Sales Pipeline Management Best Practices
How Small Changes in Pipeline Management Deliver Big Changes to Top Line Revenues
Sales pipeline management and optimization are tasks that many sales managers have left unchanged for years—which is unfortunate as even small adjustments in pipeline management can yield substantive changes to top line revenues. Here’s some thoughts to revisit this critical business process and some best practices in sales pipeline design, operation and maintenance.
Rather than design the pipeline as a siloed storage container for sale opportunities, it’s a best practice to architect the sale pipeline within the bigger context of a revenue funnel. For most companies this means consolidating the Top of the Funnel (TOFU) managed by marketing with the Middle of the Funnel (MOFU) which is cooperatively facilitated by both marketing and sales and the Bottom of the Funnel (BOFU) which is managed by sales.
Managing the bigger picture allows sales to better understand pipeline health, including inflow, outflow, movement, stagnation and velocity. Further, designing an integrated lead-to-revenue funnel permits sales and marketing leaders to measure conversions and work backwards from slated revenue targets by knowing exactly what must go into the TOFU to come out the bottom. When this revenue reverse engineering uses actual data and known conversions, and not just hypothetical win rates or wishful thinking, forecasted revenue targets become systematically achievable and sales and marketing managers know how improving any specific conversion factor in the revenue funnel will impact revenue performance. This knowledge lets sales and marketing leaders prioritize their business process improvements in a way that most impacts top line revenues.
Forrester put out a study titled The New Physics of Lead-to-Revenue Management, which reported that on average, the end-to-end lead-to-revenue funnel conversion ratio is .75% (less than 1%). Top performers (defined as companies that attribute 50% or more of their B2B sales pipeline to marketing) did twice as well, with an end-to-end conversion ratio of 1.54%. The Forrester study defined four revenue cycle stages and conversions as MQL (avg 32% conversion, top performers 39% conversion), SQL (32% / 37%), Pipeline (28% / 34%), Won Deal (26% / 32%) and End-to-End (.075% / 1.54%).
The single biggest lost opportunity in pipeline development is lead leakage. The second biggest problem is pursuing unqualified leads or leads that can’t be won. Interestingly, these two perennial problems actually share a common solution — which is a three step process that includes accurate lead scoring, sales and marketing Service Level Agreements (SLA) and lead recycling.
According to Sirius Decisions, 80% of leads generated by marketing get ignored by sales. The stats from Gartner, Forrester and CSO Insights are nearly the same. Far too many marketers continue to throw unqualified leads over the fence to sales. And the result is both commonplace and predictable. Sales follows up the early leads, finds out the buyers aren’t buyers at all, and then discards most of the subsequent leads received from marketing. The qualified leads get buried with the unqualified leads and slip between the cracks.
Implementing a lead scoring model reduces lead leakage. The best lead scoring models include demographics and behavioral activities. Demographics such as company size, industry or geography which are aligned to your target market or ideal customer profile illustrate fit. Behavioral activities are generally captured by marketing automation systems and include prospect actions such as the amount of time spent on your website or the types of content consumed. It’s important to recognize that demographics only share your interest in the prospect, while behavioral activities share how interested the prospect is in you. When sales and marketing collectively identify the many combinations of demographics and behavioral attributes that sum to a sales-ready threshold score, marketing is then in position to only forward sales-ready leads to the sales force.
Sales and marketing Service Level Agreements (SLA) generally prescribe the quality and quantity of leads to be delivered by marketing to sales, and the agreed upon follow-up actions and timeframes sales will commit to those leads. From my experience in developing these SLAs, it’s essential to meet regularly to resolve SLA variances quickly. If variances get resolved timely, they tend to dissipate over time, and the SLAs actually work. Failure to monitor and resolve SLA variances will render the program ineffective.
Lead recycling is used to revert leads previously forwarded to sales, but for whatever reason then stalled. Instead of leaving the stalled leads to die a slow death in the sales pipeline, the leads are returned to marketing for continued nurturing until they return to an active state as determined by a lead score.
An Aberdeen research report, titled Lead Lifecycle Management, cited that, on average, only 16% of sales-ready leads actually close.
Hygiene and Maintenance
Lets face it, a lot of sales people have happy ears and wear rose colored glasses. This optimistic view has the result of overstating the volume and quality of sale opportunities. As a general rule, I recommend reviewing and removing any sale opportunity which has been in the pipeline for longer the twice the average sales cycle. I’m not suggesting these slow or stalled opportunities be abandoned, but instead be removed from the pipeline so as to not overstate revenue projections and reverted to earlier revenue cycle stages in order to receive more appropriate treatments — such as being placed in a nurture campaign.
I’ve also found that sale opportunity probabilities linked to sales stage activities tend to overstate pipeline values. The biggest problem here is that the typical sales activities (qualification, discovery, demo, etc.) are entirely focused on what the sales person does, and not linked to buyer advancement. Just because the sales person performed these incremental activities doesn’t mean the buyer is any closer to selecting that salesperson’s solution.
The average win rate (of forecasted sale opportunities) is 45.9%, with the remainder of lost forecasted opportunities broken down as 32.7% competitor losses and 21.4% as no decision.
- CSO Insights Sales Management Optimization Report
One More Thing
Having architected sales pipelines and revenue models for many years, I’m the first to recognize it’s easier said than done. One of the overarching challenges is sales and marketing alignment. It’s a challenge that is in large part self-perpetuated as businesses position sales and marketing as separate departments and incentivize those departments on separate performance objectives.
Only when sales and marketing share common objectives, integrate business processes to achieve those objectives and are compensated on those shared goals will these two departments evolve from siloes into an integrated business development function.
Morphing the marketing and sales funnels into a holistic revenue funnel and creating integrated sales and marketing processes such as a lead score, a lead management Service Level Agreement and a lead recycling program are instrumental in achieving an integrated sales and marketing effort which is focused on revenue generation.