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Leading Indicators tell you the future

 

… and Lagging indicators tell you what just happened.

 

 

Leading or Lagging KPIs?

As managers it is our job to have a good view of our business, at all times. For this we look at our processes, and define some key measures along the flow. These measures, that tell us how much or how well we do things, we refer to as KPIs, or Key Process Indicators. Often you will see that any process is split into a sequence of process steps. This way it is easier to isolate and consider each step separately and study their charateristics.

 

When we measure things that go into a process step, to predict what will come out on the other side, this is known as a leading indicator. Leading indicators are generally more difficult to measure, but make it possible to influence the future result. Typical leading indicators will be focus around activity and capacities, e.g number of visits, meetings and proposals made.

 

When we measure on the result that comes out of a process, we talk about a lagging indicator. Results are per definition things that already happened. They are easy to measure, but are generally very difficult or impossible to influence. Typical lagging indicators are sales revenue, profitability, quantity sold.

 

 

Most sales organizations have focus on the lagging indicators of the business. i.e. Orders received. These are often easier to measure, and tend to be available through accounting, ERP and CRM systems. However, it is important that we also look at the leading indicators of our business to establish that we are undertaking the right amount of activities, of sufficient quality and in the right direction that will give us the results we need.

 

 

 

 

 

 

Activities Drives Sales

 

We should always look for leading Indicators when we want to see how we will be doing. Lagging indicators, such as last month’s sales numbers tell us what already happened (was sold last month). They say nothing about our coming months. When we are looking for predictability, and to plan our work we need to look elsewhere for guidance.

 

Many companies analyse the sales pipeline to predict future results. But the sales pipeline is just a static snapshot, it tells us how many opportunities there are right now in every sales step. In other words, what work we have invested to move each opportunity to where it is now. If we do not spend a minute of work on any of the opportunities at all for a month, our sales pipeline would look exactly the same a month later. The deals would just be delayed a month, except that we would probably lose some.

 

If you use Pipeline data, do look at the change in pipeline, rather than the absolute numbers. Examples of forward looking Pipeline KPIs you may want to consider are:

  • New Opportunity last 30days (Value and # of opportunities)
  • Time Opportunities are in same stage (per stage)
  • Number of transitions, forward movement between sales steps

 

These are the direct results of the amount of customer interaction that is done and of how well the interaction went, thus indirectly measuring quantity and effectiveness of Activity. We recommend however that you work with Activity data in an active way to complement these more traditional views. For this, it is important that calls, video, visits are registered. In our opinion, it is preferred that all activity gets at least a quick mention and an entry into the system. Prioritise getting at least some information about all activity, rather than asking your team to write long visit reports, as this almost guarantees you that only very few will be made.

Today, you need more leads than ever!

4 reasons you need more leads today than you used to

You probably already have a pretty good idea about your teams performance, monitoring basic sales process and metrics. You know how many leads enter in one end, and how many turn into qualified prospects, and later into deals. You are controlling your conversion rates and you are constantly trying to find ways to improve them.

Just increase the conversion rate and you will do well” is the common recipe.

Yes, increasing your conversion from lead to actual sales is of course important. But, a “conversion rate only” strategy depend on individual skills, and introduces a serious scalability problem. Why? Here are a few things to keep in mind:

 

Diminishing benefit per transaction

First, the benefit you get from every transaction is not what it used to be, especially in Software, the introduction of SaaS models, initial deals are smaller, you may find yourself with initial benefits/margin from the first contract not even covering your transaction cost. Over time and with Customer Success management, you will win it back many times – but in the meanwhile you need to finance your activity. 

 

 

B2B sales remain complex

But, you may say, a customer who used to need 5-6 months and 8 signatures to pass you an order of 100.000 Euro, today the same guy pay a subscription fee of 2.000 Euro/per month. At least one could expect the purchase decision to be easier for the customer. This is often not true. The decision to implement a software solution, is STILL associated with great risk later on in implementation and usage. 

