Today we are going to get somewhat controversial and go after one of the most widely used 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 in order to achieve their sales objectives, they need to set some minimum performance standards around pipeline or funnel activity (there’s certainly nothing inherently wrong with that logic). This usually takes the form of an educated guess as to how many open opportunities people must have in their funnel at all times.
For example, if the leadership believes the team has an average closing ratio of 20%, they must keep 5X their quota in their funnel at all times. If they believe the team closes more like 25% of their opportunities, they should maintain 4X their quota at all times.
While on the surface, this may seem fairly rational, 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 have seen.
Let’s unpack this issue a bit more to see why this is the case and examine an alternative approach that will achieve the desired objective more consistently.
The Formula for Sales Success
The motive for setting a funnel objective is certainly sound. In fact, sales success can be expressed as a simple mathematical formula:
ACTIVITY X PROFICIENCY = SALES
The key to the usefulness of this formula is to understand that we are using it to define how things flow through a process. Unfortunately, measuring the amount of opportunities that have accumulated at a given stage doesn’t ensure that we have adequate flow. In fact, it can actually create the opposite effect.
Let’s consider a typical example. In this case the company has instructed its sellers that they must maintain 4X their quota in their funnel at all times. Naturally, the first thing people on this team do is fill the pipeline until they hit that objective. No problems here, that’s a good outcome.
Unfortunately, dysfunction will set in as they begin to work these opportunities. In this case, the team expects to close 25% of the opportunities. 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, remove it from the funnel? It happens, but it certainly isn’t the norm.
So, let’s assume that another 25% of the opportunities we lose actually let us know we have lost. This means that in order to maintain 4X her quota in the funnel, the seller need only replace the 50% that she knows is either lost or won.
The reality is that ALL of it needs to be replaced on a regular basis, but she doesn’t realize it. With this 4X standard, the pipeline will become degraded over time and the closing ratio on those opportunities will actually decline. In fact, consider this: If a seller doesn’t close any opportunities, and adds anything to the funnel, the aggregate amount will actually increase while the seller fails miserably. Definitely not the desired outcome!
The Result of a Mismanaged Funnel
And what is the dysfunctional behavior this 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 frequently debate about 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 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.
Now at this point, perhaps you are thinking to yourself that this is the very reason 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 of this approach is that some of those older opportunities actually still are qualified, so you may be arbitrarily rejecting opportunities that should still be worked.
There is still another problem with this approach. Many companies find that over time they miss their objectives despite the activity targets. So what do they do? Raise the target to an even higher level. 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 even greater focus on funnel activity while eliminating the dysfunctional behaviors. Rather than a single target for an aggregate amount that is 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 mathematics are really 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) in order 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 the implementation within 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.
Want to know more about effective success planning, optimum predictive metrics or continuous sales learning? Send us a message or call us at 1-800-933-8503, we’re here to help.
Bob Sanders has more than 25 years experience in sales, sales management, and marketing. Bob has served as President and CEO of AXIOM Sales Force Development from 2006 to 2018. His passion about sales behavior and coaching helps develop people into their best selves. Since Bob joined AXIOM as a partner in the fall of 1993, he's helped dozens of companies around the world generate hundreds of millions in additional revenue. Bob holds a degree in Marketing from Miami University. He has been a keynote speaker at numerous corporate events and industry conferences. He is a founding underwriter and frequent contributor to the Sales Management Association. He co-authored AXIOM's “Selling Sciences Program™” workbook and audio program, and is a contributor on "A Journey to Sales Transformation". When Bob is not advocating on behalf of buyers and sellers worldwide, he is an avid cyclist, father, and husband.