Sales Pipeline: How to Build a Healthy Sales Funnel
Do you know your number?
I’m not talking about your cholesterol level (I did have mine checked recently) or the amount of money you’ll need when you retire.
If retirement is too far off or too painful to think about let me shock you into a reality closer to home – how big your sales funnel has to be to achieve your quota next year. Let’s call this ‘your number’.
Your number is key to your sales success for a simple reason – you don’t have a 100% win rate. Unless your sales funnel is big enough – your number – you’re not likely to hit quota next year.
Building funnel health for 2012 is pretty much over. You need to turn your funnel health building to 2013. If you haven’t aggressively begun doing that already you could be in for an unpleasant surprise next year as you slowly discover the naked truth of your skinny, anemic funnel.
Let’s use an example. If you’ve got a million dollar quota and you have a sales funnel full of a million dollars of opportunities you would need to win 100% of those opportunities to hit quota. A better way to ensure success is to have a sales funnel with more than a million dollars of opportunities on it. But how much more do you need?
How much you need, aka your number, depends on your win rate for an average sized sale. In addition to knowing your number you’ve got to know your win rate.
If you have a 50% win rate for an average sized sale your funnel needs to be twice as large as your quota. A million dollar quota should have two million dollars of opportunities on it.
If you have a 33% win rate for an average sized sale your funnel needs to be three times as large as your quota. A million dollar quota should have three million dollars of opportunities on it.
If you have a 25% win rate for an average sized sale your funnel needs to be four times as large as your quota. A million dollar quota should have four million dollars of opportunities on it.
There’s an important safety tip to this strategy. It’s not about ‘filling your funnel’. It’s about TVR – Total Viable Revenue. A sales opportunity on your funnel can be counted toward funnel value (TVR) only if that opportunity has reached ‘commit funding’ stage.
You can’t fool your number. The only way you’ll consistently hit quota with a funnel that is smaller than it needs to be is if your win rate for the average sized sale goes up. Of course that can happen, but a dramatic increase overnight is not something you should bet the farm on.
Keep in mind that I’m using quota to make the point that on day one of your new fiscal year your number is a function of quota. But as you win sales throughout the year your number is a function of how much sales you have left to win to hit your quota. Your number goes down as you win sales. For example, in June if you’re halfway toward hitting a million dollar quota your number is a function of the $500,000 you have left to win.
Here are a few things you should consider doing now:
One, determine your number. Start with win rate. Then divide the number 1 by the percent win rate to get a number we’ll call the funnel factor. For example, a 25% win rate would get you a factor of four and a 50% win rate gets you a factor of two. Finally, multiply the remaining sales you have to close by your funnel factor. That’s your number.
Two, commit time to aggressive prospecting. It’s easy to neglect this part of selling because you don’t feel the effect of the neglect until it’s too late in the year when you discover that you don’t have anything on your funnel. By then you can’t do anything about it. It’s like maintaining your car’s good condition with regular oil changes and more to prevent it from breaking down on the side of the road later. Book prospecting time on your calendar for the next 30 days right now.
Three, build a habit of inspecting your funnel every 30 days. You sales funnel is changing all the time as you find and qualify and win and lose sales. Your funnel value is also changing. It’s a leading indicator that puts you in the driver’s seat for proactively running your territory.
The value of managing to this strategy is that you avoid surprises of having a funnel that isn’t big enough to let your win rate do its job. You stay on the offensive. You give yourself time to take corrective action if necessary.
So don’t wait. Go find your number. And while you’re at it get your cholesterol checked.