If you were to ask most sales leaders the simple question “how do you gauge the health of your sales pipeline?” then I would bet that pretty much all of them would turn to the same method of measurement. That of pipeline coverage against quota.
Most sales leaders would argue that a multiple of the size of their quota will see the question of pipeline health well and truly covered. The only debate left to be had is what that multiple should be … three times quota? four times quota?
It’s probably the most classic sales measure of them all. And it is founded on an assumption that has governed most sales leaders since the beginning of the profession; that bigger is better…
However, recent research into pipeline performance has revealed that sales folks with smaller sales pipelines are actually far more likely to be successful than their peers running with a larger pipeline of deals.
Let’s take a moment to analyse why this would be, by looking at the five modern measures of a healthy pipeline.
1. Pipeline Size:
Let us dwell on size for a moment – it stands to reason that sales reps running smaller sales pipelines are actually more productive than their peers running a larger pipeline of deals. They should be, as after all they are working on a smaller set of deals!
These successful reps are experts at eliminating bad deals early in the sales cycle. By eliminating deals that they know they can’t win, they are free to pursue fewer, more desirable deals with far greater attention and focus.
They simply jettison the junk early from their pipelines and use their time more wisely. This first concept is the hardest one for most traditional sales managers to embrace … but embrace it they must. A bigger pipeline is not always a better pipeline.
2. Pipeline Shape:
Most sales leaders have been conditioned to talk and think about their pipeline as a “funnel”. They will view the funnel to have a wide mouth – where marketing and business development lurk – that narrows in a regular fashion to be thin at the bottom – where the sales closer lurks!
cIn terms of measuring pipeline health, the use of this shape is totally misleading. A healthy sales pipeline should look more like a cocktail glass. One that is wide at the top, but that very quickly narrows into a long thin stem that only slightly recedes in width as it makes its way to the bottom.
The most significant drop-off in a healthy pipeline should be at the top where every lead or early stage deal is qualified hard. Once deals pass through the initial qualification barriers the pipeline shouldn’t narrow much further.
Conversely, pipelines that drag a high percentage of deals late into the sales cycle only to see them drop out towards the end are in reality junk pipelines. They are simply consuming precious resources on deals that are not and probably have never been realistic.
Fat bottomed girls may well make the proverbial rockin’ world go round… but for sales pipelines a wide brim and a thin stem is in.
3. Dragging Deals:
The immediate follow on from pipeline shape is the drag test. The test that most sales reps hate. A prospect has expressed an interest, they have engaged in an initial dance. But then they go quiet. And despite the rep’s best and most imaginative efforts, they have stopped responding to any attempt at communication.
These are the deals that destroy the pipeline shape and consume pointless energy. These deals should be eliminated from the pipeline after a set period. Clearly that period is unique to each business, but 30-days would not be an unrealistic park duration.
Removing these deals frees the sales rep from the burden of the chase and keeps them focused on realistic deals.
If the thought of picking prospects out of your forecast makes your head hurt, remember you can always revisit these contacts when the time is ripe. After all, successful selling owes a lot to timing…
4. Target Profile:
What do we mean by target profile? Simple, most companies will have a stated go-to-market strategy that outlines the target buyer profile. This target buyer profile lists the attributes that constitute a “good” target prospect.
The dimensions that go into a target profile typically include attributes such as ‘job title’, ‘geography’, ‘industry’, ‘company size’. They may also include patterns like purchase history.
The go-to-market strategy is a simple attempt to map the products available to sell to the profile of person most likely to buy them. The picture painted above is a simplistic one, but you can imagine the models and number crunching that goes into building these target profiles is anything but simple.
Enter the sales rep. Happy to talk to anyone. Pleased to structure a deal for anyone that is prepared to listen. However, if you want a healthy pipeline, you should evaluate every deal to ensure it falls into the target profile defined by the go-to-market strategy.
If it doesn’t, it needs to be re-qualified because the maths of historical buying patterns is screaming that it is highly unlikely to close!
It is never a bad thing to forge new paths, but it is usually the hardest route to take.
5. Risk Coverage:
This one is a really simple risk metric that allows you to determine how many deals a rep could (more likely, should) be working at any one time.
Say I have two sales reps, each with a £1M target. Their respective pipelines may look very similar from a revenue standpoint but they differ hugely in volume.
Rep number one has 1 deal in their late stage pipeline for £1M
Rep number two has 5 deals in their late stage pipeline at £200K each
I would take the 5-deal pipeline every day of the week. Why?
A pipeline containing a large amount of revenue but a low volume of deals is clearly risky. What happens if the £1M deal falls through? My rep has nothing to fall back on to make up the lost revenue, and my team’s chances of hitting the overall number is greatly diminished.
In addition, I would question rep number one’s bandwidth and capability to do more! A deal worth 5 times more in revenue probably doesn’t require 5 times the amount of effort than the £200K deals rep number two is running with.
Being mindful of pipeline volume not only helps evaluate points of risk, but also to formulate a benchmark number of deals that any one rep has the bandwidth to work at any given time.
Finding a winning formula to create and manage a healthy pipeline is one of the most important tasks facing both sales reps and managers alike. Measure the health of your pipeline using these 5 tips and you will set yourself up for a successful quarter every single time:
- Pipeline Size
- Pipeline Shape
- Dragging Deals
- Target Profile
- Risk Coverage
Why not go ahead and get your copy of the KPIs modern sales leaders use to track success across the entire sales process?
Keen to learn more? Learn how Ebury uncovered the sales KPIs that defined their repeatable success.