Many companies experience wild fluctuations in their revenues: During one quarter, products or services are selling faster than proverbial hotcakes; but in the next quarter, the sales force can’t seem to give those same products away. “It’s either feast or famine,” is the all-too-familiar refrain. To exacerbate matters, these fluctuations are often unpredictable as evidenced by the countless companies that miss their revenues projections, unleashing the wrath of Wall Street. Many corporations have watched their stock price plunge because of a missed sales target.
Of course, every sales cycle has some degree of volatility. A big customer could go bankrupt or a major deal could fall through because of management changes at the firm. Conversely, sales of a new product could suddenly skyrocket because of a serendipitous endorsement. And there are certainly seasonal fluctuations and many other factors, including customer budgets that affect the sales cycle.
Aside from these, there’s another type of volatility that many executives seem to think is some kind of natural law. At the beginning of every quarter, sales tend to falter; at the end, they often surge. This continuous roller-coaster can be a huge problem when big deals fail to materialize at the last minute (that is, near the end of the quarter), leaving a shortfall. Indeed, the fear of that happening has led many companies astray.
Sales Funnel: The typical sales process is like a “funnel” (or “pipeline” or “conduit” or “hopper”, etc.): At the bottom are the deals that are nearest to being closed; in the middle are other prospects in the works; and above the funnel are numerous promising leads that need further investigation. Each of the three stages of the funnel requires different activities… At the bottom of the funnel, the company must remove all remaining obstacles to close those deals (for example, meeting with the final decision maker and ironing out the specific financial terms of the contract).
In the middle of the funnel, it needs to do important background work (for example, identifying the people at the prospective customer who could possibly veto the deal). Above the funnel, it needs to screen the leads to identify which should be pursued (specifically, determining whether there’s a good fit between the customer’s needs and the company’s products). And, of course, it also needs to continue prospecting to ensure a healthy supply of new leads.
Now comes the tricky part. Ask any executive, including those in sales, how to prioritize these three stages of activities and the answer is likely to be that the funnel should generally be worked from the bottom up. At first glance, that strategy seems to make sense. Why not concentrate on the surest opportunities first and leave the less certain stuff for last? But this prioritization strategy is the fundamental cause of the sales roller-coaster.
Here’s what typically results from a bottom-up strategy: The sales organization closes important deals and is busy moving prospective business from middle to bottom of the funnel. This is arduous work and, pressed for time, people just do not get around to generating any new leads. At some point, though, everyone begins to realize they’re in trouble because the funnel is drying up. This then results in panic and a flurry of activity.
Unfortunately, a company can’t instantaneously move a prospect from the top to the bottom of the funnel. Especially for big-ticket products, that process could take months, if not years. Thus, the company experiences a plunge in sales until it is finally able to move the crop of new leads down the funnel, which eventually results in a sales up-tick. But then history repeats itself because, as people focus on the bottom and middle of the funnel, they again neglect to prospect and qualify new leads. And this is why many firms experience the wild ups and downs of the sales roller-coaster.
Ideally, a company should have a continuous flow through its sales funnel, and the surest way to achieve that is to prioritize the three stages of the funnel in the following way: bottom, above and then middle. Note that the highest priority is to still attend to the deals that are nearest to being closed because they offer the quickest return on the future expenditure of a company’s time and resources.
And given the investment that a company has already made to move a potential customer from the top to the bottom of the funnel, it would be foolish to leave that prospective business vulnerable to poaching by a competitor. But the only way to ensure that activity above the funnel receives the attention it deserves is to prioritize it ahead of the work that needs to be done in the middle.
But that’s not to say that any company can afford to neglect working the funnel’s middle. Prospects there must still be shepherded toward the bottom so that those deals can eventually be closed. Somehow, though, people will find the time to work on customer prospects in the middle of the funnel (even when other activities might have a higher official priority as decreed by their company), whereas they always seem to be much too busy to concentrate on finding and qualifying leads above the funnel unless they’re absolutely forced to do so.
Better Funnel Management: And that brings us to the basic problem: Telling salespeople how to manage their individual funnels is one thing; getting them to do so is an entirely different matter. To accomplish that a company must implement various organizational measures. For starters, it needs to have salespeople regularly monitor and track the activity in their individual sales funnels. For instance, one salesperson might be spending 60% of her time at the bottom of the funnel, 20% in the middle and 20% above the funnel, while another salesperson might have a completely different breakdown.
Neither is inherently better than the other and, in fact, the two salespeople could have entirely different ratios for the following week. It is important to remember that the desired prioritization (that is, working the funnel from bottom, above and then middle) is just the static overall goal. Companies have to keep in mind that each salesperson’s time should be allocated in dynamic fashion, given the particular status of that person’s different customer prospects
That said, a company can uncover a number of problems by tracking the overall, combined funnel of its sales force. For example, a general lack of movement through the funnel suggests that people might be incorrectly classifying the different sales prospects (for example, thinking that a potential customer is in the middle of the funnel when it’s actually above it). Or if very few prospects are making it into the funnel, the firm might be having difficulty using initial data to predict whether there’s a match between its products and potential customers’ needs, and the company might do well to consider devoting more resources to above-the-funnel activities.
Institutionalizing better funnel management is admittedly a difficult task. But such a disciplined process is crucial, especially when a company absolutely needs to have a more predictable sales cycle. The simple truth is that the sales function is a definable, repeatable process that can be tracked, planned and managed, and those that believe otherwise will continue to suffer the many volatile ups and downs of the sales roller-coaster.