For the customer, the main part of the actual transaction cost is not in the price, but in the implementation of new processes, adoption of new technology, the product cost over the whole lifecycle, perceived risk of cloud hosting etc. So, even if your contact could sign off on the initial contract, he or she will not take the risk without doing all the evaluation work, proofs of concept studies, and anchor the decision with his peers and managers, just like before.  

 

 

The “educated” Lead

Additionally, today your leads already come to your “shop” well educated. They have studied your offerings on the web, certainly also your competitors offerings, they understand the basic benefits of the product etc.

They find plenty of information on the web, before you even get a chance to talk to them. Even if you have got the lead through outbound activities, your leads will browse around to educate themselves before buying anything from you. This makes traditional selling even more difficult than say 20 years ago, and your transaction cost (“cost of sales”) increases.

 

Sales conversion takes sales skills

Increasing your win-rate, or conversion rate, from the leads that you have essentially depend on the skills of your sales reps. Meaning their personal skills on: how to create a buying vision, how to meet objections, manage the process… how to turn a sceptic prospect into a devoted believer. These skills take time to develop, and only a few reps will become real stars.

Long learning curve, and total dependence on your key seller(s), doesn’t really sound like a very scalable model to build your business on, does it?

 

 

Get the Lead-Machine working, and qualify well

 

You need more efficient ways of increasing sales than to just hire more and “better” sales reps:

  • Lead generation is key – build a lead strategy, get enough (online) qualified leads for your sellers. Traditional cold calling to people is dead, so you need to find other ways of reaching out. You need to create an abundance of good leads coming in. If you have few leads coming in, you risk having sales spend its days calling the same leads time after other, “loving them to death”, but… not selling anything. There is a lot of truth to what SaaS-sales gurus Aaron Ross and Jason Lemkin say in their bestseller “Predictable Revenue”: – “Lead Generation drives growth; Salespeople fulfil it”.
  • Work pipeline efficiency, rather than conversion. Get skilled at early qualification! (Or rather disqualification). It’s all in that first sales-call. If you can, specialize a group of reps for this phase, qualification, and make others good at follow through, negotiate and close the deals. Provided your lead generation phase provide you with working material, your qualifiers will dare do a real qualification, and use the right questions. See my article on Qualification and pipeline efficiency.
  • Be “data driven” – Make everything measurable – so that you actually know when you are improving and when you are not. Today there are plenty of good CRMs and marketing automation tools out there, from which you can get all kinds of statistics that help you work your efficiency.  (Also make sure you work the 100% adoption of these tools in your teams, see “love your CRM”)

 

 

 

 

 

 

Sales Efficiency – the art of disqualifying in time

Efficient sales – pipeline control

 

If we knew from the beginning which deals we will actually win, I think all will agree that we would only be working with those deals. So, the earlier we can qualify opportunities and the better we do it, less time we will spend on deals that will not be closed. The larger the opportunities, the fewer transactions we need to juggle simultaneously, and better our life. Easy! Or…?

 

As the teams Sales manager, one of your most important tasks is to improve and identify challenges in your teams pipeline management, and opportunity control.  Pipeline Efficiency should be your mantra.

 

Introducing Pipeline Efficiency

 

How much of your team’s time is spent on deals that will never happen?

Let’s say you get 300 online-qualified leads from marketing, and from those you close 10 deals on average. Great! But now look at the effort spent to get from 300 to 10!

 

Look at the picture below, all three curves start at 300 and end at 10. The conversion from lead to deal, win-rate or conversion rate is the same in all cases. The hours you and your team have spent getting there (the area under each curve), however, is very different…

 

 

 

You probably will have other names to your pipeline stages, these names are merely for illustration purposes.

 

The green rectangle in the bottom represent the work you do on the opportunities that actually become deals. If you had perfect information on who will buy from you and who will not, this is the effort you would spend. Needless to say, this will merely be your theoretical optimum cost of sale, but will be useful to us as the reference for calculating our own ratios.

 

Consequence 1: Waste our time on “no-hopers”

 

The farther away from the green box you are, the more time is spent on deals that weren’t successful. The red curve therefore represents a more inefficient pipeline, than the green line represents a more efficient one. The green line drops earlier in the process, because qualification is done better and earlier in the process. The red area, the difference between the curves represents the improvement potential!

