In our work with clients, we have identified three fundamental reasons why companies miss their revenue targets
- Not enough opportunities in the sales pipeline to start with
- Not enough of these opportunities are closing
- And the ones that close take too long to close
Fixing these issues can have very significant consequences on revenues.
- Improving pipeline provides directly proportional results. A 100% increase in Sales pipeline will result in a 100% increase in new sales, provided the quality of the incremental pipeline increase is comparable. In many cases, companies can grow their sales pipeline by two to five times by utilizing dedicated Business Development Reps (read Case Study).
- Improving closing ratios, however, can have more than a one-to-one impact on incremental sales. It depends on what the delta (the difference between the old and the new closing ratio) is compared to the old closing ratio. For example, if the old closing ratio used to be 15% and this was improved to 20%, then this alone will increase new sales by 33%. The same 5% improvement when going from 20% to 25% will produce only a 25% increase in new sales—which is still a substantial increase.
- Similarly, reducing sales cycles can have dramatic impact on new Sales. The analysis of the effect is a bit more complicated and we discuss some of the consequences here. However, briefly stated, reducing the time it takes to close deals makes revenues more predictable. This in turn enables a company to invest aggressively with more confidence in areas that impact its growth and profitability. Which only improves pipeline development, closing ratios, and sales cycles–creating a virtuous cycle.
In this article, we first define the problem and its causes. We then recommend some solutions we have seen work for other clients.
Insufficient Size of Sales Pipeline
Typically, when a company’s sales pipeline is shallow, it is primarily because it is relying on its Sales organization to build the pipeline, rather than on Marketing.
Ideally, two thirds of a company’s sales pipeline should come from leads generated by Marketing Operations, either through outbound campaigns or from inbound leads.
However, in many of the companies that miss their revenue targets, the opposite is true. Far too few leads come from Marketing, and sales reps are expected to prospect and build their own sales pipelines.
However, today, this is a nearly impossible task, and we discuss the reasons why in in a blog, “Why B2B Sales is no longer working”.
Low Closing Ratio
While the issue of Insufficient Sales Pipeline is primarily about quantity of leads, the problem of low closing ratio is one of poor quality leads. The issue is that “leads” that sales reps are working on are not yet well qualified.
These leads may be unqualified for one or more of the following reasons:
- The prospect doesn’t have a compelling need.
- The prospect has a compelling need, but there are too many show stoppers to make it work for the prospect
The likelihood that these kinds of prospects will become customers is very low. So why would Sales work on these?
There are a number of reasons why Sales take on leads that are not ready:
- Marketing campaigns are probably not focused enough
- Marketing is passing on to sales any “Lead” without first qualifying these
- Because sales rep don’t have sufficient sales pipeline, they tend to be apprehensive about letting go of even unqualified leads
This is a highly unproductive use of expensive sales resources. Yet, we see it happening far too often.
Prolonged Sales Cycle
In many ways, this is a variant of the previous problem. Eventually, a lead may closes, but it takes far too long. The reasons are the same as for those that don’t close at all:
- Not enough ROI for the prospect to move her along quickly
- Too many things that have to be overcome on the company side before a prospect agrees to sign
- Working with a prospect that has no decision making authority
- Working with a decision maker that doesn’t have a budget this year
Any of these reasons can cause a stall. In the meantime, sales reps continue to hang on this deal thinking it will close next month, and if not then, the month after… The close date on these deals keeps shifting forward—from one quarter to the next. Each quarter’s forecast is missed.
As in the case of low closing ratio, the problem of prolonged sales cycle is a quality problem.
Fixing Insufficient Sales Pipeline
The key to building sufficient sales pipeline is building a robust b2b Marketing Operation.
- Focus on the prospects that have the most compelling reason to buy.
- Refine your message to make your case quickly and clearly to them
- Educate and empower them with information so they know they are working with a company that understands their pain and potentially has a solution for their pain.
- Contact them at the right time so they welcome your calling them
- Have a Business Development Rep (BDRs) call, qualify to make sure he or she is talking to the right person and schedule time with one of your reps.
Fixing Low Closing Ratios
If a sales rep’s pipeline is filled with good quality leads, she is not going to be apprehensive about letting go the ones that are not likely to close. And because she lets those go, she will give her full attention to those that have a high probability of closing, which only increases the odds that these will close.
The solution, therefore, is to keep the sales rep’s pipeline 80% or more full at any given time. For example, if the ideal closing ration is one out of three, and a rep must close 20 deals a year to make her number, she needs about 60 high quality deals in her pipeline. At least 80% of these should come from Four Funnels operations (she can make the remainder through referrals and her own prospecting).
The key point here is to generate the necessary number of Marketing Qualified Leads (MQs) first. However, these should be well qualified before passing on to the sales team.
Fixing Prolonged Sales Cycles
By definition, leads that have a high probability of closing are the ones most motivated to solve their problem in the short term. This addresses the final problem of prolonged sales cycles. Motivated buyers have a timeline they need to keep and communicate that clearly. Whether they buy from you or your competitor, they will have arrived at a decision by then. There is no stalling.
The fix to long sales cycles is to improve the quality of the pipeline. The sales pipeline should only consist of highly motivated prospects with decision-making authority. The best practices for fixing this quality problem is to use a Four Funnels Methodology that enables you to control what’s in the sales pipeline.
While Sales reps are more than capable of qualifying prospects, they rarely do it since it is hard to connect with busy decision makers. It requires a great deal of dials to reach even decision makers that want to talk to a vendor. A BDR can make 80-100 dials a day and is far more likely to catch a prospect and make the appointment.
The conclusion seems to point to focus. First, focus on the right prospects. Then, focus the right skills on the right job. Let Marketing take care of the harvesting, let BDRs qualify and find the nuggets. And let your sales reps focus on closing the most motivated prospects. This is the Four Funnels Framework at work.