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White Paper                                                      The 7 keys of the sales director                         ...
1 Thinking of sales as a process                                                      We all know this: sales is an art an...
The following section in this white paper will explain how to structure your sales                                        ...
The four steps of a buying process                                                      There are four main phases in a bu...
We suggest the following four questions to help you make that choice:                                                     ...
3 Controlling the flow of opportunities                                                              in the pipeline      ...
4 Taking care of the pipeline day after day                                                      Taking care of the pipeli...
Potential causes for the problem: “Lookinf for a solution” too fast, or conversion rate between “Exploring solutions”     ...
Monitoring opportunity win and loss factors                                                      At the end of the sales p...
The first indicators (on the left) are clearly less useful than the second                                                ...
Preserve the historical variations of your performance indicators                                                      Cal...
One-off issue:                                                          Let us suppose that analyzing the deliverables cor...
7 Moving from analysis to forecasting with                                                                the pipeline    ...
The ideal and real pipelines compared                                                      Keeping an eye on actual and id...
The goal is thus to combine the judgmental forecasts of sales reps                                                      an...
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7 Keys for the Sales Director to Improve Pipeline Management

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Learn how to structure your sales process, monitor and analyze your sales pipeline and generate more accurate sales forecasts.

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7 Keys for the Sales Director to Improve Pipeline Management

  1. 1. White Paper The 7 keys of the sales director for an efficient pipeline management Introduction Managing a sales pipeline is an intimidating task. It involves controlling and motivating sales people, following live opportunities, updating sales collaterals, reaching sales quotas, reporting to the CEO, preparing reliable sales forecasts… The risk for the sales director is to find these obligations pressing to the point of losing her strategic outlook, thus her long-term impact on the performance of the sales team. We wanted, in this white paper, to go back to basics: seven keys that, when used daily, will durably improve the management of your sales pipeline. Jean-Marc Bellot Table of contentsConsultant specialized indesigning sales processes 1. Thinking of sales as a process ........................................................ p 2jbellot@customercentric.comhttp://jmbellot.blogs.com/pro 2. Choosing the right pipeline structure ............................................... p 3 3. Controlling the flow of opportunities in the pipeline .......................... p 6 4. Taking care of the pipeline day after day.......................................... p 7 Thomas Oriol 5. Analyzing the pipeline and its changes ............................................ p 9Director of Nimble AppsLimited, the publisher of 6. Using the pipeline to develop sales competencies ........................... p 11SalesClict.oriol@nimble-apps.com 7. Moving from analysis to forecasting with the pipeline ...................... p 13www.salesclic.com The 7 keys of the sales director for an efficient pipeline management© J.-M. Bellot and Nimble Apps Limited 2010 All rights reserved 1
  2. 2. 1 Thinking of sales as a process We all know this: sales is an art and sales people are artists. They are brilliant, mercurial, focused on performance (as in “the process of carrying out an« Despite all the lip service action”, but also “a person’s rendering of a dramatic role” 1), quite reluctantthat has been paid to it, sales to being managed…is the one area of businessactivity that has benefited As always, there is an element of truth in these clichés.the least from the applica-tion of process and processreengineering. » Selling does require “artistic” qualities: audacity, reactivity, psychology… Bill Stinnett As in the theatre, the sale is a repeated presentation of the same in Think Like Your Customer play, by the same actors, for the same public – but with infinite variations in the details. Let’s admit it: some sales people are divas! However, it has become difficult for a company to achieve lasting commercial success based on the “artistic” approach to sales alone. The economic environment