Picture this: your VP of sales calls all his managers into the conference room and says that for the next six months each manager is allowed only one metric by which to manage his or her team’s performance. The choice of metric is yours, but you only get one. Which would you choose? For Lee Levitt, former director of IDC’s Sales Advisory Service and current Director, Enterprise Solutions Group at Oracle, the choice is an easy one: pipeline coverage. “Pipeline coverage is a canary in a coal mine,” he says. “It gives you advanced notice that things are changing.”
In a recent presentation, “Best Practices in Sales Metrics: The Five Key ‘Levers’ of Sales Productivity,” Levitt made the case for pipeline coverage, which he defines as the amount of business in your pipeline relative to your quota for the period. On average, organizations run a pipeline coverage ratio of 3:1. Some are higher; some are lower depending on the business, but be careful about letting it go too much lower. A 1:1 ratio means you won’t make quota because obviously not all the business in your pipeline is going to close.
So watch your ratio and know what is needed to make your numbers. More importantly, watch the trend of that ratio over time. That’s what the canary analogy is all about: coal miners used to take canaries down into the mines to give them early warning of a deterioration in air quality. Canaries could detect traces of methane in the air – a gas that could poison the mineworkers or cause an explosion. While other animals, like mice, would simply keel over when it was too late, a canary would begin to sway on its perch, giving miners time to react to the changing conditions. Similarly, the trends in your pipeline coverage data gives you early warning of problems – and gives you time to react.
To really start digging into your pipeline coverage data, you’ll need to decompose the metric into its three basic elements: quantity (the number of leads in the pipeline), velocity (the speed at which an opportunity goes through the pipeline as well as the conversion rate) and quality (the quality of a deal, including its size, alignment with corporate objectives, service attach rates, and cross-sale rates). But again, keep in mind that metrics alone are “useless,” says Levitt. They’re just indicators of what’s going on. Instead, “look at the comparison of these metrics over time. Look at them across geographies, across territories, across first line managers, or across customer types.” And when you find that Sales Rep A has a conversion rate of 32 percent from stage 2 to stage 3 and Sales Rep B has a 45 percent conversion rate at the same place, now you’ve got a place to start digging. You need to find out what’s going on. Why are those rates different?
Such analysis, and the creation of hypotheses to fix problem spots, is crucial to running your organization on metrics. So create a hypothesis, isolate a small group, and test your theory. Then review the findings and share what you’ve learned with the larger group. By doing so, you’ll stay on top of your pipeline coverage issues, which in turn will lead to making the numbers every time.
For more information, visit www.scienceofselling.com.