The founders of Yahoo! are purported to have said, “You Always Have Other Options”. It might be one of those apocryphal stories – but it’s a good one. And there’s a great and salutary lesson here for sellers. When you’re on the receiving end of procurement pressures, negotiation nightmares, or buyer bad behavior, it’s good to know that you always have other options. Or do you? Well that depends on what your pipeline looks like, how you’re doing so far in the quarter, and what value your product really brings to the customer.
Later in this post I’m going to address the pipeline issue, or rather the “how do I know if I’ve enough in my pipeline?” question. But first I’d like to consider why it’s always good to have other options.
When I wrote the Select Selling Sales Fieldbook back in 2004, I used an acronym called BATNA. BATNA is a term coined by Roger Fisher and William Ury in their 1981 bestseller, Getting to Yes: Negotiating Without Giving In. It is the acronym for Best Alternative To a Negotiated Agreement. It is your other option. Having a BATNA lets you know when to walk away from a negotiation without a deal. If the negotiation has arrived at that point where the deal on the table is less attractive than your alternative (your BATNA), you know that it is time to walk away. Your BATNA tells you when you should make that choice – it’s the yardstick against which you should measure any negotiated agreement.
Your BATNA is really the fulcrum on which the power of negotiation balances. If you are the preferred supplier to a customer, they have chosen you because you meet their needs better than any other vendor. If you walk away, they will lose something. Your BATNA is strong. Your negotiating position is strong. When the buyer has multiple vendors, who can offer similar products that don’t seem terribly differentiated, then the buyer’s BATNA is strong.
Sales executives sometimes feel that they don’t have a strong BATNA. They think their walk-away position is weak and that the buyer holds all of the cards. As quarter-end approaches, the buyer knows that you’re keen to get the deal done. But it probably doesn’t make a difference to him whether the purchase order is signed at the end of December, or in the middle of January. For you, the sales professional, the easiest way to have a strong BATNA is to not need the deal. A full pipeline helps you get to that position. A strong BATNA turns your need into a want. Yes, you would like to close the deal in the current quarter but, if the buyer knows that you don’t need it, your confident attitude will compel him to negotiate more reasonably to meet your interests.
What your sales pipeline should look like
So, let’s talk about your pipeline. You know that maintaining a strong sales pipeline, with enough qualified opportunities at each phase in the pipeline, is the only way to avoid the quarter-end crunch. But how do you know when you’ve enough deals, at the right value, at the right stages in the funnel? Remember, your pipeline is a better predictor of the medium and long-term health of your business than your sales forecast – and they are two very different indicators.
Traditional approaches to setting the desired pipeline value usually went something like this. “We need 5x in the pipe.” If that sounds too familiar to you, and that’s how you’re calculating your target pipeline value – then stop now. It’s completely meaningless, and a complete waste of time. It doesn’t account for your sales cycle. It pays no heed to your closure rates. You need an algorithmic measure for each stage of the pipeline to determine whether you have enough opportunities at each stage. Consider the time to close, the probability of closure, and the target revenue to calculate the value you need.
Consider this graphic.
First things first. The earliest you can close any opportunity that is in your pipeline is today, right? And the further back up you go in the funnel, then the close date will typically be further out into the future. In fact, if you take the fat part of the bell curve – for all your sales opportunities – you should have some predictability about how long it takes a deal to progress through each stage of the funnel. Then, if you’ve a clear history of progression percentages from stage to stage, you can infer both a ‘time-to-close’ and a realistic ‘closure probability’ for each pipeline stage. Now, if you know your average deal size (you do, don’t you), and you know your revenue target, you can figure out what the revenue target should be for a period equal to your average sales cycle, and hey presto! you can calculate what should be in each pipeline stage for you to hit your numbers.
Make sure you always have other options
Negotiation is hard. It’s good to want a deal to close in this quarter, but it not good to need it too. The only way to avoid this is to have enough deals on the go, enough opportunities in your pipeline, and enough deals closed to place yourself in a position of strength. I know this is much easier to say than do, but at least if you understand what you should have in pipeline, you will have an opportunity to understand early if you’re setting yourself up for a hard time.
And just two final points about pipeline management:
- Pipeline stages have no inherent value in terms of deal progression. It’s only the customer related actions tied to each stage that gives meaning to the progression of deals through the pipeline. Clear deliverables (based on evidence of customer actions) must be linked to each stage.
- Deals that are inactive (have not been worked on for more than 60 days) should be cleared out of the sales funnel and sent back to marketing. Otherwise you’re given a false sense of the value of your sales pipeline.
Just when you thought it was getting easy …