Even with today’s sophisticated CRM and SFA systems, sales forecasting is still more of an art than a science. Even after a sales manager has spent hours upon hours questioning her sales people about whether the deals in the pipeline are really going to close when predicted, it still involves a lot of guesswork.
Because typical sales pipelines are notoriously inaccurate, sales organizations have often developed a variety of methods for generating sales forecasts. Many sales managers use just a simple multiplier (and trust the mere volume of deals in the pipeline to make things right) to predict what revenue will actually close. For instance, if there is an annual goal of 100 million Euros, they shoot for a pipeline of 300 million Euros, believing that this way they have a fighting chance of meeting their goals for the year.
There are at least two problems with this method.
- It is not based on any actual statistical information.
- It only measures total deal volume without providing any indication whatsoever as to what stage any given opportunity is currently at within a sales cycle – nor does it indicate when each particular opportunity will actually close.
A Healthy Pipeline, Anyone?
A healthy pipeline can easily be characterised as one that has velocity, with sales opportunities that constantly keep moving through the funnel. The sales opportunities are
- either continuously moving down the funnel towards a predictable closing date, or
- qualified out of the sales pipeline altogether, in case an opportunity has lost its momentum.
This kind of pipeline has validating criteria built-in at each step in the sales process, with specific measures that help you understand not only where the real opportunities are, but also how your sales people are performing and what deals you can actually expect to close.
In a pipeline with velocity, there is a pre-established maximum time for how long each stage of the sales cycle should take. This helps keep real opportunities moving toward closing, and unless there are valid reasons for an opportunity to remain in a certain stage beyond a pre-determined time limit it is simply qualified out of the funnel.
This type of validation discipline helps scrub a pipeline and results in one that can give you a fact-based, predictable and reliable forecast.
Remember to Flush Your Pipeline
When adopting a pipeline model that encourages velocity, sales organisations often reduce their current pipelines by 50% in one fell swoop, as they clean out the opportunities that never were going to close in the first place. Although this might come as a shock at first, revenues per sales person begin to quickly rise, as the people focus on the most probable opportunities.
With a pipeline having appropriate velocity, sales managers can also more readily determine at what level there are individual performance issues. This helps them to effectively coach their sales people on the skills they need to fill the pipeline accurately.
A healthy pipeline is a precise and real representation of not only all the sales activity in every sales person’s pipeline, but also the distribution of the revenue across each stage of the sales cycle. With pipeline data such as this, you’ll have a higher degree of accuracy and you will be better able to run your business.