Imperative 4: Know and Apply the 4 Simple Segments of the Sales Pipeline
An effective pipeline management process should be both predictive and instructive. To accomplish these two goals, the data that is input must be accurate. Herein lies a potential difficulty…unless both manager and producer see the other as an ally, not an adversary. Let’s look at how they can work together toward the same goal.
Within the bounds of legitimate probability, the pipeline should reveal the level of sales production that should result from a given pipeline at any point in time. This is obviously of great value to both manager and producer. It should also reveal specific strategic and tactical weaknesses of both the planning and the execution of the selling process, as well as the skill strengths and weaknesses of the sales professional. Our experience has confirmed our strongly-held belief that to accomplish the above, and still be simple to apply, we need to measure only 4 components of the sale.
PRODUCTION is comprised of: ACTIVITY…the amount of potential revenue in play at any point in time, EFFICIENCY…the speed of revenue flow through the pipeline, and EFFECTIVENESS…the batting average or closure of deals. If each of these can be accurately measured, the production will be equal to the three numbers multiplied together.
ACTIVITY is the key measurement. It must accurately reflect realistic potential revenue. Without this accuracy, the resulting projection of revenue will be inaccurate…possibly extremely inaccurate. Therefore, a method of determining whether a “deal” or potential sale is real or a pipe dream is critical. To be counted as a real potential deal, the “prospect” must recognize a need for the solution proposed and believe that the need could be filled by the company’s product/solution. Both are yet to be resolved, but the potential reality of a sale must exist for a deal to become “activity” and entered into the pipeline.
EFFICIENCY, the time it takes to move from activity to a sale, is a potentially illusive number. Simple sales are more predictable and have shorter periods in the pipeline. But complex deals usually have a life of their own and are less predictable. Historical data of a producer’s record of pipeline length does not exist in some cases. In these instances, a time period should be assumed and, as live data is accumulated, accurate efficiency numbers can be correctly calculated. This number can be compared to those of other producers in the same market, a producer’s year-over-year number, industry standards, and a producer’s trend (longer times in the pipeline or shorter). The key is that the time in the pipeline will be an objective and accurate number the longer you maintain it and the more data points you accumulate. This increasing stream of data will take subjectivity out of the determination of the “How long do you think it will take to close the deal?” question posed by a manager.
EFFECTIVENESS, the “batting average”, is likewise a number that is best evaluated over time. If data does not exist, make an assumption and replace that assumption with real data as it becomes available through real time measurements over time.
PRODUCTION then is the PIPELINE revenue (Note: this assumes that the pipeline is always full at the same level and therefore must be replenished as deals close or are eliminated from the pipeline), multiplied by the EFFECTIVENESS (batting average) times the EFFICIENCY (speed through the pipeline. Note: if the speed is 3 months, then the EFFICIENCY number is 4…four turnovers of the pipeline annually).
I believe all managers wish they had historical data on their producers for levels of potential revenue in the pipeline, average speed through the pipeline, and closing ratio for each of their producers. Well…if this data doesn’t exist, you can’t start right now to begin to develop it.
These numbers do not simply help in predicting revenue; they help identify deficiencies in the skill sets of all producers. For example, longer times in the pipeline could reflect a difficulty applying the tactics to bring a deal to closure by gaining commitment or that they have not confirmed that the deal involves a real prospect who sees the need they have and sees the solution proposed as one to which they could possibly commit. This inaccurate assessment is a seemingly obscure weakness often found, especially in novice sales people. The reality of a prospect is determined not by the sales person, but by the “prospect.” Therefore, confirmation of the reality of a deal in the prospect’s own words is a critical element to adding the potential revenue to the active pipeline.
Each of the 4 measurements – activity, efficiency, effectiveness and production – can and should be related to skills of the producer. Without this linkage, the pipeline loses much of its value and becomes a tool of more value to the manager than to the producer. Therefore, the sales person and the manager are not in sync in their need for professional communication.
Now…how do you apply this information to elevate your leadership ability…or your sales ability if you are reading this and are a producer? Well first, send me an e-mail and tell me how you feel you can use any part of this to elevate your game. If you would like to challenge any of our positions, please let us know. We’d love to hear your experiences.
