The sales pipeline is, perhaps, one of the most misunderstood things in selling. We know the pipeline is critical to helping us answer the question, “Are we pursuing enough opportunities to achieve our goals?” We harass sellers to use CRM, keeping their opportunities updated so we can track our pipelines. Yet, too often, they are very inaccurate, gamed, or we don’t understand what the pipeline is telling us. As a result, one of the most useful tools for understanding and managing performance, is not used to it’s full power.
Over the past few weeks, I’ve written a number of articles about various aspects of pipeline management. I’ll minimize repeating what I said in those articles, here they are:
In this article, I want to start tying some ideas together, wrapping up this series. I won’t go through a lot of narrative, reach out if you have questions:
- Pipeline is a fundamental tool to help both sellers and managers understand performance. Yet, it tends to be misunderstood and improperly leveraged. Make sure your sellers understand this and know how to assess and diagnose their own pipelines. Make sure every manager understand how to assess, diagnose, and coach pipelines.
- One of the biggest mistakes we make is failing to manage pipeline quality. Your pipeline is useless unless it is high quality. Stop fooling yourselves.
- As a corollary to the previous point, it is human nature to be game the pipeline. For example, if a seller doesn’t have sufficient volume in pipeline, they can “fix” it very quickly–but it is more likely to be filled with garbage. Managers, as you put in place pipeline metrics and standards, make sure you understand how it might be gamed.
- We get our pipelines incorrect. The most critical aspect of pipeline health is the qualified pipeline. It is made of of deals in which customers have made a commitment to change (not our opinions about the deal). Tracking pipeline metrics from first contact or first meeting weakens our ability to understand performance and dramatically understates that performance.
- We do want to track the “above” the pipeline activity–that is prospecting, the qualifying process, and related information. We want to make sure we are doing the work that identifies us to feed the pipeline with qualified opportunities.
- We may have multiple qualified pipelines, keep them separate. If we have very diverse product lines and buying cycles with those product lines, tracking all of them in a single pipeline may be misleading, masking real performance issues. For example, if you have product lines that are transactional, low average deal size, very short sales cycle and product lines that are very complex, high average deal value, very long sales cycles. The dynamic of each are very different, we want to separate tracking them into different pipelines.
- Pipeline weighting is meaningless and distracting. For some reason we’ve thought weighting the pipeline gives us an indicator of performance. It’s actually a measure of nothing relevant. Typically, our process for weighting is based on where we are in our sales process and not a customer propensity to buy. (Note, weighting for forecasts is different and based on different criteria, but should not be mixed with the forecast).
- Pipeline data and metrics provide information, but not solutions. Every unhealthy pipeline has multiple paths to solution. It’s your job to figure out which is the best path. The biggest mistake people make in looking at a weak pipeline is saying, “We have to do more, we have to add more deals to the pipeline.” Usually, better solutions might be figuring out how to increase your win rate, average deal size, sales cycle. Doing these are actually more profound, completely changing the dynamics of the situation. Usually, the most interesting thing to look at is increasing win rate.
- Improving win rate, generally has a shorter time to results than anything else you can do to improve performance. The first thing to improve win rate is to viciously disqualify.
- 3x Pipeline coverage is a dangerous myth. Stop thinking of this immediately! 3X pipeline assumes everyone has the same win rate, 33%. Pipeline coverage need be based on individual performance. Each individual will have differing ideal pipeline metrics.
- We don’t fix pipeline problems in the pipeline! We fix them in sharpening our deal strategies, prospecting, account development, territory development, call execution, and qualifying. The pipeline helps us understand where we have the highest leverage in improving performance. For some, it might be better deal qualification and execution, for others it might be higher impact sales calls, for others it may be more prospecting. But we don’t know which has the highest leverage until we start understanding the pipeline for each individual on our team.
- While there are exceptions, in general if we look at “time to results,” in fixing troubled pipelines, look first at win rates, then average deal size, then developing more volume, then reducing sales cycle. Doing all in a logical sequence can drive growth rates you may have never imagined possible.
- We calculate win rates, average deal size, and sales cycles based on historical performance of deals we’ve actually won and lost. Those, along with our quotas, enable us to develop the ideal pipeline. We compare the ideal pipeline with the actual pipeline to determine pipeline health. Understanding past performance is critical to understanding the dynamics of our pipelines and performance.
- There are other important metrics that refine your understanding of performance, including projected days to close, days in cycle, days in stage, number of times the target close date has changed, number of times the target close value has changed, product/offering mix, and customer mix (e.g. new logo, customer growth).
- We tend to avoid cleaning our pipelines, creating high quality/high integrity pipelines, because it may show we are in deep trouble. But failing to do this masks the real performance challenges we face. As bad as a high quality/integrity pipeline may look, we can easily isolate and prioritize the problems and possible fixes.
