Recently, a reader wrote, asking a lot of questions about pipelines–what are they, why are they important, how do we leverage them, and so forth. At first, I was surprised by the question, I think of this as basic and fundamental to selling. As I reflected, I realized this is a bad assumption. For example, I know of very few sales training programs that teach pipeline concepts (we’ve been doing this for the past 30 years). Second, when I look at most sales pipelines, they are a disaster. Pipelines are there, but opportunities are in the wrong stages, close dates are, too often, past events–on live deals, there is bad quality, and people don’t know how to use them.
It’s not only a challenge to sellers, but most sales managers, while they put up a false front, really don’t know how to look at pipelines.
As a result, I thought it worthwhile to do a tutorial on pipelines. I’m focused on writing this from a seller point of view. Managers use pipelines a little differently, I’ll briefly cover this at the end of the article.
So strap in…..
What is the pipeline?
The pipeline is the collection of all qualified opportunities we are working on. Sometimes people call this the qualified pipeline, but the terms are really synonymous. Prospecting opportunities are not part of the pipeline. Sometimes, I call this the “above the pipeline, or unqualified space.” We have to track our prospecting opportunities, but we need to keep them separate from the pipeline metrics. The fundamental reason for this is that until the opportunity is qualified and moved into the pipeline, we have no idea whether it is real. Including prospecting opportunities in pipeline metrics is meaningless. Again, we have prospecting metrics through which we are tracking activity.
Why is the pipeline important?
The pipeline enables us, in a data-based manner, to answer the question, “Are we pursuing enough opportunities to achieve our goals?” We know we will win and lose some, so understanding our pipeline and metrics help us answer this question.
But there are some important nuances in this question and how we answer it. It’s not simply pursuing enough opportunities to hit our number. But there are a number of dimensions about a healthy pipeline:
- There’s a time dimension, so we have to look at the time dimensions that are important to us. It may be a monthly dimension, are we pursuing enough opportunities to hit our number this month? Or a quarterly or an annual dimension. And we may have to balance our activities and pipeline assessments, across multiple timeframes.
- Customer balance. We may have goals for new or current customers. We may be held accountable for supporting both, with goals for a certain number of new customers. Even though, overall, we may have a healthy pipeline, if all of it is coming from existing customers, and we are accountable for, also, acquiring new customers we have to make sure a sufficient number of opportunities representing new customers is in our pipeline.
- Product line balance. Like customer balance, we may be accountable for multiple product lines. We have to make sure there is a balance of opportunities across those product lines. Making our number, having a healthy pipeline, just by selling our favorite products is a selling error. We are responsible for balanced performance across the product lines, so we have to make sure our pipelines are balanced across product lines.
- New/Renewal balance. Like the previous categories, we may be accountable, even within existing customers, for a certain proportion of new business versus renewal/retained business.
Who is the pipeline most helpful to?
This is slightly redundant to the previous section. Too many sales people don’t understand the importance of the pipeline to them and their personal performance. They think it’s just something managers care about and inflict on them.
In some sense, they aren’t incorrect. Too many managers obsess over the pipeline, without really understanding it, how to use it as a diagnostic tool, or how to coach to it. And, too often, management obsession is only because their managers ask for it.
But fundamentally, the pipeline is a critical tool for the seller, the individual contributor. Our job is to achieve our goals, to hit the numbers. We need to have a tool that enables us to answer this question. We need a tool that helps us diagnose challenges to achieving our goals. We need to have a tool that enables us to assess alternate strategies to achieving our goals.
We see so many errors with sellers and managers in understanding the power of the pipeline. I don’t know how many times, I’ve seen the single fix to anemic pipelines is, “Prospect More!” This is usually followed by the mandate, “You need 3X coverage!” If you have a 20% win rate, 3X coverage will never get you to your goals! If you have a 20% win rate, prospect more may not be the most impactful strategy. Increasing your win rater, increasing your average deal size, decreasing sales cycles may be more important and more achievable.
So if you don’t get it yet, forget about your managers! Worry about yourself and your performance. Without a healthy pipeline, you have no ability to assess how you will do or what you might change.
Why “Healthy,” pipelines?
I snuck the concept of healthy pipelines on you. But this is one of the most important concepts in pipeline management. The majority of pipelines I look at (and I look at thousands) are very unhealthy. They are filled with opportunities that are not real (not qualified), wishful thinking, opportunities that are outside our ICP, and so forth. If the pipeline is filled with junk, then all the metrics are meaningless. There are several components to looking at pipeline health:
- Pipeline quality: This is, possibly, one of the most important and overlooked areas of the pipeline. We want to maximize the quality of the opportunities in the pipeline. How do we do this?
- Are they real opportunities? Are they well qualified? I talk a lot about disqualifying opportunities. We only want to bring high quality opportunities into our pipeline.
- Are they from our ICP? It’s easy to build a pipeline that has the right volume. We just cast wider nets, looking at any customer that fogs a mirror, even though they may be well outside our ICP. These are a waste of time–there’s a reason to focus on our ICP, they are our ideal customers. They are customers where we know we can provide solutions of high value.
- While I’ll cover another aspect of this later, but sometimes “healthy” opportunities become terminally ill! For example, stalled opportunities. Once I was working with a client. They had an average sales cycle of 187 days. A sales person was insisting one of his opportunities was alive and kicking, “Count on me, I’ll bring it in this quarter!” It entered the qualified pipeline 1500 days earlier–over 8 times the normal sales cycle! Even worse, his last discussion with the customer was over 130 days before this meeting. I asked him to leave our review, call the customer, asking them 3 specific questions. About an hour later he came in, head down, “My sponsor left the customer 3 months ago, I don’t have any good contacts, but I do feel confident about this opportunity…” Yes, he actually said that!
