We will get somewhat controversial with today’s article and go after perhaps the most widely used sales metric in all of sales management: The amount in the seller’s funnel. While it is absolutely true that sales is at least (in part) a numbers game, this particular number creates more bad behavior than any other sales metric.
Generally, the implementation of this metric works something like this: sales leaders decide that to achieve their sales objectives, they need to set some minimum performance standards around pipeline or funnel activity. While there’s certainly nothing inherently wrong with that logic, it usually takes the form of an educated guess on how many open opportunities people must have in their funnel at all times.
For example: If leadership believes the team has an average closing ratio of 20%, they must keep 5X their quota in their funnel at all times. If it’s more like 25%, they should maintain 4x their quota.
This seems rational at first glance, right? But assigning a single target for the aggregate amount of opportunities in their respective funnels at all times actually creates some of the least productive sales behaviors we’ve seen.
The Formula for Sales Success
The motive for setting a funnel objective is sound. In fact, sales success can be expressed as a simple mathematical formula:
Activity X Proficiency = Sales
The key to its usefulness is understanding that we are using it to define how things flow through a process. Unfortunately, measuring the number of opportunities accumulated at a given stage doesn’t ensure adequate flow.
In fact, it can create the opposite effect.
Let’s consider a typical example. In this case, the company instructs its sellers always to maintain 4X their quota in their funnel. Naturally, the first thing people do is fill the pipeline until they hit that objective. No problems here. That’s a good outcome. Unfortunately, dysfunction sets in as they work these opportunities. The team expects to close 25% of the opportunities in this case. However, the 75% that don’t close are still in the funnel — or at least a good portion are.
You see, people who don’t buy from us often invest little to no energy letting us know they’re not going to purchase. When was the last time someone on your team received a call from a prospect to tell them they lost a sale – that they should mark their opportunity lost and remove it from the funnel? It happens, but it certainly isn’t the norm.
So, let’s assume in this sample scenario that another 25% of the opportunities we lose actually let us know we have lost. This means that to maintain 4X the quota, the seller needs only replace the 50% they know is either lost or won.
The reality is that ALL of it needs to be replaced regularly, but the seller doesn’t realize it. With this 4X standard, the pipeline will degrade over time, and the closing ratio on those opportunities will actually decline. Consider this: If a seller doesn’t close any opportunities and adds anything to the funnel, the aggregate amount will increase while the seller fails miserably.
This is definitely not the desired outcome!
The Result of a Mismanaged Funnel
And what is the dysfunctional behavior this sales metric is creating? Clinging to existing opportunities instead of prospecting for new ones. In organizations that take the approach of creating a standardized target, sellers and managers debate individual opportunities.
Manager — “This opportunity has been in your pipeline forever. What makes you think it is ever going to close?”
Seller — “The last indication I got was that he really liked our proposal. He has just been swamped lately, so we haven’t been able to connect. But I really feel like we are in a good position.”
Manager — “When do you expect to hear from him?”
Seller — “I will ping him again today.”
Unfortunately, this conversation is in lieu of a more productive coaching discussion about how the seller is prospecting and qualifying and what changes can be made to improve the flow of activity into the funnel. And, candidly, the extent to which these conversations often devolve and distract can be overwhelming.
Perhaps you think that this is why your organization applies some additional logic, such as an aging rule to the funnel. Maybe you determine that anything over a certain number of days will no longer be counted. The downside is that some of those older opportunities are actually still qualified, so you may arbitrarily reject opportunities that should still be worked. There is still another problem with this approach. Many companies find that they miss their objectives over time despite the activity targets. So what do they do? They raise the target. Soon, these companies find that their top producers don’t actually have the minimum opportunity volume because their closing ratios and average sale values are higher than that of other sellers.
This leaves the entire organization questioning the logic of the target, further diminishing sales effectiveness.
Creating a Personal Sales Success Plan
The good news is that there is a simple, practical alternative that maintains an even greater focus on funnel activity while eliminating dysfunctional behaviors. Rather than a single target for an aggregate amount applied to everyone, why not use the above formula to create a Personal Sales Success Plan for each individual on your team? As you can see below, the math is quite simple.
Annual Sales Volume Required
÷
Number of weeks (or months) available
=
Weekly (monthly) sales volume required
÷
Average value of each sale made
=
Weekly (monthly) number of sales required
÷
Proposal ratio (percentage of opportunities that reach the proposal stage)
=
Weekly (monthly) number of NEW proposals needed to achieve target
÷
Closing ratio (percentage of proposals won)
=
Number of NEW opportunities required each week (month) to achieve target
By using this mathematical formula, each person and team can have their own specific sales success plan. Note the emphasis on NEW opportunities and NEW proposals. Unlike measuring the aggregate amount in a funnel, this approach focuses on continuous and consistent prospecting efforts, helping to keep sellers and leaders from becoming complacent when a stagnant funnel leads them to mistakenly think they have an adequate flow of opportunities. Moreover, since each person has their own unique plan, there is no risk that your most successful people “invalidate” your activity targets because they succeed without achieving them.
Perhaps the one challenge with this approach is implementing it into most CRM systems. Unfortunately, most are designed to report the volume of opportunities at a stage instead of the flow through the pipeline. That’s where the Axiom Success Plan application can help transform your funnel conversations by allowing you to create and roll up these individualized plans for every person and team in your organization.
Axiom provides a unique alternative to traditional sales training. Unlike traditional sales training events, we embed our methodology into your sales cadence, delivering dramatically better sales results. To learn more about our Mindful Selling Methodology, Kinetics Sales Effectiveness Platform, or our unique, guaranteed approach, please visit us at www.axiomsaleskinetics.com.
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