Sales pipeline management is a ‘hot’ issue for sales managers trying to optimise their sales teams. A sales pipeline technique is a great sales tool. A sales pipeline helps you understand your sales process, increase your sales and make you confident about your data. Yet, it has been suggested that 63% of organisations are ineffective at managing their sales pipelines.
Different organisations and consultancies advocate for different approaches to pipeline management depending on various factors. Vantage Point Performance (VVP) has put forward a new idea for sales pipeline management. In this post we are going to overview their report on “The Perfect Pipeline” and see what VPP are adding to the debate.
According to (VPP) most sales managers view size as the sole determinant of a pipeline’s overall health. Those reps with a small pipeline are used to hearing the following sentence from their managers: “You need to get more deals in your pipeline.”
However, VPP’s research shows this is not entirely accurate, in fact trying to fill the pipeline with more deals can be detrimental to the salesperson, because it fills their pipeline with ‘junk’ deals as opposed to viable opportunities. These unwanted deals take up a salespersons limited time and thwarts their ability to pursue better opportunities.
The main point made by VPP in this report is that bigger does not necessarily mean better.
After several years of working with sales organisations VPP developed The Perfect Pipeline®, an approach to evaluate a sales pipeline’s health by focusing on the following three dimensions: Size, Shape and Content.
First Dimension: Size
Salespeople often contemplate how big an ideal pipeline should be. Sorry to say, but according to VPP, there is no-one-size-fits-all number for each sales department; in fact pipeline size varies by each individual.
Determining the perfect pipeline size is fairly easy, requiring only three variables: quota size, rate of closure and length of sales cycle. For example, if a salesperson’s quota is £1 million, they close an average of 25% of the deals in their pipeline and the sales cycle is one year the size of the pipeline has to be £4 million. What this means is that in one year salesperson will close 25% or £1 million of their £4 million pipeline.
If the sales cycle is cut in half to 6 months the rep will only need a £2 million pipeline since £2 million x .25= £500k x 2 equals £1million per year. The general formula recommended by VPP is:
If an organisation is trying to reduce the average pipeline size and increase quality (see third dimension) it can either invest in resources to improve close rates such as CRM Software or decrease the length of its sales cycle, potentially by introducing inbound marketing; read our research report ‘The Business Case for Inbound Part 1: A Winning Formula For Sales’.
Second Dimension: Shape
The research conducted by VPP sheds some light into what they think is an ideal shape of a sales funnel. According to their observations, productive pipelines don’t gradually narrow; instead they taper dramatically in the early stages of the sales cycle. During these early stages sellers should qualify deals and get rid of those that are not considered desirable or winnable.
Ideally all these ‘junk’ deals should be out of the pipeline as soon as possible in order to devote all valuable sales resources towards winnable deals. VPP’s ideal pipeline would look like a pipe with a large entrance as opposed to a gradually tapering funnel.
Keeping the ‘junk’ deals in the pipeline will not only tie up resources, but will eventually cause inaccurate forecasting as sellers keep these no-win deals in hopes of closing them at some point.
VPP recommends that when calculating pipeline shape, managers should not track the volume of deals in each stage of the sale cycle; instead they ought to track the percentage of deals moving on from stage to stage.
Third Dimension: Contents
VPP argues that most sales managers are short-sighted and have a hard time looking beyond pipeline size while entirely neglecting pipeline contents. In their experience, some sales forces have a habit of bloating their pipelines with leads that are completely misaligned with the organisation’s target market or ideal buyer persona.
If a business has taken the time to segment customers and products into high and low priorities, then the sales force should execute that strategy and stay away from undesirable deals. Sales teams and management often fall into the trap of pursuing deals just for the sake of pursing deals; tying up valuable resources and corrupting forecasting data.
The report advises managers to look for these components when reviewing sales pipelines:
- 1) The Right Customers (Buyer Personas)
- 2) The Right Products (according to market strategy)
- 3) Desirable Deals
- 4) Winnable Deals
Will it Work?
VPP brings an interesting theory to the pipeline management discussion; and while this strategy might work for certain well established businesses it might be ill-suited for start-ups or certain organisations that have not yet established a definitive market strategy. What do you think about the ideas put forward by VVP about sales pipeline management?