- Track healthy pipeline metrics on both a deal basis and $ basis. If the win rates, deal sizes, sales cycles are very different, it tells you something very important about performance. (For example high win rates on a deal basis with low win rates on a $ basis shows you are bad at doing big deals.) Also track win rates, deal sizes, sales cycles for wins and losses. They also give you great performance insights. (We tend to find sales cycles on deals lost are twice as much as those for deals won. We chase bad deals way too long.)
- You want pipelines that reflect balanced performance across your product lines. Sellers are responsible for executing the company strategy in the face of the customer. As a result, they need to have balanced performance across the product lines. Sales people who have pipelines dominated by one product line, even if it is a healthy pipeline aren’t doing their jobs and are under-performing the potential.
- We spend way too much time in pipeline reviews! The reason is that virtually 90% of the pipeline reviews I have looked at are actually deal reviews. We start looking at the pipeline, then get diverted doing deal reviews. The objectives of pipeline and deal reviews are very different. Keep them separate. In a pipeline review, we want to assess pipeline quality and health, developing strategies to improve both. Even a very large pipeline (lots of opportunities) can be assessed in a pretty short time.
- We tend to do pipeline reviews way to frequently, as a result waste a lot of time. Pipeline review frequency should be based on time to significant change in the pipeline. For example, if you have a very long sales cycle, lets say 18 months, weekly reviews of your pipeline are probably a waste of time. Probably monthly reviews are adequate. If you have shorter cycles pipeline reviews should be conducted more frequently.
- We pay insufficient attention to period to period changes in pipelines. We need to not look just at the current pipeline, but what has changed since the previous review and what caused it.
- For some highly transactional, very short cycle offerings, sometimes a pipeline is not very useful. Things are happening so fast, you may want to leverage other techniques, like trend analysis, AI, etc. However, you do want to continue to assess things like win rates, average deal size, and sales cycle.
- We tend to treat pipelines as linear, with flow always going left to right or top to bottom. Yet the buying process is non linear. Deals can move backwards in pipeline. Make sure deals are carried in the stage that aligns with where the customer is in their process, not the furthest stage of progress. Deals can become unqualified!
- The forecast and the pipeline are different. A forecast is based on customer commitment to make a decision for a certain value within a certain time period. Forecasts are based on the aggregation of individual deals committed to close in a certain period. Using any other methodology usually actually demonstrates you are underachieving your potential–even though you may be meeting your forecast.
- And, we use the terms pipeline and funnel interchangeably. I understand there is some symbolism in the difference, but it’s not that important. So call it a pipeline, call it a funnel, but make sure you understand it’s power and leverage it in monitoring and maximizing performance.
- I’ll go back to the first point. We tend to think pipelines are a tool for managers to harass sales people. It is one of the most powerful tools for sales people to understand and leverage for their own performance. A seller must constantly ask themselves, “Am I pursuing enough of the right opportunities to achieve my goals? If not, what do I need to do to fix it?”
- There are exceptions to everything and this applies to the observations made above. Not all of this will be relevant. Some of it may be wrong for your business/pipeline. But think carefully about each one, before discarding it. If it causes you to think differently about your own pipeline management processes, I’ve achieve my goal.
What have I missed? What should be changed? Where am I off base?
Jeremy Kemper says
Really enjoy reading your work. Sales Manager Survival Guide is the first book I read when I was promoted to my first FLSM role back in 2016.
How have you seen sales cycle time most effectively calculated for wins and losses? Simply taking when the opportunity was added to CRM to close win or loss date? Or calculating based on a certain (early) stage to close date?
Working through fundamental analysis now to understand win rates, cycle times, and avg. deal size by product line.
David Brock says
Jeremy, thanks so much for the note. Glad you find SMSG helpful.
On sales cycle time, this is where I find some of the biggest errors in understanding pipeline metrics. Too often, people start measuring cycle time from first contact/meeting, when the opportunity is added to CRM, etc. This can be very inaccurate and misleading. For example, very often, there is no immediate need, the customer needs to be nurtured for some time. For example, in our own company pipeline, we have a number of opportunities we have nurtured for over a year. The customer has no immediate need, but we want to keep them engaged for when a need arises.
Also, too often, people game CRM, not putting opportunities in until very late. I have a very large client where, for bad reasons, the sellers weren’t entering something into CRM until they had a verbal commitment. This created all sorts of problems in understanding potential business, managing performance, etc.
I recommend starting to track “sales cycle time,” from the point the opportunity is qualified. That is, the customer commits they are going to do something, they have a target date in mind, and they know the consequences of doing nothing. From that point until the close date (PO, lost, abandoned) represents the sales cycle.
Hope this is helpful. Regards, Dave
Jeremy Kemper says
Thanks Dave! Very helpful. You nailed one of the biggest issues, reps adding opps after they know they have a deal.
I’ll apply the math from our qualified stage and go from there. Appreciate the insight.