One of the most challenging aspects of managing a sales team is sales pipeline management. While the nearly universal adoption of sophisticated sales force automation tools has made it technically simple for managers to create detailed sales pipeline reports, the quality of these reports hasn’t necessarily improved.
Why is that? The primary culprit is sales pipeline “bloat.”
Over time, sales pipelines become bloated with opportunities many of which are no longer viable. Typically, this occurs because of human nature. Sales people are eternal optimists – irrespective of how long a deal has been lingering in their sales pipeline, they believe that a “yes” is just around the corner. Your average salesperson also believes that a bigger pipeline (even if it is full of dormant opportunities) will be viewed more positively by his or her managers than a smaller one. Compounding this problem is the tendency of sales people to avoid labeling stalled opportunities as “inactive” because they perceive that it will be a poor reflection on their selling skills.
Given these challenges, here are a few techniques for managers to help their sales teams better manage opportunities and eliminate “bloat” from the sales pipeline.
1. Develop Objective Criteria
A critical first step in avoiding a bloated pipeline, is developing objective criteria for each stage. The idea here is that before an opportunity can advance from one stage to the next stage it must meet certain criteria. As an example, before an opportunity can leave the “needs discovery” stage, the following criteria must be satisfied:
- Salesperson has identified a business need of the customer.
- Customer has acknowledged the need.
- Salesperson helped customer quantify economic consequences of solving problem/not solving problem.
- Customer has confirmed economic consequences.
We have worked with many sales teams where the criteria were fuzzy, or worse non-existent. In those cases, sales people and their managers moved opportunities through the pipeline based on subjective judgments. Not surprisingly, without objective criteria in place to check the salesperson's natural enthusiasm, these teams had bloated sales pipelines with a significant number of opportunities languishing at the bottom of the funnel.
By including objective criteria for each stage, the sales manager can ensure that the opportunity has actually met the criteria and provide more consistency in how various sales people categorize their respective opportunities.
2. Assign Reasonable Probabilities
Each stage in the pipeline should include a probability factor based on an analysis of prior wins and losses. Going back to our example above, using historical data you may reasonably assign a 25% probability of closing for opportunities in the “needs discovery” stage.
We often find that management sets probabilities too high and this creates unrealistic forecasts. In particular, early stages (e.g., “Initial Meeting”) often get assigned unrealistic probability factors. Err on the side of being conservative with probability factors and you will have a lot less explaining to do when they beat forecast than when they come up short.
3. Track Velocity
The velocity of a sales pipeline is the speed at which the opportunity is advancing through the sales pipeline. The key considerations here are the overall amount of time that an opportunity has been in the sales pipeline, and, even more important, how long has it been in the most recent sales stage. One of the most effective way to avoid a bloated pipeline is to set time limits as to how many days an opportunity can linger in a particular stage before it is moved to an “inactive” pipeline. This way, the inactive opportunity does not inflate the dollar amount associated with active opportunities.
As an example, in a business where the sales cycle averages six months it might make sense to assign opportunities that have been stuck in a particular stage for 60 days to the “inactive” stage. Inactive opportunities can then be reviewed separately and not factored into the sales forecast until such time as they meet the criteria to advance to the next stage.
By assigning objective criteria and reasonable probabilities to each pipeline stage and eliminating inactive opportunities, managers will rationalize the sales pipeline so that it is consistent across their sales team and results in better, more accurate sales forecasts.