is tough and competition is intense: in all areas, companies must consolidate what works and correct what doesn’t. Improvisation is no longer enough. Production cycles are shorter: companies must control all schedules, including commercial ones. Recruiting is a high-stakes challenge: how can companies select the right sales reps if they have no finer definition of the required competencies than “a professional appearance” or “talent”? For all these reasons, companies must stop thinking of sales as an art, and start managing it as a process. A process is “a series of actions or steps taken in order to achieve a particular end” 2. Thinking of sales as a process thus yields two immediate, positive effects. The time dimension of sales is naturally taken into account: all processes have a beginning, an end and intermediary stages 3. Hence the traditional metaphors for the sales process – the pipeline or funnel. Processes can be measured. They are thus easier to replicate and improve than artistic performances. 1 Source :Oxford American Dictionary. The 7 keys of the sales director 2 for an efficient pipeline management Source : Oxford American Dictionary. 3© J.-M. Bellot and Nimble Apps Limited 2010 When these stages are appropriate, they each become autonomous and fascinating objects of enquiry… All rights reserved We discuss this topic in the “Analyzing the pipeline and its changes” section of this white paper. 2
  3. 3. The following section in this white paper will explain how to structure your sales pipeline in order to maximize its operational and managerial effectiveness. You should, however, keep two points in mind before starting this interesting exercise. A single pipeline consolidating widely different sales processes won’t work. For example, managing sales to new clients and to repeat customers in a single pipeline will be difficult. Do prospects enter the pipeline once they are identified or qualified? In other words, should the pipeline include both leads and opportunities 4, or opportunities only? Opinions differ, especially since this topic has potential organizational implications 5.Our (practical) point of view is: it doesn’t really matter as long as the qualification of leads is as carefully managed as the progression of opportunities in the pipeline. By the way, lead qualification is often a multi-stage process, which implies the management of a lead pipeline… It makes sense, therefore, to connect this marketing pipeline to the sales pipeline. 2 Choosing the right pipeline structure Once a broad coherence between your sales process and your sales pipeline is established, which stages should you choose for the latter? There is one golden rule to answer this question: you should look at your« It’s not what we do in our sales process with the eyes of your prospects. What would theirsales process, but what the ideal buying experience be? What are the main phases in their buyingcustomer does in his buying process?process, that really matters. » Unfortunately, this rule is often ignored. Most companies structure their pipeline Bill Stinnett from the seller’s perspective. They are (unknowingly) pushed in this direction in Think Like Your Customer by traditional SFA or CRM software, which focus heavily on internal tasks. Their pipeline stages thus correspond to seller activities (e.g. “Presentation of the company”, “Demonstration of the product”, “Negotiation of the proposal”) and ignore how such activities affect the buyer’s decision process. The 7 keys of the sales director for an efficient pipeline management 4© J.-M. Bellot and Nimble Apps Limited 2010 An opportunity is traditionally defined as a qualified lead. 5 All rights reserved Leads are marketing turf and opportunities sales turf. 3
  4. 4. The four steps of a buying process There are four main phases in a buying experience, reflecting the evolution of the psychology of the prospect: The prospect acknowledges the existence of an objective (or problem), whose completion (or resolution) requires that external resources be used. The prospect then starts thinking of potential solutions, and produces detailed specifications, provisional budgets, ROI estimates… Assessing potential solutions based on this preparatory work is then delegated to support functions (e.g. IT, Finance, Legal). RFPs are often released during this phase. The third phase of the prospect’s buying experience is a probation phase, during which the mandated experts (internal or external) examine short-listed vendors. Demonstrations, prototypes, benchmarks… multiply. Vendors often misunderstand the fourth phase, which starts once the prospect has collected the required probationary elements. It is a phase of risk minimization, during which the prospect seeks universal validation: payment conditions, installation schedule, mutual responsibilities, comprehensive business case… The prospect will not buy without such assurances. Pipeline stages must be organized around these four phases. Don’t create too many stages At a minimum, the pipeline should reflect the four phases in the prospect’s buying experience. The addition of other stages is the occasion of a classical choice between precision and efficiency. Adapting to the potentially long and complicated buying process of the prospect is important, but so are: Minimizing your own management costs (sophisticated processes require more maintenance). Preserving the informative value of the statistics derived from your pipeline 6. Giving a little leeway to the divas in your sales people 7! The 7 keys of the sales director 6 for an efficient pipeline management For example, 20 conversion rates lose their meaning. 