What is the purpose of the pipeline?
The sales pipeline is the business end of the sales funnel. When you can start to actually put some hard figures against prospects they can move into the pipeline. It is the job of the marketing team and the sales team to move these prospects through the funnel to a point where a monetary value, time frame and probability can be called an opportunity.
While sales are in the funnel they can be moved backwards and forwards but the aim is to get them all through to the pipeline stage. Having 1,000 early stage leads in the funnel should equate to a healthy pipeline but the pipeline may not always be as healthy as it seems at first glance.
Most pipelines suffer from pipeline vanity. The pipeline doesn’t reflect reality. It is inflated. People want their contribution to the pipeline to reflect well on them, and at every stage, a shine is put on the pipeline that amplifies the small over optimistic rounding up of the last stage.
To understand why this happens we need to look at who is involved with compiling the pipeline.
When a salesperson takes over the lead to the pipeline from the marketing funnel they have to qualify the lead. If the marketing team are using the growth marketing approach they will have been building the lead to an opportunity and it should be handed over as largely qualified. But salespeople are hungry for leads so often they run with them while they really should be still in the marketing funnel. This causes a problem as the sales people have now a number of unqualified leads. The sales person is often under pressure to show a healthy pipeline, and this can be at the expense of an accurate pipeline. Deals which are unqualified appear in the pipeline.
We have seen an example of this where a telecoms company require their salespeople to forecast 75% of their quarterly in advance. They are asked to commit to these deals. We have spoken to the sales people and they all said that their forecasted pipeline was over 50% made up of deals that they at best hoped would come in during that quarter. Often their target was achieved largely of deals that did not appear on their quarterly forecast.
Salespeople are lazy, they go for the easiest deals, they don’t prospect for new business if they can get away with not having to, and I say this having been a sales person and having managed sales people. All sales people enjoy the win, few enjoy the work. So when their sales manager asks to see their pipeline the sales person is inclined to over inflate some deals. They increase the monetary value, they bring forward close dates, they increase their probability to close and they include deals which they really don’t know enough about to include in any pipeline or even worse deals which they know to be dead but removing them will leave a big hole.
The sales manager should be on top of this and work through the sales persons pipeline with them ensuring each deal is correctly qualified, too often this does not happen. The sales manager may feel the need to add their own gloss onto the pipeline. They will have to present the pipeline to their management and that needs to reflect well on them and their ability to run a sales team.
By the time the management team get to see the pipeline and forecast the collective total of rounding up, phantom deals and a little bit of polish can give the impression that the sales team are flying and the marketing team are feeding them high-quality deals.
However, the tweaking and polishing may not be over at that point. The management team have to answer to investors and shareholders. The temptation can be to pull deals forward, over estimate deal values and deal probability to look good and maybe even to hide any short comings. You may tweak the pipeline to make you feel better about things, to bury your head rather than address an oncoming problem but the problem is still there. Get it out into the open and get real visibility of where you are as a business.
It should be obvious how damaging pipeline vanity can be to a business. Not knowing what deals are coming in and when removes the ability to accurately forecast income and cash flow. Businesses can fail because of pipeline vanity. But it goes no. I have been called into businesses to address the overlong sales cycle, only to find that the majority of the deals in the pipeline were not real. They would never close as the customers never had any intention of buying the services.
If you do not have a clear and accurate picture of your true pipeline you cannot manage your business. You cannot identify potential short falls or major problems within the marketing and sales teams.
One London based SaaS company reported that they had a pipeline of over £5 million, at the time double its turnover. They believed that their pipeline was strong enough to negate the need for ongoing marketing. They did not separate the marketing funnel from the sales pipeline, they had not qualified the leads and were including completely unqualified leads in their sales pipeline. This pipeline was presented to investors. They also believed that they had enough in the pipeline to cut back completely on marketing.
They only converted 4% of this reported pipeline in 12 months and an additional 6% of this pipeline in the following 12 months. The result of the misunderstanding and misreporting of the pipeline included having to take dramatic actions including redundancies.
Another company held two pipelines, one that they used internally and one they presented to investors. The outcome of this was that the company fell short of expectations and was unable to raise funds again from their initial investors.
Pipeline vanity can be eradicated easily but if you are looking at your pipeline now be prepared for a shock, when you apply some basic principles you may not like what you see.
The first simple action is to define company-wide qualification criteria. The sales person should be using the same qualification criteria as the board are presenting to the investors. If you are doing your own sales and don’t have a sales team you still need to define your qualification criteria. If you have been in business for a while you will have the luxury to be able to look at historic deals and then build qualification criteria that match what happened in those deals. If you don’t have that level of data you have to make a judgement call to what you call qualified and what information that you want to know before it can enter the sales pipeline.
The basic criteria may be if the customer has an assigned budget, you know when they will be looking to buy the service and who ultimately signs off the order. Without this most basic information, you do not have a forecastable opportunity to add to the pipeline. You should weigh your opportunities based on their likelihood to close. While it might be tempting to feel that because the customer said they were going to buy it that you should put this at 100% likely hood to come in. But verbal confirmation should really sit no higher than 60% unless you have an existing billing relationship with that customer.
I have painted the picture that pipeline vanity is the result of willful misreporting and while we feel that is the largest factor and another big contributor is simply different people reading the situation with the customer in a different way. One persons “the customer is ready to sign” is another persons, ” I think we need to address that technical question to win their confidence”.
Whatever your agreed criteria it is important that everyone who has an interest in the pipeline understands what the criteria are and applies it to any input they provide. When you now apply this to the pipeline you will see a lot of deals drop out of the pipeline. That will be scary. But now you have a true view. It’s better to see 10 real deals than 100 where 90 of them are phoney. It just may not feel like it right now.
If you are managing the pipeline in Excel stop. That’s bad. Don’t do it. Get yourself a CRM system. Get your team all working on the same system, filling in the same field. Not only will you get better visibility you will also eliminate one of the big pipeline accuracy problems. Excel spreadsheets are hard to compare. You will not see trends, you will not see that deal hasn’t been in the pipeline for 6 months, but it’s 12. You will not see that some sales people will recycle deals back onto the pipeline when its a little light for them that month.
Pipeline vanity isn’t just something that is a problem in small business. We have seen it in large enterprises, where the phrase bullshit gets fed up the line is never truer. Some companies have even been known to book deals that are still in the pipeline to make their figures look better.
If you take one thing away from this post please make it about pipeline accuracy and remove pipeline vanity from your company, no matter how scary it makes your pipeline look.