"The Great Debate" - Part 2 - There is More Than a Single "X" to Manage

(Updated 2011-06-27)

Recently there was an interesting discussion on the question of “3X as a targeted sales funnel size?” in Mark Seller’s LinkedIn Discussion Group “Funnel IQ”.  Several Discussion Group members offered opinions ranging from 2-3X all the way up to 7 and 10X.  After some modelling using optimistic assumptions I found that this value is surprisingly more likely in the range of 17X! [ See The Great Debate – How Big Should Your Sales Funnel Be?].  Through this entire Discussion it became apparent that: 

1. Those sales managers who use 3X as a Funnel health metric are generally referring to the bottom Stages of a Customer Buy-Cycle Sales Funnel.  
2.  In some situations sales managers may be overlooking the need for their attention on adequate metrics for the upper Stages of their Funnel. 
3. There is no single “X” value that can be applied broadly to all organizations; each organization, sales unit, salesperson has their own unique value for “X”!
4. Finally, it is an oversimplification to think in terms of a single metric (“X”) as a measure of Pipeline health, there are other indicators which also need to be monitored as they could impact “X”.

So, great feedback on this topic!  It truly is “The Great Debate”!  The following discussion looks at “X” in the context of the entire sales process, highlights discussion to date on general ways to improve “X” and elapsed time (velocity) through the process, and concludes that there is no universal “X” value that should be applied broadly across every sales organization!  Each organization, sales unit, salesperson has their own unique value for “X” as well as other Key Indicators which must be monitored to ensure increased sales performance.  Several suggested Next Steps are offered to identify, track and monitor these.!

Defining “X”

There is still quite a variance in the definition of “X”, so let’s examine what “X” could be for an organization, sales unit, even salesperson.  Looking at this discussion from a process perspective may be illustrative.  There is an overall sales business process made up of several components that have inputs and outputs, each requires times to complete, participation of people (and other resources), and polices, guidelines to govern the conduct of the overall process. 

The Sales Funnel is a major component of this process.  The Funnel can consist of several Stages beginning with recognition of a client business problem and ending with a won opportunity.   Each Stage has inputs and outputs, and the final major output is likely a won opportunity (e.g., signed contract).  This process runs continuously throwing off the desired amount of won business to meet weekly, monthly, quarterly business plans.  Salespersons and managers monitor the Funnel constantly to ensure that there is sufficient “raw material” moving thru to deliver a constant stream of won opportunities.

In the initial analysis “X” was defined as the total number or value of opportunities (i.e., raw material) in the Funnel (truly a pipeline!) required to drive out a desired won value (e.g., $1mil) on a regular interval (e.g., monthly).  [X = Total Funnel Value ÷ Target for Period].  In other words, is the Funnel sufficiently charged to deliver the finished product regularly?  In reading the Discussion Comments and after watching Joe Galvin’s excellent and informative video presentation (“Pipeline and Forecasting Analytics” - Joe Galvin - Dreamforce 2010) it seems that others are defining “X” from a starting point part way thru the process – at a “qualification gate” perhaps.  At this point the salesperson has verified that the client has the intent to buy, the means to buy, and the urgency to buy, and the salesperson is well positioned to win the opportunity.  As was pointed out by one of the other Discussion Members, in a perfect world every opportunity is won and hence “X” becomes 1!  However life is not so simple, so a general rule of 3X has been used.  This is an informative measure for a part of the process but does not measure the overall process.  As an example, Joe’s Stages and Conversion Rates (defined in his slide 28) were input in the simple model developed for the initial discussion – see results below.

The result shows that 15 opportunities (of $1mil each) are required in various Stages of the Funnel continuously to drive out $1 mil in won value on a regular basis.  In this circumstance under these assumptions “X” is 15.  What each company, sales unit and salesperson is selling, their selling capacity, and where they engage their client’s Buying Process will likely determine a different value for “X” as observed in this Discussion to date.  More on this point later in this discussion.

But wait!  In the above example “X” may even be greater!  Without understanding the inputs and outputs of the Qualification Stage used in Joe’s example, but in observing the high conversion rate (70%) it is suspected that there may be selling activity going on to present pre-qualified opportunities to this Stage.  If this is the case then the true value of “X” could be 31!

Managing “X”

Wow!  This number whether 15 or 31 is very large and at the high end as others pointed out unlikely to be sustainable by most salespersons.  The value in understanding the full workload in the overall process lies in the actions that management takes to mitigate this unmanageable workload and to create an environment where the salesperson and management can be wildly successful.  Several suggestions came out of the discussion including:

·         Being realistic about your salesperson’s capacity – Joe used as an example a number of 15 opportunities being worked concurrently by a senior salesperson, so clearly 31 is a non-starter.  Joe’s message was “Less is better!” - salesperson can be more successful with a “manageable” number of opportunities in Funnel, and sales managers have time to coach salespersons to set priority on what to do next.  All contributing to greater sales success (more wins!).  Key to this strategy is picking the right few opportunities to pursue.

