In a previous post I wrote about the five actions sales managers could take to improve the management of their sales teams. But how do you know you have a problem, or a need to improve. How can you foresee when things might go wrong? What are the indicators that help identify impending risks?
If you measure the performance of each of the members of your team, their average Opportunity Size, Sales Cycle, and $Win Rate (and remember it is important to measure Value Win Rate, not Number Win Rate) you’ll start to notice that some of the opportunities in your Pipeline are outliers that can slow down your sales velocity.
Here are five risk indicators that a sales manager should look for:
1. A Losing Sales Cycle Is Much Longer Than A Winning Sales Cycle
If members of the sales team are spending a long time on deals that they eventually lose, and that lost sales cycle duration is materially longer than the time spent on deals that they win, you probably have a qualification issue. You are not qualifying hard enough throughout the sales cycle. Typically Lost Sales Cycles – the time from when you identify an opportunity to when you even accept that you have lost the deal – will run at 150% to 200% of the Won Sales Cycle. That’s a huge resource suck.
Sometimes the ratio of Win Cycle to Lost Cycle suggests that you are not following up on early stage opportunities quickly enough and you are losing momentum. Research indicates that the seller who first presents a viable solution to a buyer is far more likely to win the deal, even if a better alternative is presented later.
Sometime extended lost cycle durations point just to poor data management in the CRM where opportunities that are really lost are not being closed out in Salesforce.
In all of these cases, it means that your pipeline value is overstated, and in the worst scenario it means that you are wasting resources on deals that you hope will somehow convert but are destined to be lost.
2. Won Deal Value is Smaller than Lost Deal Value
This is a hugely valuable indicator. If the average size of the deals you win is smaller than the average size of the deals that you lose, then all your ‘winning efforts’ is going into the smaller deals – probably not the best use of resources. Losing the big deals; winning the smaller deals. The underlying reasons for this usually are:
- An inability to sell value
- A tendency to discount too easily
- A poor understanding of the customer’s business requirement, and therefore an inability to connect your solutions to the customer’s business problem effectively
- A failure to communicate business value to the key business decision maker – sometimes because of an inability to access the key executives with effective business conversations
- Too little attention being paid to the larger deals because of ineffective opportunity triage or deal focus
A negative imbalance in the size of opportunities that you win causes a direct reduction in your sales velocity, and is a likely indicator that the value you currently expect from your existing pipeline will not be achieved.
3. Opportunities are outside your Sweet Spot
We have all fallen at this hurdle – pursuing those enormous opportunities that can make the year or quarter without having muscle memory on how to do a deal of this scale. If your pipeline has a disproportionate number of very large deals that are substantially larger that the size of deals that you normally win, it is likely that there is considerable risk to your pipeline or forecast, and consequently to your sales velocity.
Similarly, if your pipeline is full of many small deals, it is likely that you will spend equal resources on each of these deals, which means that you will just not have enough time to win enough opportunities to make your number.
4. Slow Moving Opportunities
A deal is unlikely to close if it has been in your pipeline for materially longer than the time it usually takes to win a sale. This is always true.
This speaks to point 1 – ‘Lost Sales Cycle duration is materially greater than Won Sales Cycle’ – and is one of the greatest inhibitors to sales velocity.
Be ruthless in assessing opportunities that are moving unusually slowly. It usually speaks to a lack of a Compelling Event, or suggests that an opportunity does not in fact exist.
This is why there are so many opportunities recorded as Closed Lost – No Decision.
5. Unbalanced Performance in the Team
Every sales organization will have its star performers, and we all wish we had more of them. Behind the star performers are core performers – those who usually make 50-70% of quota, and while they are not making quota, they contribute significantly to the business.
However, it is very hard to run a sales business effectively if a small number of star performers represent a disproportionate percentage of the revenue of the team. You can’t scale that, and you have an impending disaster when one of them does not perform or leaves the company. The key to reducing this risk is to focus your coaching efforts on the core performers, while replacing the bottom performers.
How to Mitigate Risk
The best way for a sales manager to mitigate these risks to forecast, pipeline and sales performance is to establish a mechanism to fully understand the key metrics that make up the sales velocity. Once measured and visible, these factors will point to the changes that need to happen and give early warning of impending problems.
- Once a month, validate your Sales Velocity numbers for the team and your individual sellers.
- Use the Sales Velocity numbers to really validate your Pipeline and Forecast to determine ‘at risk’ opportunities and develop strategies to win or qualify them out.
- Present the Sales Velocity numbers during your pipeline and forecast calls, to keep them top-of-mind for both yourself and your sellers. Recognize and share good behaviors based on the performance numbers.
- Set realistic goals for the sellers to improve their Sales Velocity Numbers, and create any sales readiness plans to support their goals.
- Use the Sales Velocity numbers to investigate performance in your 1:1s, and provide the right coaching and expertise on any given opportunity.
Being a sales manager is a tough job. Sometimes, when your overall number looks to be at risk, it seems easier just to jump in to try to close those critical opportunities yourself. But that never scales and doesn’t address the underlying problems, and then it just becomes a vicious circle.
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Donal Daly is Executive Chairman of Altify having founded the company in 2005. He is author of numerous books and ebooks including the Amazon #1 Best-sellers Account Planning in Salesforce and Tomorrow | Today: How AI Impacts How We Work, Live, and Think. Altify is Donal’s fifth global business enterprise.