Sales Pipeline: The Changing Shape of the Sales Funnel
Clear your mind and think about your sales pipeline for a minute. Off the top of your head, can you tell me just how healthy your pipeline is?
I bet the first thing that comes into your head is its size. And I bet that, unwittingly, you just did a little smile as you measured it up against your quota – is it three times? Four times the size?
But you see, I didn’t ask you about your pipeline’s size, I asked you about its health. And these are two very different metrics.
Traditionally, we like to measure pipeline health by its size because conventional wisdom tells us that more is always better. The more prospects going into the funnel, the higher our chances of subsequently closing a higher volume of deals. But what if I told you that we’ve been following a process that’s completely counterproductive? And that what we once thought was a big, strong pipeline, is actually a sluggish, fat pipeline lacking in muscle…
Let’s go back to visualising. Can you picture your sales funnel? Does it look like this?
This is a typical pipeline shape. An inverted pyramid that starts off wide at the top, capturing as many leads as possible, and continues on to lightly taper in the middle to then become narrower at the end – signalling deals that are in the prospect’s final decision-making stage.
Well, it turns out that this shape is a misleading representation of a healthy pipeline.
The shape we should actually be striving for is in fact, similar to a Martini glass.
As you can see in the picture, this shape keeps its traditional wide mouth, sucking in all those lovely leads your marketing and business development teams have been working on. But this new shape very quickly tapers around the middle, allowing only the healthiest of deals to squeeze through to the later stages. Meaning that from a very early stage you’re getting rid of anything that isn’t looking highly likely to close.
Before this ruthless loss of prospects gives you the cold sweats, let me explain the main value behind this bold new process. We’ll borrow this quote from Vantage Point Performance:
“Sellers with smaller pipelines have been proven to be more successful than those working with a bigger pipe.”
And when you start to break it down, the logic behind this premise is undeniable.
By identifying the most profitable and favourable prospects early on, a rep is able to jettison junk deals, wisely focusing their time and resources on opportunities that look healthy rather than wasting their efforts on dubious deals that are in fact doomed.
Rethinking the Pipeline
Let us leave this over-simplistic view of our pipeline to one side and start building a robust picture of what this important sales asset should actually look like.
Here are three characteristics that determine the actual health of our pipe:
Size: As we talked about earlier, sales reps with streamlined pipelines are more effective than their overstretched peers when it comes to closing deals.
Every business would benefit from taking on a much more stringent approach to qualifying leads to allow for more focussed selling. As much as we love having our sales force work their magic on a hefty list of contacts, we shouldn’t allow them to drag poorly qualified deals through their pipeline indefinitely. Define a purge timeline so that if an opportunity shows no progress for say 30 days, you automatically remove it from your pipeline. These deals shouldn’t be considered as dead yet either. Solid practice would be to consign them back into a business development queue for a revisit in around 3 months’ time.
Remember that when it comes to forecast accuracy, a thin pipeline is best!
Shape: Which brings us back to the new shape of our pipeline. This early clear out of junk will quickly create our desired cocktail glass, only allowing the healthiest deals to make it onto our forecast.
This new framework allows for better forecast accuracy as once that lead makes it past the first milestone, it should be almost certain that the opportunity will turn into a new customer. Tolerate poor conversion rates during initial qualification but demand high conversion rates after that.
Content: What is actually in your pipeline? Take a moment to break down its content into a unit vs revenue metric to highlight its true health. So, for example, a pipeline that is big in revenue but small in units is highly risky.
Your rep’s target is set at £150K. A quick look into his pipe shows you that he’s got 3 deals with values split between £140K, £9K and £1K. This scenario should set your internal alarm bell ringing.
What happens when that £140K goes quiet? What other deals does he have to fall back on?
On the other hand, another sales rep dealing with ten £15K deals will be feeling a huge amount of strain for very little payoff. Chasing and securing a high number of prospects making small purchases is spreading your reps unnecessarily thinly.
What you really want your reps to have in their pipeline is a manageable number of prospects with a substantial sum of revenue behind them. So, for our £150K target, we’d love to see 5/7 opportunities of around a £30K deal size. And this represents a clear coaching opportunity.
Getting clarity into not just the quantity but also the quality of each of your reps’ pipelines will enable you to work out their bandwidth, offering them necessary coaching and back-up wherever possible, increasing your forecast accuracy and their sales performance.
In summary, forecast accuracy may not be the sexiest part of sales but undeniably, only a strong pipeline can provide the platform to achieve our forecasted number and accordingly help our business accurately plan for growth.