Sales Funnel

"How Your Sales Funnel Leads To A Predictable Sales Forecast"

A predictable sales funnel (SF) is something that every company looks for to help them make effective business decisions. Unfortunately, predictability is one thing that proves to be extremely elusive and hard to achieve. What sales people say they're going to bring in, and what they end up bringing in, is sometimes a pleasant surprise or it can result in an uncomfortable discussion.

As a sales executive, having an accurate picture of your business helps you run your business more effectively and smoothly. It is in your best interest to standardize on a set of best practices, metrics, and an effective repeatable process.

A sales funnel and a sales forecast are not the same thing. Your funnel looks at the overall health of all the deals in your pipeline. Your forecast maps your customer's buying cycle to your business periods to help you predict what business will close in a specific window of time.

Sales funnel management helps you estimate the probability that enough opportunities are moving towards closure to keep revenue flowing for a period of time. When SF opportunity estimates are compared against sales target, companies either let out a sigh of relief, or executives increase the collective anxiety on everyone.

Some people are very good at managing their SF while others are not accurate at all. This is why a good SF management process is important. Without a process that works well for your company, sales projections become subjective and unpredictable. And unfortunately, that subjectivity is usually amplified as it passes through each layer of the organization.

A robust SF is a good leading indicator of medium to long-term health of your sales efforts and it dampens wild unpredicted gyrations in forecasting.

Keeping all the deals in your funnel up-to-date is critical. Make certain you build a system or process with the proper metrics. And review the data constantly. Here is a sample of the types of data you want to track:

• Number of deals
• Deals per sales stage
• Size of deals
• Cost of sales
• Deal progression
• Velocity
• Resource utilization

Your review criteria can include things like:

• Best practices for each stage from your sales process
• Competitive issues
• Customer business issues
• Relationships
• Political concerns
• Decision criteria
• Continued qualification
• Discovery about the opportunity

As every sales rep knows, time can be their friend or their enemy. Deals can progress or regress, become stronger or weaker, or even become dormant and die. Keeping a SF pipeline healthy and composed of only viable deals that are moving forward will enhance the value or the SF for you and your company.

Key Consideration

Sales funnels come in all different shapes and sizes, and are comprised of multiple stages. Some are short and fat with big openings on top, and others are long and skinny with very few opportunities getting into the flow. Every SF has holes in it, which means not every deal that gets put into it works its way to the end as a closed sale.

Having some deals leak out of your funnel is healthy, as long as they are ones that you had a low likelihood of winning. If your review process is effective, you can identify the poorly progressing opportunities and remove them from the funnel yourself, saving precious time and resources for the deals that are winnable.

A major key to a healthy SF is having winning opportunities move through it at a normal or higher than normal velocity (time to close). Increasing the velocity has a large impact on your sales revenue. The velocity usually varies within different stages of your sales process and with the complexity of selling your product or service.

You can take proactive action when you know the typical time it takes a deal to make it through each stage of your funnel, and the entire funnel. If an opportunity is not progressing, determined the reasons and get the opportunity back on track, send it back for more extensive qualification or remove it from your funnel.

It is critical to have enough deals in each stage to keep the next stage filled. Knowing the typical percentage of deals that drop out of your funnel from stage to stage helps you keep each stage of the funnel filled. This helps you avoid the feast or famine syndrome that comes with an overstuffed stage, or an empty stage.

Sales Funnel vs. Sales Process

The review of a SF should track directly with your sales process design. The same stages of your sales process apply to the funnel. And the same gating activities and customer evidence determines when an opportunity moves from one stage to the next.

Try to keep the number of stages in your SF from becoming too extensive. Having four or five stages is generally enough for most complex deals. If you have more than that, your sales funnel discussions become too granular, and pipeline management becomes even more difficult.

Don't fall into the trap of trying to forecast, by taking the amount and size of deals in each stage and multiplying them by a fixed percentage for that stage. That is an exercise in futility. The stage of your sales process does not equate to the customer's probability of buying.

The buying event is binary. It either happens or it doesn't.

Only a few opportunities work themselves to the final closing stage resulting in revenue for your company. It is hard to know for certain which deals will be successful. But if you can identify those with the best probability of closing, those deals are the heart of your forecast.

Deal Size and Sales Funnel

Your sales funnel will have various size deals in each stage. You want to try to keep a well balanced funnel by focusing on large and medium opportunities. Don't spend too much time on the smaller opportunities. Try to move the smaller deals through the funnel with as little direct touch as possible.

Pay attention to all stages of the funnel. To create a healthy pipeline:

• Constantly look for new opportunities
• Move existing opportunities through the funnel
• Remove stagnant and low probability deals

Over time you build a more accurate algorithm of how many opportunities you need in each stage, the time for each stage, and the overall time it takes for an opportunity to work it's way through to closing.

You need to know the contents of the pipeline in both absolute and relative terms. Keep track of your pipeline revenue, but also compare it to your previous results and your current targets. You start to get a feel for whether you have enough opportunities in your funnel to make your target and revenue goals when you compare your current pipeline with historic trends.

Conclusion

Your sales funnels have to tell you overall revenue in the pipeline, and how projections relate to both new targets and historical periods. A well managed sales funnel gives you this critical data.

Make sure you are prospecting to fill your funnel, and qualifying to focus on the best deals. Remember, the velocity of your opportunities has to do with customers buying cycle, not your fiscal year or quarters end. A balanced sales funnel drives time management and sales related activities.

We would be glad to discuss your sales funnel and pipeline management requirements with you. Please feel free to contact us at info@sales-management-insight.com if you have any questions regarding this area or any other sales management issues. Please visit the other topics on our website or call us at 206 395 4388 if you have any other questions we can help you with.

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• Sales Process Design
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