We once consulted with a VP of Sales who worked for a large Fortune 50 financial services firm. He was having, like many VPs of Sales, an issue with his pipeline yielding enough to hit his number. If you know anything about B2B sales, you know that the sales pipeline is constantly scrutinized. Sellers want to ensure enough pipeline opportunities to hit quotas.
In general, most companies assume sellers will win one-quarter to one-third (a win ratio) of their pipeline value. Thus, in a lot of cases, the pipeline value needs to be 3 or 4 times the quota.
As you take sales cycle time and other factors into the equation, the pipeline math can be a bit more complicated.
For the VP of Sales, his pipeline was larger than he thought it needed to be. However, his team was not yielding enough to meet their goal. He 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 eliminate junk opportunities. This helped obtain a true view of his “real” pipeline – in which potential value was cut in half.
Many companies place their focus around building a pipe around 3-4x of the goal. They may highlight any pipeline under “3x” as red on weekly sales reports and dashboards. The team or person who has red areas may get ‘beat up’ (figuratively) in the weekly sales meeting – not a fun experience by any measure.
Because of this, there is a tendency for sellers to “game” the system. They don’t want their pipeline showing up “red” every week, so they may over-estimate opportunities in the pipeline.
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 and sales stage gates built on customer evidence, the pipeline is bound to get bloated.
Quality vs Quantity
In the most prosaic way, a ‘real’ B2B sales opportunity usually has several common attributes. These include 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.”
We had a previous colleague who would get hassled about not having enough in his pipeline. However, he always hit or exceeded his quota. He was thoughtful about qualifying-out opportunities that didn’t make sense or have the requisite timing. 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 by pursuing the right opportunities at the right time.
The balance here is having enough of the right pipeline opportunities to pursue. This creates a stronger chance of hitting quota versus opportunities that are a distraction and resource-draining. Some say the most important skill in B2B sales is the ability to fully understand and uncover needs. This skill is the essence of qualifying an opportunity, filling the pipeline with ‘real’ deals, and increasing win ratios to maximize yield. This is not an easy task.
What other “pipelies” have you seen? Contact us to discuss ways to optimize your sales pipeline system and inspection process.
About The Author
Warren Shiver is a Partner at The Brevet Group, a management consultancy focused on end-to-end improvement in sales force effectiveness. Warren’s leadership has helped numerous organizations build high-performing sales teams focused on the right go-to-market strategy, disciplined sales process, and well-designed enablement tools.