Monday, May 6, 2013

How to Manage the Forward Pipeline: The Difference Between Pipeline and Forecasting

Most sales managers rely on two key tools to monitor sales rep productivity: pipeline and forecasting. However, highly effective sales managers understand that there is a difference between the two.  

Forecasting is focused on later stage deals – the ones that are far enough along that you can begin to get a feel for the likelihood of success in the current quarter. However, forecasting does little to help with future quarters. Technically, pipeline refers to every opportunity a sales rep might be working on – including the ones that are far enough along to be at the forecast stage – but there are many other opportunities in the pipeline that are not that far along yet. We can designate these deals as being part of the “forward” pipeline, because they are focused on the future development of sales that ultimately impacts later forecasts.

The problem this creates is that too many sales managers don’t differentiate between the two, which often leads to sales reps not working hard enough or smart enough to develop the deals farther back in the pipeline. If this situation persists, sales reps will spend too much time on the forecasted deals and the opportunities deeper in the pipeline will be neglected, leading to a decline in deals that reach “forecasted” status in the next quarter.

What steps can managers take to guard against this confusion?
A lot of organizations still rely on the old 30-60-90 day predictive approach, as in, “it looks like this opportunity is about 60 days from closing.” The sales rep bases this estimate on the level of progress that still must take place within the account. The problem with the predictive approach is it makes it very easy for deals to get stuck and then die before anyone realizes what has happened. The sales rep can just keep pushing the deal back another 30 days, waiting on things to happen, rather than being proactive and working with the customer to make the deal happen (or put it out of its misery and mark it as lost).

A more sensible way to manage the pipeline is to monitor opportunity progress based on the length of the sales cycle, and link the work being done on the opportunity to the time it should take to close the deal. We might call this the cadence approach.
The cadence approach is based on the length of your sales cycle mapped against a defined sales process. The end in mind of the cadence is then to define accountability milestones throughout the sales cycle to make sure the right tasks and behaviors are being accomplished at the right time in order to advance the deal.
Let’s say a sales rep has an opportunity that has been in the pipeline for 10 weeks. If you have a cadence in place, it is a simple matter of checking to see what should have done by week 10. If those tasks haven’t been done, you know the opportunity may be in danger of being lost. As a sales manager, your responsibility at that point is to get with the sales rep, find out what the roadblocks are, and provide the coaching and support required for the them to get the opportunity back on schedule.

Once you start managing the forward pipeline this way, forecasting becomes less urgent but also more accurate. Sometimes people try to attach a forecast to an opportunity based on the time it has been in the pipeline, which is not helpful or at all accurate. An opportunity shouldn’t be assigned a forecast status until certain key objectives have been met. For example, does it make any sense to attach a forecast status to a deal when you haven’t even submitted a proposal? Can you forecast the success of a deal with any degree of accuracy when the customer hasn’t agreed to any next steps? As part of your cadence process, you should create a set of benchmarks that define when an opportunity is forecastable; anything that hasn’t hit those benchmarks remains in the forward pipeline and the rep should work diligently to keep it on track.

Managing the forward pipeline using the cadence approach makes it much easier for the sales manager to implement effective coaching. The important take away from all of this is that both the sales rep and the sales manager must work just as hard and just as smart when dealing with the forward pipeline as when trying to bring the forecasted deals in for a landing. The more seriously you attend to the forward pipeline, the happier everyone will be when the next quarter comes.