BlogSale management: a risk of the pipeline review

Many companies organize their sales management around the weekly pipeline review: two hours (sometimes more…) dedicated by the sales team to the examination of live opportunities – often on the basis of reports generated by a CRM software.

 
The risk of this compulsary figure of sales management is that in reviewing each opportunity individually, the sales team loses its view of the pipeline’s general balance.

 
This will often translate into an unwarranted commitment to problem opportunities. Here is why.

• We all have a well-known psychological trait known as loss aversion. On average, to “psychologically” compensate for a loss, we need a gain that is 2 to 2.5 times greater.
• This trait is accentuated by what psychologist and economist Daniel Kahneman calls the “isolation error”: the tendency to worry about every individual risk factor without realizing that these factors can neutralize each other.
• And yet for a sales representative, what loss could be crueller, and what risk could be greater than to abandon an opportunity before the prospect has formally declined it?

We therefore wanted to suggest two tricks that may help your sales team overcome its fear of loss and rid its pipeline of the problem opportunities that suck-up resources with little chances of payback.

• Take some time to rethink your pipeline in its entirety, as if it were an investment portfolio. Selling one asset at a loss is painful but allows you to reinvest the proceeds into a more promising one…
• Remind yourself that a sales prospect that prematurely exits your sales pipeline is not completely lost: it is simply recycled to the marketing stage. You must plan specific marketing campaigns for this type of prospect.

 
Good luck!

Sales forecasts based on the judgment of sales reps have a bad press. However, behavioral economics and decision theory offer various suggestions to improve this judgment, and thus obtain better forecasts – well accepted by sales reps and directly integrated into your sales process.

 
This does not apply to companies with large sales volumes, structured and computerized value chains, and stable and significant market shares: traditional quantitative methods of sales forecasting are made for them. Such methods are well documented and supported by a large range of tools, from Excel plugins to specialised software.

 
But for other companies – read: most companies – sales forecasts are often very lightweight. The reason is clear: lacking the time series required by quantitative techniques, their sales forecasts rely heavily on the judgment of sales reps (hence the name “judgmental forecasting”).

Psychological biases of sales representatives

Sales reps (like everyone else) are susceptible to psychological biases that can affect their judgment: lack or excess of confidence, pessimism or optimism, selective memory… Furthermore, sales reps often produce their sales forecasts in a charged political context, because of the relationship between forecasts, quotas and bonuses.

 
Few companies know how to correct these biases, with two negative consequences:

• The forecasts produced by sales reps are not trusted and poorly used, even though the information they contain is invaluable.
• The forecasting process is imperfectly integrated with the company’s sales management process and tools (e.g. distinct Excel file vs. CRM software).

Effective solutions exist

All of this is unfortunate, because advances in behavioral economics and decision theory over the past 25 years provide us with an entire library of techniques to improve the judgemental forecasts of sales reps. These methods come in two forms:

• Minor but clever modifications to the forecasting process.
• Quantitative techniques to improve judgmental forecasts.

Many studies underline the effectiveness of these methods of reinforcing judgmental forecasts. These methods have two other notable advantages for your company:

• They can be directly implemented in your CRM software, thus transforming it into a veritable business intelligence tool.
• They put your sales reps’ knowledge and work to good use, thus contributing to the adoption of your CRM software.

 
Market finance has been quick to leverage the teachings of behavioral economics and decision theory. Has the time come for sales management?

One of the founding principles of SalesClic is that sales dashboards don’t work. Sure, modern CRM tools let you build sophisticated reports, tables and charts.

But past the first weeks of enthusiasm, most companies discover an inconvenient truth: nobody ever looks at these dashboards, least of all the populations directly concerned – sales reps and managers.

The red dots

We believe in real-time, in-context, actionable insights. We are therefore very happy to introduce an exciting new feature in SalesClic – red dots on the opportunity tiles.

Starting this Wednesday, these red dots will signal in your SalesClic pipeline the opportunities whose close date has passed. (We describe the other elements of the upgrade in this article.) [...]

The idea of a sales dashboard is appealing: what business manager would not like to run his company like a well-oiled machine, with the help of a few select indicators? But in practice, it is ironically the choice of these indicators that can stall the installation of the sales dashboard…

The purpose of this article is to facilitate this choice. Every company is certainly different, and it goes without saying that an industrial equipment maker cannot manage its sales process like a travel agency (for example). However, the 5 following tips will be helpful in the majority of cases.

1. Choose indicators that are useful throughout the sales process

As the saying goes, you cannot count your chickens until they hatch. Nevertheless, you want to manage your sales process continuously, not just once a quarter. It is therefore important to avoid indicators that only become meaningful at the end. For example, “Actual/Projected sales” is more useful when compared to its historical average at that stage of the quarter. [...]

A number of recent studies show that companies with modern sales analysis and forecasting processes enjoys faster sales growth than average.

However, most B2B companies cannot use well-established quantitative forecasting methodologies for lack of the large data sets they require.

If your company falls into this category, there are still easy ways to modernize and improve your sales forecasting. We describe 5 of them below.

1. Structure your sales process

Structuring your sales process as a “pipeline”, meaning into recurrent stages (i.e. “Suspects”, “Prospects”, “Needs Analysis”, “Negotiation”), allows you to measure 2 key indicators:

• The average conversion rate of opportunities from one stage to another
• The average lifespan of opportunities within a certain stage

With these indicators, you can estimate for each opportunity entering the pipeline:

• The probability that it will eventually be signed
• The duration of its sales cycle

[...]

Business forecasting is challenging for B2B companies, because B2B unit sales rarely support quantitative forecasting methodologies. Hence the importance, for such companies, of careful sales pipeline management and analysis.

This lack of large data sets doesn’t mean, however, that business forecasting should remain all art, no science. We have much to learn from behavioral economics and decision theory, from the sophisticated “quantitative debiasing of judgmental forecasts” to simpler, but equally efficient tricks.

As an introduction, I wanted to present 5 tricks validated by recent forecasting research and easy to implement in modern CRM software.

1. Explanation

Forecasts supplemented by a one-sentence rationale are more reliable, just because they are less mechanical. You should revise the rationale with each forecast update (ex. “moving the closing date from 31.03 to 15.05 because of recently surfaced compliance issues”). [...]

B2B companies often represent their sales process as a funnel. The sales funnel usually starts with qualified (or “sales ready”) leads and ends with closed-won opportunities. Modern sales methodologies insist on managing this funnel professionally. But how should it be structured in the first place?

Obviously, the answer will vary from company to company, but here are three quick tips to hone your funnel.

 
1. Meaningful transitions I

A good way to choose the right sales funnel stages is to focus on “meaningful transitions”, i.e. borders between stages representing a shift in the sales process.

In this respect, the distinction between “continuations” and “advances” established by SPIN Selling is very useful:

• A continuation is an action that is useful in the context of the sale (e.g. sending the prospect a presentation he requested) but does not “move the sale forward”.
• An advance is an action that moves the sale forward (e.g. answering an RFP formally).

This distinction gives you [...]