Half of Your Sales Pipeline is Junk

John Wanamaker was an innovator, a merchandising, and advertising genius. But when he made the statement; “Half the money I spend on advertising is wasted, the trouble is wasted, the trouble is I don’t know which half.” He left legacy that has haunted marketers ever since.

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New research from CSO Insights suggests that the day may have come for sales. In their annual Sales Performance Optimization study of over 1500 companies across multiple industries, CSO found that the accuracy of sales forecasting fell to a near all-time low of 46.5%.   Or as John Wanamaker might say; “Half of your sales efforts are wasted, you just don’t know which half. “

And since the forecast, defined in the study as near-term (30, 60 and 90 day), is an output of the sales pipeline, one could also conclude that half (or more) of the pipeline is “junk.”

With the wide spread adoption and utilization of CRM (84% of the firms surveyed), marketing automation, and analytical forecasting tools, the question is how can this be?

Here are some thoughts on why this might be happening, and five tips to help you improve your forecast.

Reasons for poor forecasting:

  • Impurities in the System – let’s go after the big one first.  “Garbage in, garbage out”…as they say.  There’s a laundry list of things to look for — from reps putting leads in the system right before they close, to not updating opportunity consistently, and leaving in dead leads too long.
  • Sales Optimism – yes, the economy seems to be recovering but it may not be moving at the “speed of sales.”  Sales folks are an optimistic bunch; they want to believe things are better than they may be in reality.   For example, the average length of the sales cycle.  In a report earlier this year by BtoB Magazine, 43% of marketers reported that the sales cycle had increased over the last 3 years.  Which is consistent with the CSO Insights report where 42% of Chief Sales Officers stated that the sales cycle had lengthened, in particular with new acquisitions.
  • Incentives & Goalstake a look at how reps are being incented, and/or their sales goals.  You may find the reason why reps leave opportunities in the pipeline too long, and/or are over optimistic with their forecast.  Pressure to build and maintain pipeline can sometimes cause counter productive behaviors.
  • Gut Feel – even if the troops in the trenches are putting in accurate and timely data, the generals may change it to fit the political environment and/or their own personal bias.
  • Changing Buyer Behaviorrecent research has shown that the buyer’s journey, and the typical sales process are not aligned.  Buyers frequently start and stop the journey, or will cycle at a stage, and even move backward in the process.  CRM systems are typically designed in a linear approach, progressing from a lead to a close.  It’s an internal view, and increasingly out of alignment with buyers’ preferences.

How to improve:

  1. Active Pipeline ManagementThe pipeline and forecast will never be 100% accurate. That said, you should have a feel for how far off it is, and what is needed to improve.  For example, do you have an inspection process to keep the pipeline current?  If so, consider doing it more frequently.  Move quarterly reviews to monthly.  Also, if everyone is responsible for updating the pipeline, then no one is responsible.  Consolidate the “maintenance and hygiene” of the pipeline to one person.  Others may be responsible for providing updates, but one person needs to police the system.
  2. Discount Probability and Value – conduct a post-mortem on past forecasts over last year or two.  Assess the difference between forecasted and actual results.  Create discounted probabilities based on that delta for: lead movement (from stage to stage), and lead value. If implemented, evaluate the accuracy of your “pre-set” discounts.  It should help bring forecasts more in-line and ground “sales optimism” in a bit of reality.
  3. Govern the Process – to improve the accuracy of “output”, focus on implementing and managing a standard process.  Accenture’s Connecting the Dots on Sales Performance found inconsistencies among reps in using their company’s defined process and methodologies to selling.  A quarter of Chief Sales Officers surveyed stated that sales reps used their sales methodologies 50% of the time, 31% said it was used 75% of the time.
  4. Leverage Marketing – close the feedback loop with marketing to improve the quality of leads from campaigns and activities.   In a report on Sales & Marketing Alignment by the Aberdeen Group, marketing accounted for 47% of the sales forecasted pipeline in the Top 20% of companies studied, compared to only 5% of laggard organizations (bottom 20%).
  5. Utilize Business Intelligence Tools – high penetration rates of CRM may equate to high visibility, but doesn’t automatically mean that it provides the best insight.  Despite high adoption rates of performance dashboard, few companies are using business intelligence or analytics tools according to the Aberdeen Group report on sales forecasting.  However, the report found that 44% of the highest performing sales organizations were using predictive analytics to reduce “gut feel” in the forecast.

