In the 1970’s and 1980’s, there was a television public service announcement campaign that asked: “Parents, it is 10:00 p.m. Do you know where your children are?”
All sales execs are asking themselves the same question about their sales pipelines. Unfortunately, the issue is that you know where your sales pipeline is, and it isn’t where it needs to be. The dynamics of the sales funnel and sales conversion ratios have been changing over the last ten years. The trends and prognosis aren’t positive. Most sales surveys are showing:
- less sales reps making quota
- sales cycles getting longer
- less qualified leads
- lower sales conversion ratios
I was a VP of Sales for a publicly traded software company and we could forecast within 2-3% accuracy how many deals we would close that quarter based on our historical conversion ratios. Now there was a discipline required in how we ranked the sales opportunities within Salesforce.com and good sales management reconciliation of the sales reps forecasts against reality. But having said that, we were able to provide highly accurate visibility in to the forecast and our actual revenues. We would know 45 days in to our quarter that we would close almost exactly 30% of the total deals that were forecasted at certain levels for that quarter. The problem was that you couldn’t make up pipeline shortfalls in the quarter at that point, given the length of the average sales cycle.
I’ve always subscribed to the notion that you have to understand the underlying math variables (i.e., sales pipeline conversion ratios, average deal size, average sales cycle length) to properly run your business and have accurate visibility in to your future sales results. How do you know how much you need to invest in lead generation programs? How much in expenses or costs will you have to cut if you determine that you have a sales/revenue shortfall? Is there a sales/revenue opportunity that isn’t being optimized? All of those questions fundamentally rely on knowing your sales pipeline conversion ratios well.
So, I close with a question: “Sales Execs, It’s the 4th Quarter. Do you know where your sales pipeline is?”