7© J.-M. Bellot and Nimble Apps Limited 2010 In this respect, we recommend reading an interesting Harvard Business Review paper: When Should a All rights reserved Process be Art, not Science? (March 2009). 4
  5. 5. We suggest the following four questions to help you make that choice: What is the qualitative leap accomplished by the prospect between stages n and n + 1 of the pipeline – would the prospect realize by themselves that they progressed from the one to the other? What is the managerial interest of the potential new stage – what does it help you accomplish? Are the competencies required of your sales people in stages n and n + 1 fundamentally different? Are the stages MECE 8 ? Make sure pipeline stages have approximately the same length In Jules Verne’s Around the World in 80 Days, the trip is divided in eight great stages of equivalent length. The cities (Suez, Bombay, Calcutta, Hong Kong, Yokohama, San Francisco, New York, London) are spread evenly on the globe – neither too close nor too distant from one another. As a result, Phileas Fogg can assess his chances of eventual success lucidly each time he completes a stage. He knows whether he is early or late and can make the appropriate transportation arrangements for the following stages. Now imagine that instead of the novel’s 8 stages and cities, Phileas Fogg had chosen 7 stages for the first 7 days of the trip to Suez, then 1 single stage for the following 73 day-trip to London. Would he have assessed his chances of success as lucidly? Of course not! Similarly, uneven stage durations complicate the management of a sales pipeline significantly. In addition, most sales teams are used to funnel-shaped pipelines, reflecting the progressive attrition of prospects as they progress inside the pipeline. Too long a stage in the middle of the pipeline compared to the preceding and following stages would yield a barrel-shaped pipeline, which would be harder to assess visually. The 7 keys of the sales director for an efficient pipeline management© J.-M. Bellot and Nimble Apps Limited 2010 8 All rights reserved Mutually Exclusive, Collectively Exhaustive. 5
  6. 6. 3 Controlling the flow of opportunities in the pipeline For the management of a sales pipeline as for the management of any process, it is important to think carefully of the criteria validating stage transitions. In an industrial context, quality control measurements are frequently used between stages of the manufacturing process. Their goal is to detect potentially flawed parts. Parts that respect their specifications move on. For parts that do not respect their specifications, management must choose between three options : Sending the part back through the stage preceding the failed measurement (“confirmation”). Applying a specific corrective action to the faulty part (“curative action”). At worst, throwing the faulty part away. Stage transitions in a sales pipeline should be managed in the same way. Since the sales process should reflect the buying experience of the prospect, it is with the eye of the prospect that control measurement should be designed. Practically, we recommend that at the end of each stage in the sales process, a sales person send to the prospect a message summing up the key conclusions of that stage. Such a message has three virtues : It enables the prospect to check that their issues have been understood. It allows the sales person to check the progress of the prospect towards the acquisition of the corresponding goods/services. The message thus contributes to validating the quality of the sales opportunity. It enables the sales manager to check with specific and objective criteria if the sales person has positioned the opportunity correctly in the sales process, and if the opportunity is solid enough to feed the company’s sales forecast. Validation messages are therefore the basis for management’s inspection of the sales pipeline. They allow the sales manager to move beyond the cold analysis of sales data and form a qualitative view of the company’s sales process. Since validation messages are so important, they must be available for review at any time. It is thus convenient to manage message templates and the messages sent with the same tool used to manage the sales pipeline itself. Modern CRM software usually includes document template management and The 7 keys of the sales director messaging functionalities, which reduces the administrative workload of the for an efficient pipeline management sales person.© J.-M. Bellot and Nimble Apps Limited 2010 All rights reserved 6
