Sales Pipeline Management For Tech Geeks

October 11, 2011

11:00 am

When selling, I either want to be first or last.  Being second place takes the same amount of effort as winning, but it has the same rewards as the last place loser.  The effort spent coming in second could be better utilized winning the next deal.

Having a strong sales process may be more important than having a strong product.  You can make money by selling mediocre crap, while good stuff that doesn’t sell results in bankruptcy.

Selling isn’t an art, it’s a process, like manufacturing.  The good news about it being a process is that, like all processes, it can be improved. In selling you take raw materials – leads – and craft them into something of value – a profitable revenue producing sale.  Just as you wouldn’t build a widget factory without defining the manufacturing process, you shouldn’t start a sales factory without defining the process.

Define The Process
The first step is to define the 4 to 5 key steps or hurdles in your sales process from lead to order.  Processes vary, but for this example we will use the following steps:

  1. Lead Qualification – The process of researching the suspect to upgrade them to a prospect. Activities could include direct contact to determine there is a need, budget and a reasonable decision time-frame.
  2. Needs Analysis –  Understanding the clients’ need, pains, decision criteria and decision process.
  3. Demonstration – Providing a proof of capability based on the understanding of the clients’ needs.
  4. Proposal – Recap the elements of the solution that meets client needs, explains the costs and benefits of the solution and illustrates an economic incentive to act.
  5. Order – Customer signs the paperwork.

Set Goals
For each step in the process define your goals.  Start from your revenue goal and work backward.

  1. Annual Revenue Goal (ARG) – What is your annual revenue goal?
  2. Average Selling Price (ASP) – What is your average selling price?
  3. Annual Order Requirement (AOR) – How many orders do you need per year to meet the ARG?
  4. Orders Per Month – Divide AOR by 12.
  5. Orders Per Sales Rep Per Month – Divide AOR by sales reps.
  6. Prospect Drops – For each step in the process, determine how many leads will drop out as you move from step to step. Use historical data if possible or rational estimated targets if necessary.
  7. Days In The Cycle – Through historical data or estimates, determine how many days it takes to move a prospect through each stage of the process.
  8. Create Target Plan – Based on prior calculations, how many leads are required in each step of the process to make your annual goals?

In the example company below there is an ARG of $5 million worth of revenue, with an average selling price of $210K, which translates into a need for 2 total sales per month spread across 4 sales people who each need to sell a deal every other month. 

Qualify, Qualify, Qualify

Working backwards through the metrics means that each rep requires an active pipeline of 25 leads. How do you ensure that each rep has a full pipeline of leads?  Sales management needs to monitor sales rep pipelines to make sure they have the proper number of prospects in each stage of the pipeline.

Monitoring the pipeline is a critical sales management activity.  Sales people have a natural tendency to hold on to accounts too long and keep their contacts and activities close to the vest.  To counter that behavior, I suggest you set minimum pipeline goals for each rep and maximum time limits that any account can remain in any stage of the pipeline.

In our example pipeline above, all stages are 4 weeks long.  I suggest that any prospect be removed that spent more than 6 weeks in any stage. My suggested methods to managing and validating the voracity of a pipeline are:

  1. Regularly scheduled sales team pipeline calls – weekly or bi-weekly in groups of no more than 5, with a sales manager.
  2. Publicly review the pipeline of deals that are going to close in some defined short time frame (60 – 90 days).
  3. Question and challenge the validity of deals in the right stage of the pipeline: fully qualified, budget, time frame, past steps, and next step with date commitments.
  4. Qualify deals off the pipeline.
  5. Drive sales reps to keep the sales process buckets full of the proper number of prospects.
  6. Make on-site, random audits.  Get in the field with the reps and check the pipeline against reality.

Track Metrics And Determine Best Practices

By tracking metrics you can improve the process. When selling, I either want to be first or last.  Being second place takes the same amount of effort as winning but it has same rewards as last place.  The effort spent coming in second would be better utilized winning the next deal.

Track each rep’s metrics.  For each rep, determine:

  • The average time for each prospect in each step of the process
  • The average close rate
  • Which reps closes the highest number of deals in the least amount of time
  • Improve the process. What is the difference in the metrics between your best reps and your average reps?
  • What are best sales practices? What are your best reps doing to qualify better or move accounts faster?
  • For continual improvement, roll-out best practices throughout the organization

Managing the process in this way provides metrics to gauge and improve performance, evaluate the relative performance of each sales representative and a tool to improve the sales operation.  Are you managing your pipeline and if not why?  Don’t you think it’s time to start?

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Glen Hellman (@glehel), is an angel investor, serial entrepreneur, and works for venture capitalists as a turn-around specialist. He is the Chief Entrepreneureator at Driven Forward LLC, frequently muses on his blog, Forward Thinking, and works with entrepreneurs to help them figure out what to do and get them to do it.

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