What is the right pipeline mix of volume and value?
When sales consider quota they think about the amount of business they need to bring into an organization, in any given period. What sales don’t really care about when setting a quota is what units of sale that quota needs to be made up of, but this is critical information when designing a demand generation program?
If a team of ten sales people has a quota of twenty million, then each sales person on average will have a quota of two million, discussion over, LET’S GO! Focus, commit and close! That’s what we all expect and love about high-energy sales focused teams.
But now the fun starts, sales need $20,000,000 in closed business, and they therefore need a pipeline of maybe three or four times that, or $60,000,000. Sounds fine.
Now the marketing person will ask some questions. The first will be how much do you think each deal will be worth, on average. And the response will often be in the range of fifty thousand to one hundred thousand dollars (average enterprise business values). In this example that means that sales will need to close around 200 deals ( 200 deals x$100K=$20,000,000 ). So around 20 deals a salesperson. This generally sounds okay to sales.
Then the marketing person does the next level of math and says that means each salesperson will need to work on average 60 deals to get those 20 won deals. And the sales manager looks on and says “no way, our sales people can only work on a max of 40 per year based on the sales model (enterprise sales averages).”
And the issues start to unfurl, and the previously simple sales plan becomes more complex.
Now sales either need to focus on bigger deals or work more deals. Each choice is not an easy option. Bigger deals take longer to negotiate, and are harder to close, while more deals take more sales people. So how do you resolve this issue?
Well it’s easy, blame marketing – marketing you just need to qualify them better, and only pass the crème de la crème to sales. Now if sales don’t get enough creamy deals, well that’s marketing’s fault. So now the issue is marketing and not sales.
And if that excellent bit of sales negotiation shine doesn’t stick we can just blame the product – ask the product manager to build a better product, because if the product is cheaper than the competition, and it’s better than the competition, sales can win more of the deals from the pipeline. So now the issue is the product and not sales.
And so the three way complex relationship between sales, marketing and product development that exists in virtually every company persists.
Of course there is a better way – Actually work the equation through as a team.
A better product always helps, as does better qualified marketing, as does a sales team that can manage more opportunities effectively. When all three groups share the same goal, and share the same reward model, the whole system becomes aligned and everyone wins. But the right answer will be a compromise, with every group recognizing the importance the whole team plays in success.
If the different groups have different unaligned expectations, the chance of success quickly moves into lottery odds territory. And if the executive team who sits above sales, marketing and development functions in a company allow multiple goals that don’t align the results are exactly as deserved. But when leadership encourages teamwork the magic happens.
This critical planning exercise is incredibly difficult, but every single time I’ve been part of a team that has consistently achieved and exceeded targets, this is exactly the relationship and teamwork that has been in place.
When sales plan the detail of deal volume and deal sizes, and this is the basis of marketings demand generation plans and both are based on a solid understanding of the product roadmap in terms of timing and qualities, then the forecast created for the business can be amazingly accurate. And accurate forecasting means even better planning.
This is not rocket science, but it is a science, and it takes teamwork, amazing innovative thinking and success and is the most fun you can ever have in business.
When a company get this model right everyone wins.