  7. 7. 4 Taking care of the pipeline day after day Taking care of the pipeline is important! Here are three daily tasks to ensure that your pipeline stays in good health. Monitoring the shape of the pipeline Do you remember the age pyramids of our childhood – those piles of horizontal bars representing the age groups of a given population? We can use a similar representation for the sales pipeline: One horizontal bar per pipeline stage, from the earliest (top bar) to the latest (bottom bar). Bar length proportional to the total amount of the opportunities in the corresponding stage A “standard” pipeline, whose opportunities flow regularly from one stage to the next Building that graphical representation of the pipeline, and monitoring its evolution through time, lets you spot potential bottlenecks in the pipeline: they will appear as “inflated” stages. There can be two immediate causes of such inflation: The conversion rate of opportunities from the inflated stage to the next is too low (the “dam” effect). Opportunities are moving too slowly in the inflated stage (the “lazy river” effect) 9. The 7 keys of the sales director for an efficient pipeline management 9© J.-M. Bellot and Nimble Apps Limited 2010 This can be visualized with a refined graphical representation of the pipeline where the height of each All rights reserved bar is proportional to the average duration of the corresponding stage. 7
  8. 8. Potential causes for the problem: “Lookinf for a solution” too fast, or conversion rate between “Exploring solutions” and “Demonstrating value” too high? Thinking of sales as a process and representing this process as a pipeline have two additional, positive consequences: Helping you move from immediate to deeper causes when faced with stagnating opportunities. Showing you these causes are often located in earlier phases of the sales process. For example, if stage 3 of your pipeline (“Demonstrating value”) starts inflating, it is probably because sales reps are facing new issues in stage 2 (“Looking for a solution”)… Cleaning the pipeline Cleaning the pipeline has two main significations: Recycling stagnating opportunities. Sales reps have a tendency to keep stagnating opportunities in their pipeline beyond reason. But a stagnating opportunity means a loss of time and money for the rep and the company. It is important to understand that recycling a stagnating opportunity doesn’t mean losing it, but giving it a new chance by sending it back to an earlier and more appropriate (i.e. more in line with the maturity of the corresponding prospect) stage of the pipeline. Updating opportunities frequently. Weekly updates before the Monday morning sales call are not enough. For the analytics based on the pipeline to yield interesting results, same-day updates are necessary 10. The trick is to find an SFA tool minimizing the time spent on updates. The 7 keys of the sales director for an efficient pipeline management© J.-M. Bellot and Nimble Apps Limited 2010 10 All rights reserved Daily updates enable the calculation of incredibly rich statistics. 8
  9. 9. Monitoring opportunity win and loss factors At the end of the sales process, opportunities are either won or lost. Noting the reason for each win or loss enables the following useful actions: Monitoring how these reasons vary through time (e.g. “This year, we won great contracts thanks to our maintenance program. We should mention the program more prominently in our sales collaterals”). Establishing correlations between win/loss factors and the flow of opportunities in the pipeline (e.g. “When we spend too little time in the stage “Demonstrating value”, we often lose the deal for price reasons”). 5 Analyzing the pipeline and its changes You can’t manage what you can’t measure. It is not a question of “policing”: the main advantage of solid sales analytics is to help reps to sell more! By identifying priority opportunities, pitfalls in the sales process, undeveloped competencies… As mentioned in the previous section of this white paper, taking care of the« Problematically, companies pipeline (notably by updating live opportunities frequently) transforms it intoand individuals end up using a powerful sales analysis tool. So what should you measure and why?CRM systems to measure the Here are a few suggestions.quantity of sales activityrather than the quality, re- Measure progressions, not tasksquiring salespeople to spendcountless hours logging the This is a crucial but quite subtle distinction. We hope the following table willquantitative data. » clarify it. Jeff & Chad Koser in Selling To Zebras Examples of matching “tasks” and “progressions” The 7 keys of the sales director for an efficient pipeline management© J.-M. Bellot and Nimble Apps Limited 2010 All rights reserved 9
