Filed under: Something I now realize I did wrong as a CRO - and you may be thinking about incorrectly, too.
It’s the “pipeline-to-quota requirement ratio” - which sounds like this (and I probably said this at some point):
"We close 25-35% of our qualified pipe, so our pipeline needs to be 4x our quota at all times to ensure we always have enough to hit our targets."
Seems logical, right?
Well...only if we’re looking at it from a pure algebra perspective, where:
(Quarterly Target) X (Percentage of your Qualified Pipeline you close) = the amount of Qualified Pipeline you need
I now realize that the math is correct, but not the logic.
My first sales job - a metrics beating
My first real sales job was with an overnight shipping company called Airborne Express. Living in Southern California, I thought I was so cool being provided with a company car - a baby blue Chevy Corsica - which I affectionately referred to as my "Porche-ica".
Along with that car, I was provided other things that weren't as great:
- An old-school-jackass of a boss...
- ...who required we wear a suit every day. I only had enough money for two, bought from TJ Max, which I wore down to the threads.
- ...who created an environment that was ONLY about metrics, which he beat us with.
Everything centered around these three metrics:
60 cold outreaches per day
20 face-to-face interactions per week
3 new companies shipping with us per week
It was all in the numbers. As a matter of fact, I wasn’t allowed to be sick. When I had a 102 fever and wanted to stay home, he told me how he closed his biggest deal when he had pneumonia, and to get my ass into the office if I wanted to keep my job.
Each Friday, our office received a printed out listing of every shipment made out of our region for the previous week, which also showed all of the new ones. We had to go through and provide our boss with the three new ones that started shipping that week as a result of our efforts - matched up against our proof that we (a) called them at some point, and (b) met with them at some point.
Yes - we had to note every call and every meeting.
No - you didn't want to leave on Friday afternoon only having proven that your efforts resulted in < 3 new companies shipping with us that week.
Yes - the algebra was correct most of the time:
60 cold outreaches per day yielded 4 new appointments scheduled.
4 appointments per day = 20 face-to-face interactions per week.
On average, 20 meetings = > 3 new companies shipping with us.
Even back then, I thought this was a stupid way to think about sales.
I could covert more of those 20 meetings into new sales if I just had the time to prep for those meetings, making each one more effective...
...and, if I could close more than 3 of those 20 meetings per week, then I wouldn't have to either (a) have 20 meetings per week, or (b) make 60 cold calls per day...
...WHICH WOULD GIVE ME THE TIME TO PREP FOR THOSE MEETINGS!
The "Pipeline Coverage" Myth
The same perspective changes everything with regards to how much qualified pipeline you need at all times in order to achieve your targets.
If my goal is 3-4X of my target in qualified pipeline, that's what I'll do. However...
If I did a better job of qualifying up front, spending less time working on opportunities we are likely to lose, I wouldn't need that much pipeline - because I would be closing a higher percentage. And my time would be used more efficiently. In other words...
...BETTER UPFRONT QUALIFICATION MEANS MY PIPELINE COVERAGE MAY ONLY NEED TO BE 2X. FOCUS ON THAT!
The 25% - 35% pipeline-to-close is the issue. If we did a better job qualifying IN our qualifying OUT opportunities, that ratio moves closer to 50% - 60%.
I mean - isn't it kinda dumb that we find an opportunity that meets all of our qualification criteria, and we only close 1 out of 3 or 4?
It's one of the magical impacts of leading with transparency!
There's a reason why we all look at reviews when making a purchase online, and why we read the negative reviews first. We want to qualify IN or OUT our own purchases quickly.
Be the buying sherpa. Do their homework for them. It builds your relationship on a foundation of trust, and helps the buying brain predict.
“Our solution doesn’t do X. If that is going to be important, let’s discuss...and it may just mean we’ll refer you to someone who does. If you’re ok with not having X, we give that up so we can be great at our core - which is Y & Z.”
Doing that - leading with what we give up, and letting the client tell you whether it's important or not, qualifies IN the opportunities that you should be spending your time on - the ones you should win.
AND - it also qualifies OUT the opportunities you are likely to lose anyway. As the old saying goes - if you’re going to lose, lose fast.
And when you do, you won’t need 4x pipeline-to-quota. It should be closer to 2x.
Which also means your time will be optimally spent - less time on the losers, more time on the winners, and the extra time spent finding more winners.
Leaders - managing to averages makes you average.
Think about those metrics. Do they make sense? Are the metrics telling us we're wasting a great deal of time?
And, as Arthur Dunn said in his 1919 book, Scientific Selling And Advertising:
"If the truth won't sell it, don't sell it."
Transparency sells better than perfection, but it also qualifies better.