 

This is how much time someone at the red curve could save by better qualification. 

 

You get the idea? Your pipeline should have the shape of a trumpet horn.

  • The earlier it falls off downwards, the better. For every inch above the green line you are in any part of the process, you are wasting time and resources that you could have used on more leads, more prospecting, more sales…
  • If your reps´ curve is very flat, only to drop off in the very late stages (the red curve), he/she is seeing the world though “Rose tinted glasses”, meaning that he/she is hanging on to a bad qualification
  • The time spent on following up on no-deals, is obviously lost time. This has a cost for the company, direct costs through salary and other costs, indirectly through the frustration for the salesrep, who may end up leaving (or get fired) when he/she never reaches the expected numbers.

But, even more important, is the sales YOU COULD HAVE HAD, if time was spent more wisely. If you manage to liberate 1/3 of your time for productive sales, you potentially will sell 50% more!!

 

Consequence 2: Bad qualification makes bad forecasting.

 

There is also another reading you can make out of this. The red curve is common, just because in sales we tend to hope that everything will close, so as sales people we tend to hang on to old opportunities, and bring them up month after month in our forecast. Especially if we have few inbound leads to work with. This tends to give us a systematic forecasting error as well, as it will be very difficult to determine exactly HOW overoptimistic we are, and on HOW MANY deals.

Ever had sales tell you they would sell so so much by the end of month, only to end up selling less than half? Bet you thought you were fine until the last week…. Beware of the rose tainted glasses!

Up next…

If you want a few ideas on how you can calculate you own pipeline efficiency, do have a look at my article “how to guide: Pipeline Efficiency – “

“How to” guide: Pipeline Efficiency – Time to gain insight

KPI – How to measure Pipeline efficiency

 

Here you find some ideas on how to consider and calculate your pipeline efficiency. More important than to get the exact right formula, is that you consistently apply the same formula month after month, to compare progress.

 

You may want to have a look at this previous article for the discussion of Pipeline Efficiency and why it is so important. In short, what we are looking for is a way to measure the effort we have spent on all deals that were lost, and that we could have avoided if we had done a better qualification in the first call with the prospect.

 

First examine the typical successful sales cycle, look at the deals that were actually closed, look for patterns and try to establish what “it takes”, try to quantify the effort. This will be the yellow rectangle in our picture on the left side.

 

Then compare it to the total time your team spends on sales, prospecting, qualification, value demonstration and negotiation, your own “curve” in the diagram. Remember that you need to include all the calls and mails done to prospects that did not become customers as well, your total time employed, and remember to include time spent from people in other parts of your company, technical sales, admin, development, support team etc.

 

If you do good and reliable activity tracking in your CRM system, then you are only a simple query away from an automated report, otherwise you could do this as a team exercise on your next sales kickoff perhaps. (do have a look at our article on CRM adoption in your company “selecting a CRM that rolls itself out”)

 

The two effort “meters”

There are basically two pieces of data that you need.

  • Effort you spend in successful deals only,
  • Effort you spend in total – (i.e. worked hours)

As simple as that..

 

 

1.    Effort in successful deals

 

First of all, take the deals you and your team closed during the last month, and do a “post mortem” on each. You should have at least 10-15 deals, otherwise select a larger timespan, two months, a quarter, whatever makes sense for you.

 

How much effort went into each of these deals? Who were involved? Were techsales, development resources, support personnel, admin or any other part of the company involved? Did you need to meet physically? Phonecalls and videoconferences? Try to quantify.

 

Now map out the average successful sales cycle, and look for patterns.

 

 

Don’t jump to conclusions on what to improve just yet, just try to state the facts, and establish your current sales cycle and sales stages as it looks today. How many hours of work, from which resources, were needed? Which were the obvious stages that you seem to need every time?