  10. 10. The first indicators (on the left) are clearly less useful than the second indicators (on the right). The goal is not to spend the day on the phone, but to convert leads into prospects; not to meet prospects, but to convince them that our offering answers their needs… Identifying the most significant indicators of “progressions” (in the pipeline!) is thus the absolute priority of sales analysis. Such indicators have two advantages: They reflect sales performance, not sales activity. They are forward looking, not backward looking. Favour dynamic, not static performance indicators Many companies use volume indicators when analyzing their sales pipeline – the most common being the coverage ratio: amount of live opportunities in the pipeline / sales quota for the period Opportunity volume is of course important, but it is clear that performance indicators focusing on volumes do not give a precise idea on a rep’s progress. Here are a few dynamic indicators you should favor. Conversion rates. The conversion rate of opportunities from stage n to stage n + 1 of a pipeline during a given period is: number of opportunities going from stage n to stage n + 1 / number of opportunities that spent time in stage n Length of stay. The time an opportunity spent in a pipeline stage 11 is measured very simply by comparing entry and exit dates 12. The goal is not to go as fast as possible: for a given pipeline stage, a short length of stay coupled with a high conversion rate could signal too superficial a work by the sales rep, leading to inflated pipeline stages downstream… Velocity. The velocity of an opportunity in a pipeline stage is a variation on its length of stay in the same stage: Length of the company’s reporting period / length of stay of the opportunity in the stage Applied to the entire pipeline 13, this ratio is particularly useful: it indicates how many times the pipeline “rotates” during the reporting period. 11 Or many pipeline stages, or the entire pipeline. 12 We can see why frequent pipeline updates are important: for a sales cycle of three to six months, The 7 keys of the sales director a one-week delay between a sales event taking place and being recorded, happening two or three times for an efficient pipeline management© J.-M. Bellot and Nimble Apps Limited 2010 during each opportunity’s lifetime, can wreck sales analysis completely. 13 All rights reserved Every opportunity and stage transition. 10
  11. 11. Preserve the historical variations of your performance indicators Calculating the right indicators is good, but monitoring the variations of these indicators through time is even better. This is where a good sales analysis and forecasting solution is key, since the dynamic indicators we recommend are difficult to track in Excel or with traditional CRM software for an entire team… 6 Using the pipeline to develop sales competencies Few companies realize that the sales pipeline is a fantastic tool for developing the competencies of the sales team. The following charts explain the link between pipeline management and sales rep competency development. Here is what happens at the level of the sales rep: Sales rep activities Three cases are possible when the manager enquires about the opportunity. Everything OK: The 7 keys of the sales director for an efficient pipeline management© J.-M. Bellot and Nimble Apps Limited 2010 All rights reserved Pipeline and team in regular mode 11
  12. 12. One-off issue: Let us suppose that analyzing the deliverables corresponding to the opportunity’s status reveals an issue. If this is a one-off issue, the following sequence of activities will take place: One-off issue addressed by the sales manager Recurring problem: Addressing the recurring problem by developing the corresponding competency of the sales rep yields significant time and cash savings, by preventing management-led “rescue operations” on every troubled opportunity. Structural problem addressed by the sales manager The 7 keys of the sales director for an efficient pipeline management© J.-M. Bellot and Nimble Apps Limited 2010 All rights reserved 12
  13. 13. 7 Moving from analysis to forecasting with the pipeline We have suggested a few ideas to transform your sales pipeline from a mere sales administration aid into a powerful sales analysis and competency development tool. Next comes using the pipeline to progress from sales analysis to sales forecasting. With that in mind, let us start with the discussion of a controversial issue. Using closing probabilities properly Most companies attribute closing probabilities to the opportunities in their sales pipeline 14, and then base their sales forecast for a given period on the expected value of the opportunities with a closing date in that period: forecast = total amount of the relevant opportunities x their closing probability Unfortunately, this calculation is not reliable, for a simple reason: at the end of the sales process, an opportunity is never 60% won and 40% lost (for example) – it is won or lost entirely. That being said, we do not think closing probabilities should be