- Sometimes, we see the same thing on sales stages. Something that’s stuck in a discovery stage, not moving into proposing or closing. We want to look at a healthy distribution of opportunities across stages and flow between them.
- As a sales person, it’s your responsibility to make sure your pipeline is filled with healthy opportunities. Wishful thinking isn’t useful. Opportunities that were healthy, but no longer are, need to be removed, maybe disqualified or moved back into prospecting for further nurturing.
- A second aspect to healthy pipelines is that we have sufficient volume. Are we pursuing enough opportunities to achieve our goals? We determine our ideal volume by understanding three things: Our goal/quota for the period we are assessing. The average deal size, and our win rate. For example, if we have a goal of $1M, a win rate of 25% and an average deal size of $100K, to make our numbers, we need $4M/40 opportunities in the pipeline.
- Note, it’s important to look at both the $ volume of opportunities and the number of opportunities. These give you important insights into things you might do to build your pipeline. For example, doubling the win rate in the previous example, means our healthy pipeline now needs to be $2M/20 opportunities. Or increasing the average deal size, or both.
- Here’s where you see so many management errors in looking at healthy pipelines. The common “coverage” mentality is that people must have 3X coverage. That presumes the win rate is 33%. But if your win rate is 25%, and you only have 3X coverage, you will never hit your goals.
- Velocity, are deals moving at the right rate through the pipeline? It doesn’t help to have a high quality pipeline with sufficient volume if the opportunities are stalled. We have to make sure opportunities are moving at the right velocity.
- Here’s where I disagree with many sales experts. Some come up with complex formulas to arrive at a velocity number. As you look at their calculations, they always have something to do with average sales cycle, but then they multiple/divide a lot of things to come up with some number. I prefer to look at the average sales cycle, and the variance of the opportunities within the pipeline. For example, the example I gave in 1.3 showed an opportunity way outside the norm. The larger proportion of opportunities outside the norm, the lower the quality is.
- There are three numbers we look at in the velocity element: First, the average sales cycle–that’s basis of comparison. Second, sales cycle to date (from qualifying). Finally, projected sales cycle (total projected cycle from qualifying to closing).
These are the fundamentals in assessing a healthy pipeline. And these provide some insights to fixing unhealthy pipelines. Too many don’t understand these leverage points. Too many have only one answer to unhealthy pipelines, “Prospect more!!!” There may be more effective ways to build a healthy pipeline, plus the “prospect more,” strategy often results in lowering quality, just to fill the pipeline–which changes the pipeline dynamics. Things like increasing win rates, deal size, or reducing sales cycle enable us to build healthy pipelines.
I’ve covered the basics of pipelines, I’ll lightly touch on a few additional topics that are critical and provide refinements to building and managing your pipeline. I won’t go deeply, perhaps taunting you on future posts:
- “Stage based pipelines.” I touched on this in 1.4, but we can refine our metrics on pipelines by looking at volume and velocity by stage.
- What about prospecting? The pipeline focuses us on, “Are we doing enough to meet our goals?” But we want to also know, “Are we prospecting enough to find and qualify sufficient numbers of opportunities to maintain a healthy pipeline. Generally a volume number ($s and #s) is what we want to understand. For example, we may have to prospect 10 opportunities to find an qualify an opportunity for our pipeline. So we have to look at a number of prospecting opportunities that is at least 10 times the ideal volume for our pipeline.
- What about probabilities? Probabilities are associated with deals, not stages. Most probability based pipelines are absolutely worthless. They usually measure progress through our pipeline (discovering has a higher probability than qualifying, closing has a higher probability than discovering….). Now here’s the flaw in this thinking. Let’s say your company and your three competitors are using standard SFDC. If you are in the closing stage, each you and your competitors would be forecasting exactly the same probability to win (about 80%). You don’t have to have studied statistics to know it’s impossible for 4 competitors to each be projecting 80%. Generally, I think anything around probabilities is a waste, but if you are using them, based them on customer confirmation/validation.
- The pipeline is not synonymous with a forecast. Some people take the closing stage of their pipelines as their forecast. While there might be overlap, forecasting is a deal by deal commitment discussion. So we look at individual deals in out pipeline, committing each to close by a certain date at a certain value.
- How obsessive should we be in reviewing our pipeline health? It depends. Some people look at it on a daily basis, some weekly, some monthly—some don’t pay attention. The frequency of reviewing and reflecting is largely a function of your sales cycle. If you have a very short sales cycle (say days), you may want to look at your pipeline every day or every couple of days. If you have a 12 month sales cycle, daily reviews are crazy. Not much will have changed. Usually a monthly review, maybe an every 2 week review is better. But there is NO excuse for not understanding your pipeline, it’s dynamics and reviewing and reflecting on it appropriately.
I’ll stop here, a couple of final points:
- Each sales person is responsible for managing their own pipelines, making sure they understand them and can always answer the question of whether they are pursuing enough to achieve their goals. Understanding healthy pipeline metrics and your current pipeline are important in analyzing your own performance and how to make the numbers most effectively.
- Managers must understand and coach each individual’s pipeline. In addition, they must look at the aggregate pipeline for their team, assessing overall health, patterns (both good and bad) across their team, helping improve overall team performance.
There’s so much more, but start with this and master the basics.