It's the end of the quarter, and things are tight... everyone on the management team is waiting for the weekly update from the Sales VP... will we make or miss the quarter? There's only one week to go, and we will all find out later today. Everyone knows that the team is working hard, but no one seems to know exactly how things will turn out.
Sound familiar?
All too many companies face this every quarter (month) because while they know what they sold, they don't really know how they sold. They don't fully understand the components of their sales or how the sales came to be. Sales, despite all of the talk about metrics, predictability, and process, is often a "black box" little understood by company leadership.
This is a really big problem... but one that can be fixed. Aaron Ross, in his book Predictable Revenue, lays out in great detail how he built a sales team and process that scaled Salesforce.com and there are countless other books and articles that offer ideas and action plans to replace the black box with a measurable process, yet the sales black box lives on.
Why? I see three key reasons:
Many business leaders still see sales as alchemy. I hear it all the time: "Sales is more art than science," or, "Pat just has a way to work her contacts to bring in the business when we need it." Sorry, but I don't buy it. If all sales requires is a big pile of business cards and a great smile, then every company should be blowing past their budgets every quarter. For every time one of my reps pulled in a last-minute "miracle," I had at least five deals push because we didn't understand when the deal was realistically going to close. Yet. while we understand our agile processes, financial metrics, and cap ex budget to the penny, we still allow the sales function to exist in a fog of uncertainty. Sure, the "art" of listening to and persuading customers is alive and well, but only within a process that can me measured and improved as the organization learns and grows.
Businesses don't see the pipeline as a valuable asset. The data that a company has about its leads, prospects, and active opportunities is incredibly valuable, and, just as with inventory, must be managed for optimal yield and throughput. Typically, businesses celebrate the last-minute "bluebird deals" that come in just before the end of the quarter, but to me, dependence on miracles shows a fundamental weakness in managing the pipeline asset. For example, if your sales team -- with a little prodding and incentive -- can pull out an extra $2M in an emergency, then that means they had that $2M ready to close all along. It's sort of like praising your operations VP for keeping several months' extra inventory around just in case you might have an unexpected order. You are tying up cash in pipeline deals that can and should close predictably, and if the amount and timing of those deals is a mystery, then you have no idea what that asset is worth to your business.
There is no "GAAP" for sales metrics, so we often speak past each other. While revenue is a defined term that has common meaning across income statements, many pipeline and sales metrics are open to widely-varying interpretation. There is little consensus as to what defines a lead, prospect, pipeline value, opportunity stage, sales cycle, closed status, or even sales volume. These terms can vary by company or industry for very good reasons, but within a business, they must be carefully and precisely defined. For example, for the early stages of the pipeline, what defines a "lead" versus a "prospect" and how should you value that lead for gross pipeline measurements? While there is no one correct answer here, it is critical that managers start with a precise and agreed definition and adjust it as they learn more about the business.
At the core of the problem is that many managers (me included) spent years learning how to measure the assets, liabilities, and costs of the business but we haven't spent nearly as much time understanding the components and drivers of sales at an operational level. Yes, we may understand market share, positioning, pricing, and final sales results, but in many businesses, we know what we sold, but we don't know how we sold it.
The movement towards agile development has driven tremendous progress in both understanding software development and in making it better, faster, and more satisfying for everyone in the field. What if we built that level of understanding about sales -- could we expect similar results? I believe we would... and would see sales increase and sales rep satisfaction increase with it.
But how? Understanding the underpinnings of your top line "factory" is a big undertaking, but one that every business should take. Here's how I would start:
Map out the workflow. Start with product delivery and work all the way through marketing, sales, and even through orders/cash, understanding the actions, yields, and timing of every step. No need to go to Tayloresque levels of detail here, but it is critical that the entire team understand how the process steps link together and how long -- as of today -- each step will take. The insights may be simple, but many companies have not thought through the linkages between a product launch, marketing campaign, pipeline development, and realistic incremental sales. Map it out, be willing to estimate yields and lead times when you don't know for sure, and use that as a roadmap for your sales process and forecasting.
Build predictability as a core competence. If your company struggles with forecast accuracy (and many do), it may be time to rebuild the process from the ground up. Take a page from Marie Kondo and purge your pipelines of everything that is not real and on the path to a sale; build sales stages in your CRM based on actions, not "gut feel," and measure the average length of each stage; work with your marketing team to measure lead volumes and productivity -- not as a way to assign blame, but as a way to align your teams to understand the relationship between input (leads) and output (sales); and finally, use a regular forecasting meeting to candidly discuss why your last forecast worked (or didn't) -- learn from your mistakes and adjust, with the idea that within 4-6 periods you will get much better at forecasting.
Increase revenue transparency. One of my proudest moments as a sales leader wasn't that the month when we had record sales (but that did feel really good!), but the time my CFO reviewed my sales forecast and said simply "This all makes sense -- I don't want any changes." He understood the "how" and was able to discuss and debate the inputs with me so that the forecast and budget was seen as an output driven by known inputs. Sure, we debated about the inputs -- especially over rep productivity and discounting -- but once we were done, we agreed that the inputs multiplied by the known yield rates yielded a sound and defensible sales budget -- the output. The process was open, transparent, and understood by the entire management team, so we spent time discussing how we would hit the budget numbers and not just what the budget numbers should be.
The top line of a business is critical, yet often only understood at a shallow level. I propose that as managers, we can have the "art" of sales work well within the "science" of good process management and metrics. Just as many of us worked through cost accounting in business school, I would love to see a few semesters dedicated to "sales accounting," so that we as leaders can apply some science to make our business and our sales teams more effective and better understood.
Perhaps the end-of-quarter crunch will never go away completely, but we can contain it a bit and build the process to make it a little less stressful. Integrating the how with the what of sales would go a long way towards making that happen.
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