A sales pipeline helps you understand your sales process, increase your sales and make you confident about your data. Yet, it has been suggested that 63% of organization’s are ineffective at managing their sales pipeline.
Traditionally most sales managers view size as the sole determinant of a pipeline’s overall health. Those reps with a small pipeline are used to hearing the following sentence from their managers: “You need to get more deals in your pipeline.”
However, research shows that this is not entirely accurate. In fact filling the pipeline with more deals can be detrimental to the salesperson, because it fills their pipeline with ‘junk’ deals as opposed to viable opportunities, taking up a salespersons time and thwarts their ability to pursue better opportunities.
According to VPP, The Perfect Pipeline®, follows three dimensions: Size, Shape and Content.
First Dimension: Size
Determining the perfect pipeline size is fairly easy, requiring only three variables: quota size, rate of closure and length of sales cycle. For example, if a salesperson’s quota is £1 million, they close an average of 25% of the deals in their pipeline and the sales cycle is one year the size of the pipeline has to be £4 million. What this means is that in one year salesperson will close 25% or £1 million of their £4 million pipeline.
If the sales cycle is cut in half to 6 months the rep will only need a £2 million pipeline since £2 million x .25= £500k x 2 equals £1million per year. The general formula recommended by VPP is: Annual Quota / Opportunity Close Rate over 365/Average Days Sales Cycle.
If an organisation is trying to reduce the average pipeline size and increase quality (see third dimension) it can either invest in resources to improve close rates such as CRM Software or decrease the length of its sales cycle.
Second Dimension: Shape
According to VVP, productive pipelines don’t gradually narrow; instead they taper dramatically in the early stages of the sales cycle. During these early stages sellers should qualify hard on deals and qualify out of those that are not considered desirable or winnable. Keeping the ‘junk’ deals in the pipeline will eventually cause inaccurate forecasting.
Ideally all these ‘junk’ deals should be out of the pipeline as soon as possible in order to devote all valuable sales resources towards winnable deals. VPP’s ideal pipeline would look like a pipe with a large entrance as opposed to a gradually tapering funnel.
Keeping the ‘junk’ deals in the pipeline will eventually cause inaccurate forecasting.
VPP recommends that when calculating pipeline shape, managers should not track the volume of deals in each stage of the sale cycle; instead they ought to track the percentage of deals moving on from stage to stage.
Third Dimension: Contents
If a business has taken the time to segment customers and products into high and low priorities, then the sales force should execute that strategy and stay away from undesirable deals.
The report advises managers to look for these components when reviewing sales pipelines:
- The Right Customers (Buyer Personas)
- The Right Products (according to market strategy)
- Desirable Deals
- Winnable Deals
Will it Work?
VPP brings an interesting theory to the The Perfect Pipeline; and while this strategy might work for certain well established businesses it might be ill-suited for start-ups or certain organisations that have not yet established a definitive market strategy. What do you think about the ideas put forward by VVP about The Perfect Pipeline?
Interested in finding out more, contact ProAptivity today for a free consultation on 028 90735630.