If we’re driven by data and interested in statistics, there are a wide range of sales metrics we can choose to monitor. Assuming that we have collected the data in the first place, we can measure win rates, sales cycle velocity, changes in deal value or close date and all manner of other indicators.
If our data is good enough and we know how to interpret it, and if we are able to slice and dice it (and I realise that these are big “ifs”) then we can come to some powerful and illuminating conclusions about how and where we can most effectively improve sales performance and revenue reliability.
But I have in mind a metric that’s rather easier to measure - even with the least sophisticated CRM system or spreadsheet - and yet is capable of driving desperately dysfunctional behaviours if it is not used in an intelligent fashion. Can you guess what it is?
It's raw pipeline value and in naive hands it has the potential to be “the most counterproductive sales metric”.
As with so many other apparently simple perspectives, raw pipeline value is more useful in predictable, straightforward, numbers-game-driven B2C or very simple B2B sales environments where output is closely and directly correlated to a combination of input and energy applied.
Quality is more valuable than raw quantity...
But in complex B2B sales, an obsession with raw sales pipeline value can lead to some truly counter-productive behaviours and negative sales consequences. Raw pipeline value is a quantitative metric, not a qualitative metric. We need to be aware of it, but we should not be using it as the primary measure of the health of our sales pipelines.
And even weighted pipeline value - if naively calculated in the traditional fashion by applying the same standard percentages to every opportunity that has reached a certain stage in the sales pipeline - isn’t that much better (the only effective way of weighting complex B2B sales pipelines, by the way, is to assess each individual opportunity’s chances of closing based on clearly-defined deal-specific qualification parameters).
But back to our old friend, raw pipeline value. As we’ve acknowledged, it’s a purely quantitative metric. It makes the assumption that the number and value of opportunities (regardless of their quality) has some sort of useful predictive value.
Driving dumb behaviours...
But far from helping, an obsession with raw pipeline value can actually hinder sales people, their managers and the demand generation folks in business development or marketing from making smart choices.
It can cause marketers and business development reps to believe they have done a good job when they flood the top of the sales funnel with weakly qualified opportunities that are never going to close and which instead act as a distraction from the unrecognised better-quality opportunities they are jostling for attention with.
And it can (I've seen it happen) discourage otherwise apparently sensible sales people from qualifying out their weaker opportunities for fear that their sales manager will give them a hard time for having a shrinking pipeline - an interesting manifestation of the "law of unintended consequences".
Sending out the right signals...
First-level (and above) sales managers have a significant responsibility here, particularly if their primary focus is on the easy-to-measure stuff (raw pipeline value) rather than the harder-to-measure but more valuable indicators that properly reflect the true quality of the pipeline.
You’ll probably have observed that top sales performers have too much respect for their own time to waste it chasing opportunities that are never going to close. They are appropriately ruthless in removing the dead wood. They have no problem defending the consequent reduction in headline pipeline value to their manager, because they know it drives superior results and higher commissions.
In fact, when you compare top performer productivity it typically shows far better conversion ratios than their less able peers. They know that winning four deals out of seven is far more effective than winning two or three out of ten.
Establishing a virtuous cycle of success...
Top performers use the time freed up to invest more time in the high-quality opportunities, and in conducting targeted prospecting to fill their future pipeline with more of the right type of deals - creating a virtuous cycle of success.
It’s obvious, isn’t it: if we focus our sales people on doing a few things well, both we and they will be more successful. But if we or our sales management team inadvertently send them signals through our obsession with raw pipeline value that quantity counts for more than quality, then we and they will get the results that those behaviours deserve.
If we focus on quality of both opportunity and sales execution, we will establish a platform for reliable, predictable performance and revenue growth. But if we ignore or downplay the importance of quality, we and our sales people will end up doing a lot of things badly.
By the way, if you are a salesforce.com user and have reached the stage where you are starting to realise the potential value of sales analytics to help you and your sales people to focus on high-quality sales behaviours, I strongly recommend that you evaluate InsightSquared. I’ve heard nothing but good things from the clients that are using their platform. If you’re not wedded to salesforce.com, then Membrain is a brilliant complex-B2B-sales orientated CRM with a bunch of invaluable analytics and sales guidance built in.
If you’re unable or unwilling to invest in these sorts of technologies at this time, I would at least recommend that you identify the handful of factors that best define deal quality and your chances of winning, and that you assess and assign a deal-specific probability based on these factors to every active opportunity. That way, when you run a weighted pipeline calculation you can at least be more confident that it will actually have some useful meaning.
But please, don’t rely on raw pipeline value as your primary metric. It’s more likely to lead you astray than lead you in the right direction...
IF YOU LIKED THIS, YOU'LL PROBABLY ALSO APPRECIATE:
BLOG: 12 key sales qualifiers
BLOG: Starting with "Why?"