by Donal Daly
If you’re interested in knowing how to determine the actual value of your sales pipeline, this post is worth a read.
In a previous post, I set out what I consider to be the important elements of a sales pipeline management system. That’s all about knowing how much you need to have in your pipeline to achieve your revenue target. Clearly, if you don’t have enough opportunities in the sales pipeline, you won’t make your revenue target. Using a measure we call the Pipeline Value Factor, you can calculate the value, number, and spread of deals that you need – but that’s still not enough. The health of your sales pipeline is a function of the momentum, age, activity, and velocity of opportunities.
Most pipeline reports measure only the pipeline value or volume, by adding up the value of each opportunity in each stage and coming up with a total pipeline value. Unless those deals are being actively worked, however, the pipeline report is likely giving you an inaccurate, or at least incomplete, view.
When we’re measuring the true worth of a pipeline, we consider the status of each deal at each stage in the funnel. We classify each deal as active, stalled, or inactive. Depending on the sales cycle and the overall cadence of the business, the status is determined by when the deal was last worked. If, for example, your sales cycle is 90 days, it would be reasonable to assume that a deal that has not been worked in more than 60 days is inactive. If the salesperson has placed that deal at one of the later stages in the pipeline, then clearly there is a misrepresentation of the value of that stage in the funnel. We know that opportunities never stand still; either they move forward toward closure or regress toward no decision or loss.
So how do we do this? We use one of the pipeline analytics reports in the Performance Coach module of Dealmaker – our Sales Performance Automation platform.
In the graphic below, you can see that the salesperson, Lynne Clooney, has a total pipeline value of $11,499,800, the number represented in the bottom right corner. When you look closer, you also see that only $5,980,000 is active, $3,670,000 is stalled, and $1,849,800 is inactive. In this report, stalled deals are those that have not been worked in more than 30 days, and inactive deals have not been worked in more than 60 days.
On the face of it, Lynne’s pipeline isn’t bad. We know that she has a quota of $2.5 million, and with nearly five times that in the funnel, you could be forgiven for thinking that she’s in good shape; however, the sales cycle at Lynne’s company is 90 days, and we can tell from this report that there is nearly $5 million in her pipeline that she has not worked in the last 30 days. Should I be concerned about that?
More critical is that, of the $1.8 million that’s recorded as inactive, there are deals worth $320,000 in verbal order and $240,000 in acquisition. As these are the last two stages of the funnel, we might expect them to close soon – but that’s surely not going to happen if they’re not being worked. It’s time to review the plan or determine if, in fact, we’ve lost the deals and they should be removed from the funnel.
Getting this kind of insight provides considerable actionable data to help the salesperson. If deals are inactive, it frequently points to a lack of urgency on the customer’s part, or the salesperson’s inability to identify or create a compelling event when she can demonstrate to the customer the value of making a decision now. In either case, it should point to an opportunity for Lynne’s sales manager or marketing department to create an initiative or program to help move the deals. In other cases, it just highlights that the salesperson has not recorded sales as lost or disqualified – but then everyone is working on an assumption that she has enough in her pipeline, and that is not good for anyone.
When deals are stalled, our experience tells us that there is some obstacle that is causing difficulty for the salesperson. This is when the sales managers should prove their worth. It’s time to coach or brainstorm to figure out how to apply the resources of the organization to help the salesperson.
Today's post is by Donal Daly, CEO of The TAS Group.