 

Effort per Succesful deal = hours/€ spent on average in your succesful deals

 

And … While you are at it, try to register some other interesting metrics to compare over time:

  • Sales cycle length = average time from first contact (lead) to closed deal
  • Sales cycle complexity = average number of touches/activities you needed to perform with/for a customer in order to close a deal

 

 

 

2.    Total sales effort

 

Then, look at the same month, (the same period during which you made the deals in the first exercise), but now you look at the total resources employed during that period, try to limit yourself strictly to sales and directly related activities. Try to estimate in the best way you can, how many hours you needed. This will give you your total cost of sale, or sales effort.

 

Whatever concepts and hours you choose to include in your calculation, and the period you examine, that is fine, just remember to include the exact same items month after month, to give you a base for comparison. After all, it is the improvements you are after, rather than an absolute number.

 

Sales Pipeline Efficiency

 

Sales pipeline efficiency = effort spent on deals won during the period / total sales effort during the same period.

 

The ratio between these two numbers, will give you a notion on your pipeline efficiency. If every lead turned into a deal, this would be close to 1, and the more time your team spends on prospects that do not convert, the lower will the number be.

 

Once you have this overall measure controlled, and with data you feel you can trust, there are lots of exciting insights you can get playing around with the sales stages in more detail. Is there any particular stage that takes more time, why? Where do you normally lose a deal? Why? Do you see different behaviour between sellers? Why, who?

 

We hope you found this article useful. Best of luck with your pipeline work, happy selling!!

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“Solid” Pipeline opportunities that slip – why? – and what to do about it

Example Case:

Its all under control!

 

You are in the middle of the month, and you are doing great so far!

Since the COVID19 crisis in 2020 the company is looking at every single month end with a magnifier, but you have more than enough to cover the € 150.000 target you have this month. As a matter of fact, you are already working your top opportunities for next month and spending good time on prospecting. One thing worries you though, and that is that your largest prospect for the month, ABC Inc., called to postpone the final contract review you had booked earlier this morning.

Probably nothing to worry about, you received a short note saying that your contact is in meetings all day, and that he will call you later to set a meeting for next week instead. You talked to him three days ago, when he was preparing the final documentation to present to the board. The ABC deal alone is € 138.000, but as you are cautious, you are only counting on it for 50% when you add up your weighted forecast, (meaning that only € 69.000 of your target depend on that deal).

 

Two weeks later. End of month.

 

Without the ABC deal you will do less than 75% of target. The guy still doesn’t pick up the phone, and doesn’t answer your mails. You have tried via the switchboard, and got to talk to him for a few seconds, when he promised to call you later in the day. That was last week….

Actually, you spent most of your time chasing ABC over the last 7 days, and two of the other prospects now tell you they feel they need to move the decision to next week, there are still open issues they need to clarify with you, but … next week is on the other side of the month end! Doesn’t look too good .. without them you are down to 50% of target.

What happened? Needless to say, you didn’t make target for the month. But what happened? And why?

Of course there can be many explanations, but I bet most of us who have been in sales for some time have seen this happen – time after time. The explanation can be found in the psychology of the purchasing cycle 

In the beginning of the purchasing cycle, the buyer is mainly concerned with the product or solution itself. Happy and positive a bout a solution to a problem that is perceived as much worse than the riska and the cost of the solution

Towards the very end of the cycle, in negotiations, price and other commercial terms tend to be the principal concern. However, somewhere in the middle of the process, the third element, “perceived risk”, pops up as the #1 concern.

 

 

Perceived risk in buying something

 

Put yourself in the buyer’s shoes

Remember when you bought your latest car, or when you signed on your house, or any other major purchase you made? Which were your steps? How did you feel, think and act during your purchase process? Lets examine the process: 

  • First you go out and check the market, and find the best product you can find at a reasonable price.
  • Then, the very last moment before signing, you will be thinking about the price, since that is really the only thing you can still do something about when you already decided what and from whom you will buy.
  • But, I bet what you did somewhere along the process before actually signing, was to go back one “last time” to check again for lees risky options, if there were really no better cars at another dealer, no house that was even more fantastic in the market, etc.

 

You may also spend a sleepless night or two, worrying about if you are really, really, really doing the right thing.

 

… and the day before signing the agreement, he started feeling dizzy and nauseous. Is this really the best deal we can get?

