The ‘Big Fat Pipeline’ Syndrome Is Killing Your Sales
By Ron Buck
When it comes to closing pipeline opportunities, less is more.
The Big Fat Pipeline is a sales pipeline that is overflowing with opportunities in each stage that creates a false sense of security around monthly, quarterly or annual targets. It continues to unknowingly frustrate sales leaders, embarrass sales people and cost banks millions of dollars in lost revenues every year. Plus, the insidious sales costs created by The Big Fat Pipeline in terms of wasted sales effort, poor resource allocation, and misuse of sales management cannot even begin to be calculated.
Is the Big Fat Pipeline having an impact on your sales organization? If you answer yes to one or more of the questions below, there is a high likelihood that it is.
- Do you have sales opportunities that initially progress through the early stages (prospecting, qualification) of your pipeline, only to lose momentum, become stalled and eventually disappear in the later stages?
- Do you have late stage (underwriting, terms presentation, doc prep) opportunities that shrinks in value or disappears from your forecast without warning or explanation?
- Do you have sales pipelines that initially promise the world but fail to follow through on that promise?
There are two commonly accepted measures for assessing the health of a bank’s sales pipeline.
- The number of opportunities in the pipeline.
- The dollar value of deals in the pipeline.
While these two metrics are the ones most commonly used by sales organizations to measure pipeline strength, there is an underlying and damaging assumption with their use, which is ‘more is better’. Sales leaders have been conditioned to believe that purely having more opportunities in their pipeline and having a larger dollar amount at each stage is a positive thing.
The Big Fat Pipeline syndrome is a result of this misplaced thinking.
How Do You Know What The Right Size of Your Pipeline Should Be?
Over the past decade of working with some of the best banks in the US, we have developed a few simple rules for boosting pipeline quality and accuracy.
- The 3X Rule (Size)
The 3X Rule is the first rule that should be applied to your pipeline. It simply states that the ratio of deals coming into your pipeline each month should not be greater than 3X the booked deals (deals leaving the pipeline) each month. This is a simple but powerful calculation. We have found that the best performers (top 20%) have 2X pipelines. The middle 60% range from 3X to 6 X, and the bottom 20% range from 6X to 10X. We have some clients who modify the rule and calculate the total number of deals in the pipeline should not exceed 3 times the deals closing each month. Pipelines that exceed 3X waste valuable resources, defocus the entire sales team, raise false expectations and result in inaccurate forecasts.
- The 150% Rule (Aging)
The 150% is another simple but powerful rule. Many sales managers are too insecure to purge deals in the pipeline. However, we have found that between 25% and 50% of deals in The Big Fat Pipeline should be purged and will never close if they have been in the pipeline 150% longer than your average-time-close. Deals that have regressed or have had no scheduled activity in the past two weeks should be advanced or purged. Purging requires courage and discipline.
Some of our clients also apply the 150% rule to each stage. That is, if a deal has been in underwriting 150% longer than the time it takes winning deals in underwriting it should be flagged for discussion in the next pipeline meeting and if the problem cannot be resolved quickly it should be purged from the pipeline.
We have found that when sales managers apply the 150% rule they will typically reduce their pipelines from 5X (or 6X) to less than 3X. As a result, their win rates improve and forecast accuracy dramatically improve.
- The Momentum Rule
Momentum is calculated as a percent of deals in the pipeline advancing or closing each week, month or quarter. Big Fat Pipelines have a momentum of 50% or less. However, the top performers with 2X pipelines have a momentum greater than 80%.
If deals are not advancing or closing they are dying.
Qualification (or examining the quality of early stage opportunities before the progress through your pipeline) is an essential task if an organization is to avoid the trap of sinking time, costs and resources into deals that are never going to close. Our research indicates that the best business bankers are 250% better at qualifying new opportunities before the advance in the pipeline.
The Real Pipeline
If sales managers begin to apply more rigor to understanding the quality of pipeline opportunities, not just quantity, they start to see The Real Pipeline emerge with the following characteristics:
- Fewer opportunities in the earlier stages.
- A 2X or 3X pipeline.
- Fewer stalled or inactive deals – with momentum greater than 80%
- Less projected revenue in the pipeline – with much greater forecast accuracy.
These are revelations that have traditionally made sales managers extremely nervous. The notion of having less opportunities and dollars in the pipeline goes against every traditionally held sales paradigm. We have found that about 30% of the deals in your pipeline will be won (no matter what), 30% of the deals in your pipeline will be lost (no matter what) and 40% can be won if your sales people have time to focus on them. The Real Pipeline has a much higher percentage of deals that have a greater likelihood of closing with the following implications.
- Salespeople can focus their time and energies on better-qualified opportunities.
- Managers can focus their coaching efforts on opportunities that have a higher likelihood of rewarding their efforts.
- Forecasting will become more objective, accurate and rewarding.
- Sales costs will decrease significantly.
- More salespeople will achieve quota.
- Profitability per sales person, client and organization will climb.
The Real Pipeline is built with a sales process that (1) purges stalled or inactive deals; (2) qualifies out those deals that have little likelihood of closing; and (3) focuses on the opportunities that are winnable.
Sales managers draw tremendous satisfaction from seeing a sales pipeline that surpasses revenue targets at each stage. The feelings of achievement and anticipation that this brings can obscure the grey reality that these pipelines are sometimes being viewed through rose-colored glasses. By applying qualitative rules (The 3X Rule; The 150% Rule; The Momentum Rule) at the early stages of the pipeline, and equipping salespeople with the necessary qualification skills, sales teams can quickly weed out the distractions and see dramatic improvements in their sales force’s focus, engagement, success and revenues.