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Of all the options, perhaps the best lever for impacting accuracy is the rep.  As Ashish Vazirani, a Principal in the Hi-Tech practice of the sales consultancy, ZS Associates says;  “A sales person needs to be coached, or apprenticed on how to discern and input the right information for accurate forecasting. Technology can make us lazy and reliant on the tools to do the thinking, we need to emphasize the importance coaching plays in keeping the garbage out of the system. ” 

 Helping the troops become better soldiers through coaching should help improve the accuracy of the forecast.  As well as, implementing the tips mentioned above.  But you may still find that half of the pipeline is wasted, but hopefully, unlike Mr. Wanamaker, you’ll understand which half.

Unclogging the Pipeline

Original post date Feburay 21, 2009

This post was recently featured in an article on MarketingProf’s

Pipeline slowed to a trickle? Opportunities backing up, lead-to-close time seem like forever…yea, welcome to the recession. With customers delaying and/or postponing decisions altogether the ol’ pipeline ain’t what it used to be.

Here are 7 Pipeline Management Best Practice tips taken from leading companies that might help:

  1. Weekly Pipeline Meetings with Sales AND Marketing – yes weekly…and with Marketing, do it in country and at the region level. You may also do it at the corporate level with the CEO , like IBM.
  2. Apply BANT – CRM is great at increasing visibility into opportunities but it tells you nothing about why opportunities aren’t advancing. BANT will. By qualifying and re-qualifying opportunities based on Budget, Authority, Need and Time you will get to the bottom line on why leads are not advancing. Reps will say that it’s “B” but I wouldn’t assume that. Companies are still spending (not as much) but now it takes a C-Level to approve (is your sales force getting to “A)? Budgets have moved higher in the organization and have been centralized. Also, business cases are required for EVERYTHING so if you aren’t submitting one with every proposal you’re not address “N”. Timing (T) of course, things are slow so you need to find out as much as you can about when budgets might get released and then check again, then again…
  3. 90 day Movement Limit – this is one of my personal favorites. If a lead (that is truly a lead) does not advance within a 90 day window it moves back to the previous stage in pipeline or is killed. Given that lead cycle times have lengthened…considerably, you may want to make the window 120 days. Up or Out…learn it, live it, love it.
  4. Define a lead and stick to it – look, it’s going to be difficult road but be honest with yourself on what is truly a lead. A response to a campaign offering a free gift card, or a download of a white paper off the website, aren’t leads…they’re responses and should be treated that way. Leads are defined by meeting a BANT criteria…see above. People will want to get fast and loose with the facts to satisfy the sales force or make marketing targets but don’t let them…stay firm, you’ll thank me when the recovery starts.
  5. Response Management – so now that you’ve removed the “junk” out of the pipeline it’s time to do something with it. In reality responses aren’t “junk” (well, some are), they’re potential leads that just need to be nurtured…for a long time in today’s environment. Don’t disregard them, I’ve seen too many companies do nothing with this group. In the good times most of them would be leads.  How to find them? Simple, ask this question during you pipeline call; “who owns responses that aren’t qualified leads…” wait for the silence. Bingo, there’s your answer. Take the last 6 months of campaign response and start digging.
  6. Lead Gen to Sales Enablement – it’s time to move marketing down the pipeline. Lead generation aimed at acquiring new opportunities is a waste of money in a recession. The cost of a qualified lead has skyrocketed…don’t believe me go do the analysis you will be surprised and in some cases shocked. So it’s time to invest against sales enablement and helping the sales force move opportunities already in the pipeline. Here’s another fact for you…B2B sales channels create 80-85% of all leads so cutting lead generation programs will not hurt you…I’ll say it again, redirecting investments away for lead gen activities will not hurt the pipeline.  What is sales enablement, and how does it help the sales force? Well, it’s things like business tools that can prove a ROI, sales presentations loaded with proof points (case studies) on your value, and a robust customer reference program (see the graph above). By aligning marketing activities to moving the BANT levers you will be investing marketing dollars were they can have the greatest return…and your sales force will thank you for it.
  7. Comp on or Emphasize Customer Meetings – if you build comp plans based on revenue and lead targets/production you may want to consider over emphasizing face time in front of the customer for the first half of the year. You’re probably saying to yourself, “but Scott, why would I do that if customers aren’t buying?” Right, but they can tell you why, when things might loosen, and who you need to get to (see my rant on BANT in bullet #2). It’s during these times that you need to have your reps in front of customers so they can collect the information needed to provide you with update during the weekly pipeline call. Use your sales enablement team (see paragraph above) to provide them with high value material to share with customers in order to get those meetings. See how it all connects?

