Mar 3, 2013

What is a Realistic Estimate for Today’s Sales Win-Rates


I recently posted the following two questions on a LinkedIn Discussion Group:

1. For today’s sales organizations, what is a realistic estimate of the number of initially qualified complex sales opportunities required in the pipeline in order to pull one through as a won (signed contract) deal – 3, 5, 10? 

2. What should this multiple be in a highly functioning sales organization?


Definitions:  Qualified = Agreed upon (preliminary) assessment of client’s Need to Buy, Means to Buy, and Urgency to Buy; provider has potential solution, and competitive positioning.  Complex = Multiple decision makers, several weeks to months decision cycle, large dollar value.

 
These questions come up from time to time as one measure of the overall effectiveness of a sales organization.  In past Discussions Contributors have responded with answers in the range of 3 (see paragraph below).  This current posting resulted in responses that were similar to the previous wherein Contributors described that a reasonable goal was 3 Qualified Opportunities yielding 1 win; some went further to describe an aggressive goal of 2 to 1 for a highly functioning sales organization.  My sense is that these are very aggressive numbers.  However, I realize that these are very dependent upon the client’s decision making cycle, and where the sales organization engages the client. 


In early 2011 I participated in a similar discussion (see the long version of my contribution with graphics at [http://salesopseffectiveness.blogspot.com/2011/05/great-debate-how-big-should-your-funnel.html].  This described a sales process based on a client focused decision making cycle, and using a simple model looked at two examples (sales person well positioned to lead client, and sales person follows client).  After making decisions about “pull thru” from one Stage to next this showed that for the well positioned case the sales person could require 4 opportunities at initially qualified point (client agrees urgent problem or opportunity has been identified, and client has budget to address), and for the following sales case that number was closer to 19.  Clearly this is very dependent upon the estimates for pull thru, but there is little doubt that a sales person will have a hard time trying to manage 19 opportunities successful.

Some Contributors in the recent Discussion pointed out that a strong Go-to-Market Strategy is essential, but it seems that this is not the only thing that needs to be high performing.  Once the Strategy is in place the sales organization must execute very effectively.  This requires a very effective sales execution process (including process, management rules and guidelines, tools, and effective sales people) be in place, and that the sales organization executes it effectively.  The difference between the two examples in the above paragraph could be attributed to poor execution.  I hear of too many cases where sales managers allow sales people to fill up their pipelines with questionable deals in part because of need to “manage optics”.

This is not simple!  Clearly there does not appear to be a “one size fits all” number that describes good complex sales win performance for all organizations.  In general, a sales organization’s (or sales individual) current win ratio is influenced by its go-to-market strategy for net new business.  The ratio for those whose strategy is focused on convincing prospective clients of a need before they are aware of it will likely be different than that of a sales organization whose strategy is only to seek out prospective clients who are actively seeking a solution to an already identified need (e.g., issued RFP).  (These strategies imply a number of other considerations as well).  A net new business ratio of 1:3 may be good in one environment, while 1:8 may be appropriate in another.  BTW: if you have a high content of renewal or follow-on business then this will also influence this ratio.

There are a couple of conclusions that can be drawn from these two Discussions: 
  1. Understanding this ratio for your sales environment is what is most important.  It is a personal number for each sales person and a sales unit number for each sales manager.  It is important to understand this ratio as it is the baseline from which the results of improvement efforts can be measured. So, be realistic about the current win ratio.  After all, if you want to be a world class sprinter and you sought out a world class coach for help, the first thing that this coach would likely do is to take you out to the track and have you run a few time trials.
  2. Develop and execute a plan to improve your win ratio.  If you don’t have a defined set of Stages in your sales funnel then develop same (client decision focused, with well-defined verifiable exit points).  These should be consistent with your sales business process.  Define and track client focused activities.  Get used to recording, tracking, and reporting; the only way to know if your performance is improving (BTW: Big Data practices will be coming to sales).  A good CRM will help to make this transparent.  Provide or obtain effective active coaching to improve sales performance (e.g., win rate ratios).  How else will the sales person become that gold medal sprinter, 10K, or whatever your analogy!  This does assume that an effective infrastructure is in place to enable this performance – but this is another topic!

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