ENTERPRISE SALES PROCESS & FORECASTING DONE RIGHT — Part 2

In Part 1, I covered the importance of having both a buyer-oriented sales process and well-defined SAL criteria. These are two critical pillars to have in place to help you 1) understand your pipeline and 2) diagnose performance challenges — the topics for this piece. 

Pipeline Comprehension: From Conversations to Projects to Selections. Making the power of Salesforce Forecast Categories Work for You.

With your sales stages now well defined (i.e. mapped to buyer behaviors) and a clear definition of a truly qualified pipeline, you can leverage the true power of Salesforce.com Pipeline Forecast Categories to grok the health and maturity of your pipeline.

There are 100’s of different terms and methodologies used by software companies to define their definition of what is Pipeline, Best Case, Commit, and Closed. In my opinion, it’s best to keep it simple and agree that a sales process is really about moving from Conversations to Funded Projects to VOC Negotiations to Closed Contracts:

• Conversations: This is the early stage of qualified pipeline where we are leveraging the discipline of discovery, the art of persuasion, and the impact of business value-oriented content to explain why a customer should invest in your product/product area and hopefully agree to a funded project. I usually see a minimum of two sales stages used here with the first stage being the definition of a qualified opportunity (ie a SAL) and the second stage related to a prospect either understanding the business value of a project related to your product or in actually building a business case if need be. 
• Funded Projects: This is the middle of the sales funnel where you are leveraging well-tailored demonstrations, relevant case studies, and competitive battle cards to properly differentiate yourself from the competition and hopefully move from a long list of considered vendors to a short list of vendors and ultimately, be selected. I usually see a minimum of two sales stages here to allow you to understand whether or not you have moved from a long list (i.e. RFPs) to an actual shortlist of vendors where the decision is down to you and a few others max.
• Vendor of Choice Negotiations: This is the bottom of the sales funnel where there is a funded project for which you have been selected and you are working together with the buyer on pricing proposals, implementation plans, contract redlines, and of course, handling all the objections IT and Legal usually throw up to slow roll your deal. Again, I like to see a minimum of two stages with at least one stage that indicates the customer is redlining documents as I have seen way too many reps forecast deals with a week to go in the quarter and the customer is not even redlining documents yet. This allows you to easily understand your commit risk if a large portion of your deals in VOC Negotiations have yet to enter the redlining phase.

From a mapping perspective, I recommend that you map your pipeline forecast categories as follows: all stages that fall within the conversations phase = Pipeline, all those that fall within the Funded Projects Phase = Best Case, and all those that fall within the VOC negotiation phase = Commit. Closed is self-explanatory :)

While allowing you simply to understand at a high level where all your qualified pipeline sits from your buyers perspective (Are they considering, are they selecting, are they negotiating, etc.), it also helps to guide you on where you should focus your sales enablement and sales product marketing/content. 

If deals seem to take forever to get from the Pipeline to Best Case (ie funded projects), then you have a top of funnel persuasion problem. If deals stay forever in Commit and you always have slipped commit deals that break your heart, it’s clear you need to look at how to remove all the obstacles you need to overcome to cross the finish line (a quick tip: look at your MSAs, SLAs and PS organizations and offerings first here).

Sales Over / Under Performance: Do we have enough at-bats? Truly understanding if you have enough pipeline coverage to hit your targets.

If you have followed the instructions I have provided and you now have a well-defined sales process, a well-defined definition of a SAL, and proper usage of the Pipeline Forecast categories, then congratulations! It will be simple to understand if you have or don’t have enough pipeline to make your target for any given period.

If you are an enterprise sales oriented company (ie > 4 to 5-month sales cycle and larger average sales prices), DO NOT add up all of your pipeline in the Pipeline, Best Case and Commit categories. Why? Because very little if any of your deals in the Pipeline Category will close — unless you have tripped the light fantastic and it takes less than 90 days for your buyer to decide to fund a project, run a selection process, negotiate a proposal, agree on an implementation plan, run a marathon backward while wearing a blindfold, and get legal and finance to agree quickly to a contract for an enterprise deal.

Instead, add up all your deals in Best Case and Commit and Closed with close dates in the quarter and that is your enterprise pipeline coverage for that quarter. A special shoutout to Jerome Terynyck & Dave Carter at SmartRecruiters for this keen insight. 

My general rule of thumb is that you want that coverage at a minimum to be 3x your financial plan number for that period (kudos for the overachieving rate-busters out there who prefer to use ramped quota capacity instead). Anything less than 3x your target means hitting your number for the period is going to be a struggle unless for some reason most of that pipeline is already in the Commit category.

I will cover this deeper (along with a helpful downloadable template) in another blog this topic but if you find yourself consistently below 3x (Best Case + Commit) , then you need as an organization to elevate the following metric to a top 3 metric for the entire organization — which is amount of qualified pipeline that needs to be created in a given quarter for future quarter sales success.

Sales Over / Under Performance: Convincing or Closing? Leveraging two simple but oh so powerful calculations to understand where best to focus on your sales process.

With a true understanding of both what qualified pipeline is and if you have enough pipeline or not, it’s time to now focus on the second key question on understanding sales performance — how good are you as an organization in closing the qualified pipeline you do have? For that, you just need to calculate and understand two calculations. For each of these calculations, you exclude any deals that have yet to make it to the stage that is your proxy for a SAL — i.e. I only care about performing the math below on real qualified pipeline.

Close Rate or how good are your teams at converting qualified pipeline to revenue. This is defined as:

Sum of Won Deals / (Sum of Won Deals + Sum of Lost to Competition Deals + Sum of Lost to No Decision Deals). 

Generally, as a rule of thumb you want to achieve a minimum of 33% here as out of 3 deals, 1 goes away, 1 you win and 1 you lose. Anything less than 33% means that your organization needs to deliver more than 3x qualified pipeline which can be unhealthy and expensive long term.

It also important to track the two lost categories — if your close rate is being dragged down by Lost to No Decision — this means your org is either doing poor discovery/qualification (i.e. wasn’t really a SAL) or is ineffective at convincing prospects the value as to why they should move forward on a new initiative in which your product will be considered.

If you see a much higher percentage tied to Lost to Competition, then you need to focus your org on driving differentiation and validation more effectively versus your competition. Perhaps identify your top two competitors and make it an organization-wide effort to crush them. 

To identify this better, I like to see organizations calculate Win Rate which measures how good you are at beating the competition when a prospect actually buys something. This is calculated as:

Sum of Won Deals / (Sum of Won Deals + Sum of Lost to Competition Deals)

You should look to achieve a minimum of 50% Win Rate across competitors and market segments. Ideally, you would target 66% Win Rate or you winning 2 out of 3 deals that go final. I like to track win rate by market segment, by competitor, and by sales teams. 

It goes without saying that for both of these calculations, you should be tracking them by both the sum of deal amounts and the count of deals. The former is the most important. However, calculating deal count ensures you don’t ignore the possibility that you may be losing many smaller deals. 

These two metrics are, in my view, corporate-wide top ten metrics to track. Additionally, they are the primary measurements you should use to evaluate the quality and performance of your product marketing team and output. Product Marketing’s job is to provide the content and messaging to ensure customers want to fund the projects in your category (“If I don’t invest here, I will fall behind”) and when they do, they pick you (“my highest chances of success are with this vendor”). The former is defined by Close Rate (and the minimization Lost to No Decision) and the latter by Win Rate.

Stay tuned for Part 3 where I will hopefully bring this all home and explain specifically how you can become best in class in enterprise forecasting and control the conversation effectively with your investors and boards around sales performance and whether or not you are in fact ready to add umpteen more account executives.