Monday, August 28, 2006

The Principle of Getting More From What You Have

In the last entry, we used the rule of thumb that only a fraction of the deals a Sales Executive and his/her team are currently working on will actually close. We have discovered that increasing the number of deals in a business with long sales cycles does not necessary produce the desired outcome of higher sales or even making the numbers.

The rule of thumb can actually be expressed in a mathematical formula saying: The Sales at a point in the future from now (t + x) are equal to the sum of the expected sizes ($) of all the deals currently known (D), multiplied by the historic win ratio (q), multiplied by the velocity (v) meaning how fast deals flow through the pipeline.

Pumping up the pipeline primarily means taking actions to increase the number of deals. Doing more with what you have then means to leave the number of deals alone and rather focus on the other parameters of the equation. This actually means looking more into your pipeline. Experience has shown, that acting on those parameters produces positive outcomes quicker than the average length of the sales cycle (quick wins).

Let us first look what we can do about the deal size ($). Following the Pareto Rule (about 20% of the deals will make up about 80% of our sales) my first recommendation is to focus on these 20% of the deals and help to make sure that they are won. The jargon for this method is focusing on the must win deals.

(Managers and Executive please note I have not said go try to close these deals yourself. Doing this is actually another symptom of “Sales Executive’s Tunnel view”.)

The other action that can be applied to the deal size is “Up Selling”, trying to make the individual deal bigger. I have seen sales teams increasing the sizes of their deals significantly, by just better listening and understanding what the customer’s problem is.

The second parameter you can work on is the win rate. Actually focusing on the must win deals might already also help improve this parameter as well. My second recommendation on how to increase the win rate is actually counterintuitive but I can assure you it does work.

Jim Dickie and Barry Trailer in their Report “Sales Performance Optimization – 2006 Survey Results and Analysis” are telling us, that respondents to their survey, have indicated that an average of about 20% of deals forecasted end up with no decision by the customer. It is probably safe to assume that if we consider the whole pipeline, this number is actually even higher. In my book, working on deals that lead to no decision by the customer is a waste of resources. Flushing out these deals from your pipeline frees up resources that you then can redeploy on winning the remaining deals or using it as a strategic reserve to start prospecting to start also filling the pipeline with new deals. The question you will certainly ask is: “How can I recognize deals that will end up with no decision by the customer early in the sales cycle?”. That is what qualification of leads and opportunities is all about. We will have to devote another entry to this subject.

Remains the question what we can do about the speed deals flow through the pipeline? Please bear with me that I postpone the answer to this question until we have discussed the question whether the “Pipeline” is the right metaphor to graphically describe our list of deals we know and are working on.

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