·         Implementing better ways to qualify opportunities faster to reduce salesperson workload (e.g., wasted time spent chasing opportunities that will never happen) and to improve conversion rates.  Joe’s message was focus on opportunities where salesperson has an advantage; driven by a validated Qualification Criteria developed for company’s products/services and unique selling proposition.

·         Implementing improved methods to drive high quality leads to salespersons can reduce or all but eliminate “pre-qualify” workload.  Recent literature reports greater success from improved and close collaboration between Marketing and Sales in areas such as: content of messages, programs, and supporting technologies (e.g., one opportunity, common Funnel).

·         Increasing opportunity velocity (or Peter French’s tag “Decision Velocity”) to increase Funnel throughput.  Keep in mind that opportunity velocity through the Funnel is a function of both salesperson time and perhaps more importantly Client Buyer Decision Time.  Unfortunately some sales teams may think going faster means skipping over an important aspect of Client’s decision making and buy-in.  Salesperson cannot go “faster” than the Client Buyers, but there may be things that salesperson can do to increase the Client’s velocity.  Velocity will likely have to be monitored on an opportunity by opportunity basis.  Mark Sellers just started a Discussion on this point (“What's the best way to accelerate an opportunity through the buying process?”).  Please refer to this for more insights, or see my Blog for a more detailed discussion on increasing Pipeline Velocity.

An Over Simplification to Think of a Single, Universal “X” 

This Discussion concluded that there is no universal metric (bottom or top) that can be applied across all sales organizations – as Peter said “No Silver Bullet!”    Not surprising really as each sales organization has its own unique “DNA” driven by several factors including those that contributors to this Discussion mentioned:

·         The capacity of the sales force

·         The organization’s positioning to compete in the marketplace (e.g., high end, high quality service vs. low cost provider)

·         The nature of the organizations products and/or services

·         Where (i.e. which Stage) sales force engages client in client buying process

·         Approach to Lead Generation

·         Nature of sales territories within sales unit, division, etc

So there may be a unique “X” for a single organization, sales unit and salesperson.  However, there is another caution here.  Using “X” as a guide for pipeline health assumes that all other factors remain constant.  We know this is not always the case.  For example, if deal velocity slows then the amount of Won business also drops.  “X” can no longer deliver the expected business in the expected timeframe.  Changes in other factors (e.g., close rates) can also have similar impact.  So it is important to watch these factors over time as well.  Therefore, it may be an over simplification to think of “X” as the single constant metric to watch.   

What Key Indicators Drive Your Success?

This Discussion leads toward the conclusion that each organization, sales unit, etc. has a set of Key Indicators including “X” that drive their success.  So then, what is an organization, a sales manager, and a sales person to do?  Key seems to be for each to understand those few critical Key Indicators.  Some of these Indicators include (there may be others):

·         Nature of the opportunity (product or service, net new or renewal)

·         Typical opportunity size

·         Number of opportunities in each stage

·         “Pull Thru”/Conversion rates (from Stage to Stage)

·         Velocity of opportunities through the Pipeline

o   Age of opportunity in each stage

o   Overall age of opportunity

·         Win/Loss/Cancel rates

·         Effort to move opportunities thru system

Suggested Next Steps for Identifying and Using Your Key Indicators

To better understand these Key Indicators for an individual sales organization, to track them, and take action the following Next Steps are suggested:

·         Analyze available Funnel data. 

·         Define Key Indicators at organization/sales unit/sales person levels (keep number small, in range of 3 to 5).

o   Implement analytics supported by tools to better understand what is going on within the Funnel, over time, by each salesperson/sales unit within sales organization. 

o   Identify any “Gaps” (i.e., here today – need to be there!). 

o   Set up a coaching program to address Gaps. 

·         Track Key Indicators (and other metrics) across the entire sales process not just a portion (i.e., later Stages).

o   E.g., movement in Key Indicators in early Stages can give sales management a heads up to such things as increasing workload, perhaps a softening market, more competitive activity in the market, effectiveness of Marketing programs, and several other items.

·         Track, track, track! 

o   Insist on clean data - Really!  

·         Monitor the data, look for trends over a period of time

o   Refine/improve Key Indicators or introduce others based on lessons learned or as business changes. 

o   Adjust coaching program

·         Get tools in hands of sales managers and salespersons to enable them to do their own tracking and analysis on regular basis. 

o   Visualization capability is critical to adoption and use.   

Summary

This started off as a discussion about what value of “X” sales organization should use to monitor the health of their Pipelines.  The conclusion from the discussion was:

1.       There is no universal value for “X” that can be applied across all organizations.

2.       There is a unique “X” value for each sales organization, sales unit, and salesperson

3.       It is an oversimplification to rely solely upon “X” to manage pipeline health, there are other Key Indicators that need to be monitored to drive increased sales performance.

Several suggested Next Steps were provided to identify these Key Indicators and to begin tracking and monitoring.  Following this discipline of monitoring and coaching can lead to greater sales performance.