t fool ourselves. We have to look at the big picture for our pipelines–do they have the right shape, is there good flow, is there good distribution of opportunities through the pipeline, are we continually looking to compress the sales cycle, are we maximizing our probability of winning? But we have to look at the details as well. Do we have defined next steps that our customers are committed to in each deal?
Note to managers: You don’t have to look at every deal, but look at selected deals to test this. If you start seeing deals with no next steps, then dive more deeply into the details of the pipeline. You may need to start coaching the individual deals or opportunities. Doing this will build the integrity of the overall pipeline.
There are lots of other games people play with the pipeline, but I’ll stop here. It’s senseless to play these games, we’re only fooling ourselves and impacting our own productivity. It’s crazy behavior!
Leaving opportunities with overdue close dates in the pipeline is another very dangerous game. This is one of the first sanity checks I do when looking at a pipeline. You would be surprised how many of these opportunitiesI usually find in a pipeline. If this is measured as a KPI, this is the first indicator to induce doubts with upper management to what extend the numbers derived from the pipeline can be trusted.
Great addition Christian. I don’t know how many “scrubbed funnels” I look at—the first thing I do is a close date sort. Any overdue dates at all cause me to stop, going back to ask, “Is anyone paying attention?” Thanks for the great observation.
Good article David. An important aspect to add to the discussion is the number is opportunities in each stage of the pipeline. The total number and overall quantity are good measures, but also helpful to know how much in each stage and the average cycle in each stage. Depending on the sale, one stage may take a lot longer or shorter and is helpful to know when forecasting.
Thanks John, I alluded to those slightly in the article, but it’s great to make those explicit. We want to see balanced pipelines, with the right number of deals at each stage and the right flow from stage to stage. Another element of balance could be net new customer and retained customers, or balanced sales across our product portfolios. There are any number of dimensions we can measure funnel balance. It’s important for us to understand those that are most critical to our business. Thanks for the great addition!
This is a terrific post!
My business partner and I were just talking about some of the dumb tricks franchise sales staff play in order increase the velocity in their sales funnels.
One current trick uses a CRM which has locked stages, which as the prospect gets further qualified, the salesperson is supposed to unlock to give the prospect more information.
The sales staff wants to rush the process, which is 60-90 days, and so quickly unlock all the gates.
They have prospects flooding the systems, none of them qualified to be buyers.
Close rate drops and so more leads are flushed through the system.
Be much better to figure out why prospects were getting stuck in the first place.
Couldn’t agree more Michael
David, terrific points and comments -all simply made while being comprehensive. Your “note to the managers” is spot on. – Quantity over quality – semi-arbitrary numerical goals – will indeed effect quality of the pipeline. Most salespeople, in my opinion, inherently want to do a great job – doing what is asked of them .. .. . . So be careful what you ask for (because you’ll usually get it) and COACH for the results you are looking for – use of reprimanding, threatening, intimidation etc. and the integrity of the funnel suffers (along with morale and then you have a whole new set of challenges!). Thanks David!
Well stated Debbie, thanks for taking the time to add this pragmatic reminder to managers. We have to take the responsibility if our people are playing games–we set it up for them and let it happen.
Is the Sales Funnel, like the Sales Forecast, just a Sales Manager’s “comforter”? They can both make a Sales Manager feel: good, less anxious, and in control.
But, do they actually work?
CEB, has reformed the Sales Funnel to the Sales ‘Tack’. Eliminating, poorest opportunities at the earliest point,
to avoid time wasting.
There has been substantial evidence, for decades,
that Top Performing Sales people are better at dis-Qualifying unlikely ‘opportunities’, than their poor performing Sales Colleagues.
McKinsey has produced a ‘cycle’, which replaces the Funnel. Yes, they built it on research from Consumer Sales,
but it has applications in B2B, especially Transactional Selling.
Since the early 2000’s I have used Funnels/Pipelines based on the IBM Structured Selling Methodology, it definitely appeared worked well until 2008.
This is based on Customer’s agreements to where they are in their buying process. It gives Sales managers, and multichannel sales teams the feeling of control,
of being ‘in-sync’ with the Customer.
Yet, it sometimes goes DRAMATICALLY WRONG.
We live in uncertain times.
Uncertainty is NOT reduced by process,
doing the wrong thing only makes it worse.
Rather, uncertainty is managed by agility.
The faster, and more agile your reaction,
then the more often you succeed in uncertainty.
I would suggest, to Sales Managers, question your deep seated beliefs in Funnels, Forecasts and Pipelines.
We may have had a better answer for quite some time:
“Improvise, Overcome, and Adapt!” says Gibbs
Hi Michael,
I wrote about ‘disabling’ Sales Force Automation a while ago, and it is a double edged sword!
If the Sales person ‘disables’ the SFA-CRM S/W
[as many do!] they disadvantage themselves.
AND
If the S/W ‘disables’ the Salesperson,
[follow the ‘Steps’ of the Sale] they are also disadvantaged.
Here is a frequent conundrum when using SFA:
The pipeline shows insufficient Revenue ‘coverage’
[only 100%] for the Quarter ahead!