 

Chances are that you postpone your decision, call the sales agent and ask to move the signing date a week or two to buy time. And! …. In the meanwhile, you will be talking to other car brands, car-sharing companies, visiting used car webs… and chance are that in that process you change your mind and go with another product, or decide for an alternative solution.

While this process takes place, the last person you want to talk to before you have finally made up your mind is the salesperson from the original car dealer.

 

How about your deal?

 

The very same happens to your customer. It may be your contact who gets last minute doubts before presenting to the board. Or it could be that his board or management are not convinced and ask him or her to go back and survey the market again. Your contact will not pick up the phone in the meanwhile, he or she doesn’t have anything to tell you, and may even be a bit embarrassed to tell you. The problem is that during this period, you have little or no chance to influence what happens, unless you are prepared for this.

See the diagram to the right – first focus is on the solution to your problem, then price takes over towards the end, but in the middle somewhere we get “cold feed” and start evaluating options – dead afraid to commit to the deal. But there are some things we can do about it: 

 

 

Conclusion:

 

 

3 pieces of advice for better sleep at the end of the quarter

First of all, be aware that this will happen.  What you can and should always do as well prepared sales person is to minimize the effect, and then secondly, make sure you have more pipeline that you perhaps thought you needed.

A few suggestions on things you can do to prepare yourself for every deal:

 

 

1. Maximise your contact surface in the customer.

Go for the real decision makers, and try to make sure that you have access to these people when they enter into the doubt-phase. If you depend on one contact person only, your chances to handle this phase are minimal.

  • You know it may come. So why not plan for this phase of uncertainty in your customers mind, at least in a generic way.
    • Do this for all your prospects, prepare materials, events, webinars, promotions etc that can serve as the excuse to get back in.
    • It is well spent time, as you will need to use this many many times throughout your career.

 

 

2. Know the process, and plan for it

Qualify the purchasing steps with your sponsor. How is a purchase of your magnitude normally conducted in the company? who are involved? 

    • Pave the way for the process. Already early in the process you should have the conversation around the purchasing process in the customer’s company. Who are involved? What are their agendas? What personal and professional drivers do they have.
    • Try to map out to identify possible obstacles. Is there anyone who is likely to veto the purchase for some reason, personal or professional? Could your product threaten the position of someone?
    • Commit the process with your contact already form the start, and agree to certain milestones. Agree on a sort of “project plan”. 5-10 items in the list will do. The last line should ALWAYS be “Signature” or “project kick-off” or “installing product” that implies a purchase. This will give you a certain “moral right” to ask for the planned dates that you agreed together to actually be respected from the customer’s side.
    • If your sales process is long and need a Proof of Concept or other studies, make sure these are billable/paid services! The prospects willingness to pay at least something during the process is a great qualifier. If they refuse to pay this work, then on the other hand, consider it a strong “disqualifier”.
    • Look for “compelling events” on the purchaser’s side. Is there a particular date on which he or she absolutely must have decided and purchased a solution for his or her problem? Count backwards from that date, and convey your concern that they may not be on time for the kickoff if changes are made now (i.e. if he goes with someone else).
    • Learn how to rebuild the buying vision, and be prepared to have to sell your product again with a different twist. Your prospect may have scouted the market and talked to your competitor(s). This is when he or she comes back with a new “enhanced” list of requirements that will be much more difficult to satisfy than the initial ones (if your competitor did a good job in planting “landmines” in your way).

 

 

3. Have at least 3 times the pipe you thought you needed

And most important of all, make sure you have at least 3 times as many “done deals” as your target for the period. If your target for the month is 75k€ for instance, you should have at least 225k€ in late stage deals. With a late stage deal I mean a deal where budget is confirmed, you know the decision makers have bought in, or at least are supporting your solution, where the purchasing process has been discussed, and where there is a need and a compelling date for the purchase.

As a rule of thumb, the “3 times target pipeline” works. Why? You are likely to

  • sign one third of those deals within the month,
  • one third will be lost to competition or postponed into infinity (due to the perceived risk/doubt stage),
  • one third will slip into next month (again, due to the perceived risk/doubt stage).  

… Roughly …