Driving predictable revenue is what every company aspires to, whether you’re reporting to the Street as a public company or to the board as a private company. In order to do that, building your sales pipeline is critical.
However, building your pipeline is only half the battle. Revenue teams need to regularly analyze the health of their pipelines in order to keep them healthy, look for risk, take steps to minimize risk, and act to ensure that they avoid future risks. Here’s how to do that.
What causes risk in your sales pipeline?
The health of your sales pipeline can be derailed by two main problems: unreliable sales rep reporting and bad data. Either (or both) results in poor conversion rates or deals that are unpredictable in scope, budget, or timeline.
Let’s examine each.
Unreliable rep reporting. Many sales managers rely solely on their reps’ verbal reports and spreadsheets for the status of their deals during their one-on-ones. Reps can easily fall into the traps of sandbagging or happy ears, where they underreport promising deals or are overly optimistic about questionable opportunities.
These habits are natural, but are unreliable anecdotes for you to take action on.
A rep might engage in sandbagging behavior to keep expectations low, then consistently over deliver, resulting in what seems like a heroic end to the quarter. Alternatively, reps might get happy ears because they purposefully or inadvertently ignore warning signs of deals, count deals as practically done when they’re still up in the air, or hesitate to mark a deal closed-lost for fear of reprimand. This behavior results in a lack of visibility into the pipeline and inaccurate sales forecasts.
Bad data. Unreliable rep reporting is one version of bad data, but there’s more to it.
Organizations with a mature sales forecasting process know the pitfalls of relying on data manually entered by reps: it’s outdated almost as soon as it’s added to the CRM, there are missing details, inaccuracies or redundancies abound, and unavoidable human error creeps in. That’s why they use tools like Clari, which automatically captures deal activity from a variety of sources, and analyzes years’ worth of historical deal data to predict the likelihood of a deal closing so you can identify and save at-risk deals.
Why do you need to identify and minimize risk?
Reducing risk in the pipeline has numerous advantages. Focusing on pipeline weakness to turn them around can:
- Help the sales team improve their initial prospecting efforts and focus on the most promising opportunities that are likeliest to close
- Ensure that at-risk deals are flagged and addressed early in the sales process to provide more long-term pipeline visibility for sales reps and managers
- Provide a more predictable sales forecast
- Provide opportunities for rep coaching.
If organizations don’t minimize the risk in their sales pipelines, they’ll suffer inaccurate forecasts, a lack of pipeline visibility, and an overall unhealthy pipeline that produces an unreliable revenue stream.
In the best-case scenario, the organization won’t be able to grow or plan for the future. In the worst case, it won’t have a future at all.
How can you identify and minimize risk in the sales pipeline?
To minimize pipeline risk, focus on the data. Analyze your pipeline for the following key pipeline metrics, which can provide you with a solid understanding of where your sales opportunities stand:
- Number of total pushes, which can help you understand which deals have been pushed out to future quarters and why. A deal that continues to get pushed may mean the prospect is either unwilling to commit, can’t find budget, or doesn’t have the buying power to make the decision.
- Number of days in current sales pipeline stage, which can help you understand why deals are stuck in the sales funnel and strategize how to move them forward (or know when to cut bait). If a deal is stuck in a current stage for too long, either the rep hasn’t been able to get a commitment or the right access to the right executive buyers. You want the buyer's journey to be smooth and predictable. Identify the immediate follow-up actions that need to be taken and execute to avoid risk.
- Deal activity score / number of activities and engagements, which reveals how healthy deals truly are. Sales activity automation allows you to automatically track the engagement between your prospect and rep, including emails, files sent, meetings, and more. An opportunity with lots of back and forth means the prospect is engaged and likely healthy, while the opposite is true for a deal without activity.
- Age of opportunity, which speaks to your average sales cycle and sales velocity can help you tighten it if needed to meet your revenue targets. Deals that begin to exceed your typical sales cycle can end up being a time sink for your reps who are chasing revenue that may never materialize.
- CRM score, which factors in historical win-loss data to represent how likely a deal is to close. This is a good data-driven barometer for the health and status of a deal. New AI and machine learning tools can help you analyze the behavior of your past deals and compare them to your current open opportunities to understand whether they are tracking like a deal that closed won or lost in the past.
We’ve outlined what each pipeline metric is, how to measure it, and how it can help you identify slipping deals, unhelpful behaviors, low win rates, and other indicators of pipeline risk.
Together, these pipeline metrics help sales teams prioritize their time while improving their sales performance for future deals. Documenting these metrics can help organizations:
- Create playbooks with actionable steps to de-risk deals
- Embed these metrics into everyday sales cadences, like one-on-ones, forecast calls, QBRs and pipeline calls
- Identify any gaps in the sales methodology or sales process that put deals at risk
There are also interpersonal and behavioral factors to take into account when assessing your pipeline for risk. The biggest concern is leaving reps to fail alone. Sales is a team sport, and reps should be encouraged and supported in their efforts to tap helpful resources, make critical calls, and ask for help.
How to quickly identify at-risk deals with a four-point deal inspection
Once at-risk deals have been identified, reps and managers need to strategize how to handle those risks. Sales reps and managers should be cleaning the pipeline this way on a regular basis, not just monthly or quarterly.
At Clari, our template for addressing wavering deals involves asking ourselves the following key questions, in what we call the four-point deal inspection technique:
- What’s changed? You’ll want to carefully examine the deal to determine what elements of it have stalled. The Clari platform automatically reviews factors such as deal size, forecast, activity, and close date, and then clearly displays that information in a dashboard to give an accurate, data-driven picture of where a deal is headed.
- How likely is this deal to close? Clari analyzes historical close rates, win rates, and conversion rates to calculate an opportunity score, which reps and managers can use to assess the likelihood of a deal closing and improve the accuracy of their forecasts.
- How much activity is happening on this deal? Clari’s Activity Insights panel automatically pulls in all deal activity data like emails, calls, meetings, and marketing campaigns, so you can easily track your prospects' engagement.
- Is the deal following our prescribed sales process? Sales reps and managers should regularly assess whether they’re following the organization’s preferred sales process. Clari’s Details panel can be customized to include the unique fields your team uses, both to ensure a deal is progressing properly through the different stages and to allow sales leaders to review whether due diligence is being conducted and data is being properly captured.
Proper sales pipeline management
The best way to minimize risk is to avoid it in the first place.
Active, effective sales pipeline management helps you build and maintain a healthy sales pipeline full of opportunities that you both want and will be able to win. According to Harvard Business Review, companies that practiced effective sales pipeline management had a 15% higher average growth rate than those that didn’t, while organizations that clearly defined their sales processes, spent at least three hours every month managing each rep’s sales pipeline (however, using our four-point deal inspection, that time could be easily reduced), and trained sales managers on pipeline management enjoyed 28% higher revenue growth.
So what constitutes effective sales pipeline management? A few key steps include:
- Clearly define each stage of your sales cycle, as well as relevant terminology. You want the term commit to mean the same thing to everyone.
- Identify how many opportunities, on average, move from one stage to the next.
- Determine how many opportunities you need to convert at each stage to meet your revenue goals.
- Consider what opportunities that move on to the next stage have in common. Find out which rep, manager, and customer behaviors—including those of new opportunities and potential customers—seem to result in progress.
- Build a consistent sales process around the numbers and behaviors you’ve identified in the previous steps.
While many sales teams assume a coverage ratio of 3X when building their sales pipelines, that isn’t necessarily the right goal for your company. It’s much more dynamic than that. Your organization’s ideal pipeline coverage ratio will depend on factors including your business sector, sales cycle length, average deal size, conversion rates, and more.