About 12 years ago I consulted with a Vice President of Sales who worked for a large Fortune 50 financial services firm. He was having, like many VP’s of Sales, an issue with his pipeline yielding enough so he could hit his number. If you know anything about business-to-business (B2B) sales, you know that the sales pipeline is constantly scrutinized to ensure a seller has enough pipeline opportunities to hit quota or goal.
In general, most companies assume sellers will win one-quarter to one-third (a win ratio) of their pipeline value, all things being equal. Thus, in a lot of cases, the pipeline value needs to be 3 or 4 times the quota.
As you take sales cycle time into the equation – for example, it takes 90 days to close an average deal –the pipeline math can be a bit more complicated.
For the aforementioned VP of Sales, his pipeline was actually larger than he thought it needed to be, but his team was not yielding enough from it to meet his goal. He actually had a lot of “junk” opportunities in his pipeline, which is a common problem. As part of our engagement with the VP, we had him re-grade his pipeline to get rid of the junk opportunities and to obtain a true view of his “real” pipe. His pipeline value was cut in half.
With the focus of many companies around building a pipe of 3 or 4x the goal, there is a tendency for sellers to “game” the metric, as they don’t want their pipeline showing up “red” every week. A previous employer of mine used to have a weekly sales report that had any pipeline under “3x” show up as red. The team or person who had red areas got ‘beat up’ (figuratively) in the weekly sales meeting – not a fun experience by any measure.
The moral of the story is that pipeline size needs to be analyzed in conjunction with a seller or a team’s win ratio. Without a strong opportunity assessment process (e.g., real vs. junk) and sales stage gates built on customer evidence, the pipeline is bound to get bloated given the disincentives of being stop-lighted ‘red’ and the weekly flogging.
Quality versus Quantity
In the most prosaic way, a ‘real’ B2B sales opportunity usually (not always) has a number of common attributes – named need, named sponsor, named timing, funding path, and a value story. The seller could have crafted or created the opportunity, but it would still have some characteristics that make it real and winnable – for example, “I think the prospect/customer will do something in a timeframe that makes sense for us.”
I had a previous colleague who would always get hassled about not having enough in his pipeline, but he always hit or exceeded his quota. He was very thoughtful about qualifying-out opportunities that didn’t make sense or have the requisite timing (e.g., can you close it within the quarter). He would often have one-to-three deals at the end of every quarter that he needed to close to hit his number. Quarter-after-quarter, he always closed one or two of the deals to make quota. He was exceptional at maximizing his win ratio by doing the “heavy lifting” up-front and only pursuing the right opportunities at the right time.
So, the balance here is having enough of the right pipeline opportunities to pursue to have a strong chance at hitting quota versus a lot of junk opportunities that are a distraction and a resource-drain. Some say the most important skill in B2B sales is the ability to fully understand stated needs and to uncover unstated needs. This skill is the essence of qualifying an opportunity, filling the pipeline with ‘real’ deals, and increasing win ratios to maximize yield. Not an easy task.
What other “pipelies” have you seen?