banned from sales analysis and forecasting. Comparing the “judgmental” probabilities of the sales rep and the “real”, historical probabilities for each stage of the pipeline 15 yields fascinating insights into the psychology of the sales rep 16. Closing probabilities can prove useful in the context of forecast- oriented sales simulations 17. Back to our population pyramid… One simple way to derive reliable sales forecasts from the sales pipeline is to start from the graphical representation of the pipeline described above, and “back-pedal” based on historical conversion rates and durations. For example: I know by experience that to close 100 at the end of the period, I need 350 in stage 1, 280 in stage 2, etc. x days before 18. Today, I have 320 in stage 1, 250 in stage 2… and can thus expect sales of 90. Performing these calculations means building your “ideal pipeline” – the pipeline that, given your historical conversion rates and durations, would allow you to reach your sales target for the period. 14 Either a separate probability for each opportunity or a default probability for each pipeline stage. 15 Including, potentially, for different categories of opportunities: smaller/larger amounts, closer/ farther closing date… 16 Behavioral economics and decision theory have made significant progress during the past 30 years. Some of the models developed by scholars in these fields can be applied to sales forecasting. The 7 keys of the sales director 17 for an efficient pipeline management Such as Monte Carlo simulations. 18© J.-M. Bellot and Nimble Apps Limited 2010 In this example, x is the number of days between the date the forecast is made and the end of the All rights reserved corresponding period. 13
  14. 14. The ideal and real pipelines compared Keeping an eye on actual and ideal pipelines is an excellent way to combine sales analysis and forecasting. It also favors a better match between sales activity and sales targets. Advice for more reliable forecasts Sales forecasting theory has evolved significantly during the past 10 years. During the 1980s and 1990s, the recommendation of scholars to professional forecasters was to exclude the “human factor” at all costs and to produce as “quantitative” forecasts as possible. Today, scholars acknowledge that neglecting the judgment of front-line people is not productive. That judgment may be biased 19, but it still contains valuable insights on a company’s prospects, products, markets… The 7 keys of the sales director for an efficient pipeline management© J.-M. Bellot and Nimble Apps Limited 2010 19 All rights reserved Ex. Optimism, risk aversion, selective memory… 14
  15. 15. The goal is thus to combine the judgmental forecasts of sales reps and a rigorous analysis of historical data. There are numerous ways to do that, and not enough room in this white paper to describe them. Instead, we would like to add a few comments on forecasting methodology to the preceding paragraphs. Always measure the quality of your forecasts ex post. For that, you must choose an appropriate measure of the forecasting error (actual - forecast) and apply it to every dimension of the forecast, opportunity by opportunity: amount, closing date, etc. Look for correlations between pipeline events, product lines, team members… With a bit of luck, you will identify “leading indicators” for potential forecasting errors. Be weary of potential links between quotas, incentives and judgmental sales forecasts. Undeniably, these three elements interact. Such interactions do not prevent effective sales forecasting, but they must be factored in. Conclusion Managing your sales pipeline with the 7 keys described in this white paper can increase the performance of your sales team significantly. Of course, you should consider the specificities of your company (e.g. sales process, information systems) when applying them. Do not hesitate to contact us for a neutral point of view on your endeavours! About the authors Jean-Marc Bellot is a consultant focusing on sales process design. He is a business partner of CustomerCentric Selling® and leads numerous seminars focused on increasing sales productivity. Jean-Marc’s blog Thomas Oriol is a Director at Nimble Apps Limited, which publishes SalesClic, an innovative sales pipeline visualization, analysis and forecasting solution. www.salesclic.com The 7 keys of the sales director The information in this white paper is not intended to amount to specific advice on which reliance should be placed. While every for an efficient pipeline management effort is made to ensure the accuracy of the information, we cannot be liable for inaccuracies, errors, omissions or misleading© J.-M. Bellot and Nimble Apps Limited 2010 information contained in this white paper. We disclaim all liability and responsibility arising from any reliance placed on the All rights reserved information in this white paper by any reader, or by anyone who may be informed of any of its contents. 15

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