I hope this helps. Unfortunately, it looks like we’re going to be stuck in this situation for all of 2009. Be strong…the bad times, just like the good times, don’t last forever.

The Downside of Performance Based Contracts

The promise of a “performance-based” contract or a “risk sharing” agreement sounds so appealing on the surface but does it really live up to its lofty billing? Do customers really only “pay for performance”? And/or get what they are paying and if so, what does it take to make that contract work?

The Promise 
The concept has been around for many years and has been used successfully in the Public Sector and Health Care industries. Additionally, it has also been a very successful way to sell certain commodity products. More recently it has caught on with companies providing web and tele services.

Research on the prevalence of this pricing model shows that in marketing, online marketing services are dominated by “pay for performance,” especially in the area of search and advertising.

This trend is also carrying over to non-web based lead generation services like teleprospecting. With companies offering performance-based or risk sharing models, it seems like a good business decision when spending precise and sometimes hard to track marketing dollars.

But not so quick! It does sound good on the surface but read on to find out how it can go wrong.

At Risk” Contracts 
I recently had the opportunity to assess an outsourced lead generation program for a Fortune 500 company. The CMO of the organization was frustrated with the performance of the vendor and was close to terminating what had been a relatively successful 5 year relationship. Before that occurred, she asked me to assess the operation and the performance of the vendor, including the new Performance-Based Contract with an “At Risk” clause… recently forced on the vendor.

After visiting the operation and evaluating the program I concluded that:

  1. the vendor was actually performing exceptionally well given the situation
  2. the performance-based clause in the contract was causing counter productive business practices,
  3. the reason the vendor was not hitting their lead targets was actually the client’s fault and not the vendors.

The interesting part of the story that the CMO didn’t realize was that the vendor had 5 years of response data (by campaign, tactic and channel) including lead conversion rates by campaign type. The vendor also had very precise and predictable conversion rates for each stage of the pipeline. It was only a matter of flowing the right volume of responses from campaign activities into the top of the pipeline to create the number of leads needed to meet the target. All very predictable and a perfect set up for a performance-based contract, right?

Except there was one major problem…guess who was supposed to create the responses? That’s right, the CMO’s marketing team.  

This tele-qualification program was an inbound group that qualified responses coming from the client’s marketing efforts. Unfortunately, the client was not producing enough response for many reasons: under performing campaigns, inconsistent campaign activity with some months being totally dark, etc.

What is a vendor to do?
They start running their own campaigns to fill the gap because they don’t want to see their fees get hit. Here’s the not so funny part — their marketing campaigns start outperforming those of the client. Ha, Ha …the client is paying the vendor to follow up on their campaigns’, the only problem is that when they do the vendor loses productivity.

The vendor now doesn’t want to follow up on certain campaigns that it knows will be produce less than 10% response rates (because its own programs are producing 14%). Keep in mind the vendor owns 5 years of campaign response rate data it also can predict the lead yield from the client’s campaigns and so it begin to decline to participate in certain campaigns.

The vendor has now turned the tables on the client and is actually holding the client to its own version of a “performance-based” metric for campaigns, except it doesn’t tell the client that and it appears to the client that the vendor is now not only underperforming but also hard to work with because it doesn’t want to do certain things it knows are of low value.

Are you starting to see the mess?

Making it Work
First, create a real partnership with your vendor. Don’t put them in a situation where the performance clause of risking fees is used as a threat. A true “At Risk” model can be very appealing to senior management but may make the day-to-day vendor managers life a living nightmare.

If you decide to create an “At Risk” clause, be willing to add the “At Reward” clause as well. I’ve seen plenty of companies go for the fees at risk but balk at paying for performance that exceed targets. If you’re not willing to pay for the upside then don’t bother with the downside.

Finally, performance-based contracts can be a win for everyone just know that a vendor can’t do it all by themselves. It takes two to dance “the high performance dance” and if you’re not willing to do the “Tango” the dance can turn ugly. You start stepping on toes, tripping over each other and dancing to a different tune. I’m talking real ugly…think Jerry Springer on Dancing with the Stars.