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Chuck Schaeffer Best Practices in Sales Pipeline Management

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How Small Changes in Pipeline Management Make Big Changes in Top Line Revenues

Sales pipeline management and optimization are tasks that many sales managers have left unchanged for years—which is unfortunate as even small adjustments in pipeline management can yield substantive changes to top line revenues. Here’s some thoughts to revisit this critical business process and some best practices in sales pipeline design, operation and maintenance.

  1. Pipeline Design. Rather than design the pipeline as a siloed storage container for sale opportunities, it’s a good idea to architect the sale pipeline within the bigger context of a revenue funnel. For most companies this means consolidating the Top of the Funnel (TOFU) managed by marketing with the Middle of the Funnel (MOFU) which is cooperatively facilitated by both marketing and sales and the Bottom of the Funnel (BOFU) which is managed by sales.

    Revenue Funnel

    Managing the bigger picture allows sales to better understand pipeline health, including inflow, outflow, movement, stagnation and velocity. Further, designing an integrated lead-to-revenue funnel permits sales and marketing leaders to measure conversions and work backwards from slated revenue targets by knowing exactly what must go into the TOFU to come out the bottom. When this revenue reverse engineering uses actual data and known conversions, and not just hypothetical win rates or wishful thinking, forecasted revenue targets become systematically achievable and sales and marketing managers know how improving any specific conversion factor in the revenue funnel will impact revenue performance. This knowledge lets sales and marketing leaders prioritize their business process improvements in a way that most impacts top line revenues.

  2. Pipeline Operation. The single biggest lost opportunity in pipeline development is lead leakage. The second biggest problem in pipeline development is pursuing unqualified leads or leads that can’t be won. Interestingly, these two perennial problems actually share a common solution — which is a three step process that includes accurate lead scoring, sales and marketing Service Level Agreements (SLA) and lead recycling.

    According to Sirius Decisions, 80% of leads generated by marketing get ignored by sales. The stats from Gartner, Forrester and CSO Insights are nearly the same. Far too many marketers continue to throw unqualified leads over the fence to sales. And the result is both commonplace and predictable. Sales follows up the early leads, finds out the buyers aren’t buyers at all, and then discards most of the subsequent leads received from marketing. The qualified leads get buried with the unqualified leads and slip between the cracks.

    Implementing a lead scoring model reduces lead leakage. The best lead scoring models include demographics and behavioral activities. Demographics such as company size, industry or geography which are aligned to your target market or ideal customer profile illustrate fit. Behavioral activities are generally captured by marketing automation systems and include prospect actions such as the amount of time spent on your website or the types of content consumed. It’s important to recognize that demographics only share your interest in the prospect, while behavioral activities share how interested the prospect is in you. When sales and marketing collectively identify the many combinations of demographics and behavioral attributes that sum to a sales-ready threshold score, marketing is then in position to only forward sales-ready leads to the sales force.

    Sales and marketing Service Level Agreements (SLA) generally prescribe the quality and quantity of leads to be delivered by marketing to sales, and the agreed upon follow-up actions and timeframes sales will commit to those leads. From my experience in developing these SLAs, it’s essential to meet regularly to resolve SLA variances quickly. If variances get resolved timely, they tend to dissipate over time, and the SLAs actually work. Failure to monitor and resolve SLA variances will render the program ineffective.

    Lead recycling is used to revert leads previously forwarded to sales, but for whatever reason then stalled. Instead of leaving the stalled leads to die a slow death in the sales pipeline, the leads are returned to marketing for continued nurturing until they return to an active state as determined by a lead score.

  3. Hygiene & Maintenance. Lets face it, a lot of sales people have happy ears and wear rose colored glasses. This optimistic view has the result of overstating the volume and quality of sale opportunities. As a general rule, I recommend reviewing and removing any sale opportunity which has been in the pipeline for longer the twice the average sales cycle. I’m not suggesting these slow or stalled opportunities be abandoned, but instead be removed from the pipeline so as to not overstate revenue projections and reverted to earlier revenue cycle stages in order to receive more appropriate treatments — such as being placed in a nurture campaign.

    I’ve also found that sale opportunity probabilities linked to sales stage activities tend to overstate pipeline values. The biggest problem here is that the typical sales activities (qualification, discovery, demo, etc.) are entirely focused on what the sales person does, and not linked to buyer advancement. Just because the sales person performed these incremental activities doesn’t mean the buyer is any closer to selecting that salesperson’s solution.