Sales Managers focus on the URGENT need to Close ALL possible deals in the 90 day pipeline.
They neglect Prospecting, and ‘middle’ selling.
Even if they ‘make the quarter’s number’ they now have a Critical Situation:
” A Sales Pipeline, with a bulge in the middle,
like a snake which has swallowed a pig!”
If Sales Managers repeat their mistake,
then they can “Invert the Funnel”
SFA/CRM are blunt instruments, not precision tools.
Even with AI, they are ‘thoughtless process’.
IMO, WE need to think for them!
Brian,
It is good point to look at the CRM from both points of view.
My own view is that the primary function of a CRM is crowd source errors in the sales process.
We all have ideas about why a certain person fell through, but with a CRM we can crowd source all our thoughts and get a better statistical picture.
I am less enthused about it replacing the sales manager and his or her overview of a particular person’s sales process.
Excellent Article. I suppose this is a continuation of the typical example of managers and owners etc, being preoccupied with numbers, numbers, numbers but in essence losing sight of what the real agenda is. In my opinion it’s quality. Quality of the initial call, quality of the prospective client follow up and quality of the CRM addition.
Often a hired gun exec is brought in to “change” things and the low hanging fruit is “activity” but as you have touched on before is activity really the KPI we seek? To begin my thought is a salesperson needs to have a burning drive to succeed and make money. So bird dogging them to motivate them only creates room for fictitious activity if they do not have the drive within themselves. I still haven’t figured out how that mindset stays employed in the sales function but it does.
I often ask a prospective client what matters most…the CRM content expansion or the closing ratio of that content. Most say.. well both but do not immediately realize both variables create dilution and what the true cost of a client acquisition is. As an example a high paid hired gun needs to quantify their existence and this is where the issue begins, they report with glee, hey we have expanded our opportunity base by X%…but what’s the cost association? How much does it cost the company to send staff on unqualified meetings?
As for myself I concentrate on closing ratio and scrutinize the account. Will it make the register ring? If not today then in the near future? Would I invest in going to visit this client again? If so, would I bring my boss?
To me a 80% closing ratio of a smaller pie is still better than a 2% of a larger pie. Especially in todays marketplace of every expenditure being scrutinized.
Just my two cents
JDM
Great comment Jim. Your last paragraph is particularly important. If we put trash in our pipelines, our close rates plummet and we waste huge amounts of time. If we focus on smaller, quality pipelines, our close rates skyrocket, we’re being more effective and we’re going to hit our numbers more easily. Thaks for the great comment.
If you’ve not already done so, watch the movie “Glengarry Glen Ross” … A remarkable movie (with an all star cast), and a must for every sales person.
http://en.wikipedia.org/wiki/Glengarry_Glen_Ross_(film)
At the end of the day, we’re measured on results. Everything else is just noise. Any attempts to mislead via the funnel will quickly become a small plaster (band aid) on a big wound, with predictable results.
Great comment Stuart–and thanks for the Glengarry reminder–a sales classic!
Hey, just as a reminder Glengarry is a classic horror story about sales.
There aren’t any great sales movies – complete with the sales person being the hero.
What about Tommy Boy? Actually a pretty interesting sales movie, Chris Farley discovers himself and grows up. Nice happy ending with sales person as hero.
No movie with Chris Farley counts!
I am looking for serious heros – Burt Lancaster, Clint Eastwood that type of hero.
I guess Tom Cruise in Jerry Maguire isn’t a classic serious hero 😉
But I did like Chris Farley, reminded me of a lot of my sales calls—wonder what that says about me????
(This comment is not on the right thread)
Dave asks: “But I did like Chris Farley, reminded me of a lot of my sales calls—wonder what that says about me????”
Alright, you have forced my hand & I will get the movie.
Knew I would wear you down, can’t wait for the review 😉
David,
I am amused to see how this age old topic still brings so many good interactions. Thank you for bringing it up.
I have a question to all of you –
01. I feel that “Opportunity” can be seen by anyone in the organization – whoever is facing the customers. Is there a facility in any CRM tool that allows anyone in the company (including the customer) to input an “Opportunity” and a “Qualification process” follows ?
Every “Opportunity” can not mature – but, if anyone is putting a Garbage-in – s/he is initiating a Garbage-out in the “Reputation” or “Credibility” report with his/her manager.
If there is a legitimate “Qualification-process – no one will disable the automation – I feel.
The advantage of an automation is the workflow which drives the system – I believe.
Sabyasachi: Thanks for the comment. Many systems allow collaboration in entering and qualifying opportunities. Also, people misunderstand the importance of a well defined workflow. Without this, how could we possibly automate?
Yes, you are right – without an workflow -there is no meaning of an automation and most CRM software offer such automation, I know.
It may not be out of place to mention that we ran a survey recently where in I found many senior Sales Managers and VP who are using good CRM software – said – they do not use the workflow !!
This points to the problem created and why CRM implementation failed in so many cases.
Of course, it is the issue of the users – whether they will use a facility or not and they suffer too.
Absolutely