Final Pipeline Thoughts

Having architected sales pipelines and revenue models for many years, I’m the first to recognize it’s easier said than done. One of the overarching challenges is sales and marketing alignment. It’s a challenge that is in large part self-perpetuated as businesses position sales and marketing as separate departments and incentivize those departments on separate performance objectives.

Only when sales and marketing share common objectives, integrate business processes to achieve those objectives and are compensated on those shared goals will these two departments evolve from siloes into an integrated business development function. Morphing the marketing and sales funnels into an integrated revenue funnel and creating integrated sales and marketing processes such as a lead score, a lead management Service Level Agreement and a lead recycling program are instrumental in achieving an integrated sales and marketing effort which is focused on revenue generation. End

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Comments (11) — Comments for this page are closed —
Guest Robert Graves
  what are industry standard sales win rates?
  Chuck Chuck Schaeffer
    In terms of sales win rates, CSO Insights 2014 Sales Management Optimization research found that the average win rate (of forecasted sale opportunities) was 45.9%, with the remainder of lost forecasted opportunities broken down as 32.7% competitor losses and 21.4% as no decision.

An Aberdeen research report, titled Lead Lifecycle Management, cited that 16% of sales-ready leads actually close.

If considering the entire lead-to-revenue funnel, Forrester put out a study titled The New Physics of Lead-to-Revenue Management, which reported that on average, the end-to-end revenue conversion ratio is .75% (less than 1%). This research also shared that top performers (defined as companies that attribute 50% or more of their B2B sales pipeline to marketing) did twice as well, with an end-to-end conversion ratio of 1.54%. The Forrester study defined four revenue cycle stages and conversions as MQL (avg 32% conversion, top performers 39% conversion), SQL (32% / 37%), Pipeline (28% / 34%), Won Deal (26% / 32%) and End-to-End (.075% / 1.54%).

Guest Andre Tarta
  I’m only a CRM software developer, but I find your reference to the revenue cycle interesting.
  Chuck Chuck Schaeffer
    I’m always been amazed how smart executives rightly demand a rigorous and systemic process for software development, but regard revenue development as a black box — as though revenues are something that’s almost mysterious or just happens with enough time. I’m a firm advocate that if you’re going to demystify revenue generation, you need to engineer revenue just as you engineer software.
  Guest Zach Kirk
    Engineering revenue is interesting, but you still need sales coaching to push those leads through the funnel.
  Chuck Chuck Schaeffer
    Agreed, and good sales coaching applies structure for visibility, predictability, learning and repeat performance. CSO Insights also advises that good sales coaching includes the five elements of accuracy (data), consultative, relevant, timely and individualization. Good advice for sure.

Guest Lisa Sweda
  This article is helpful for our company. We seldom achieve our forecast and I don’t think we have much credibility with our board.
  Chuck Chuck Schaeffer
    In my experience, board members ask two questions in every board meeting – How’s this quarter? and then, How’s next quarter? If your answers to these questions depend on sales person heroic results, or include a combination of subjective criteria, happy ears sales people and wishful thinking, you’ll probably not achieve expectations and lose credibility. One the other hand, taking a holistic approach and building a revenue cycle based on actual data and known conversions removes what is otherwise guess work and delivers forecasted results. Additionally, revenue cycles deliver visibility beyond the sales forecast period. Because the forecast is limited to committed opportunities, it can generally only predict sales performance for the current quarter. However, with an integrated revenue cycle, marketing knows how many leads are in the TOFU as well as the lead to revenue conversions, which empowers them to predict revenue beyond the sales forecast and generally as far out as the sales cycle duration period.

Guest Hernon
  The reason Cloud9 and other pipleline software apps are useful is that they time-stamp the opportunities. This allows sales managers to see how opportunities are trending over time, calculate yield and be alerted to opportunities that move backwards or dissappear.
  Guest Michael Henderson
    I agree, time-stampping also shows sales managers each opportunity age and what deals are dying on the vine and really shouldn't even be in the pipeline.

Guest Michael Henderson
  We adopted the Cloud9 software to aid our forecasting, and while it’s not perfect, it has helped us remove those lingering sale opportunities that were padding the pipeline and given us visibility of exactly how the pipeline is changing (or not changing) from period to period.
 

 

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Designing an integrated lead-to-revenue funnel permits sales and marketing leaders to measure conversions and work backwards from slated revenue targets by knowing exactly what must go into the Top of the Funnel to come out the bottom.

 

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