Let's talk a bit about sales pipelines. According to the classic definition, sales prospects (people or companies that haven't bought from you) go into one end of the pipe and customers (people or companies that are now buying from you) come out the other end of the pipe.
The problem with the pipeline analogy is that it encourages linear thinking: If you pour more prospects into the top end, more customers come out the bottom. But that's not true, because if your salespeople are following up too many leads or the wrong leads, "opening the spigot" can actually reduce the number of sales that they eventually make.
A better way to think about sales pipelines is that they operate a little like compound interest. Small increases in efficiency, when applied simultaneously at multiple points in the sales cycle, result in geometric increases of your final sales results. There are four specific metrics from which incremental improvement ripples outward to generate huge sales increases:
- The quality of sales leads
- The elapsed time to develop a lead
- The number of leads that you close
- The average value of each sale
Before explaining how to improve these metrics, I'd like to give you some incentive. Imagine that you improve each of these metrics by 20 percent. That means you'll get 20 percent more sales, right? Wrong. Improving all four metrics by 20 percent doubles your sales, like so:
- 100 prospects enter the pipeline
- 50 are qualified (sales lead quality = 50 percent)
- 100 days (development speed is two days per customer)
- 10 customers (close rate = 20 percent)
- Average sale = $10,000
- Total sales = $100,000
- 100 prospects enter the pipeline.
- 70 are qualified (sales lead quality = 70 percent)
- 80 days (development speed is 20 percent faster)
- 32 customers (close rate = 40 percent)
- Average sale = $12,000 (20 percent increase)
- Total sales = $201,600
If you want to check my math, a key point is that the 20 days you save by increasing your lead development speed can now be spent developing additional leads, which adds 20 percent to the total generated by the 32 customers at $12,000 per customer.
Now that I've explained the basic concept, let's look at how to increase those four metrics. I could probably write a book about each of those metrics, but instead I'll draw largely on a conversation I had a few years back with Donal Daly, CEO of the sales tech company Altify.
1. Improve the quality of your sales leads by 20 percent
If you're contacting people who aren't likely to buy from you, you're wasting time. If the people you do contact are likely to buy (i.e. higher quality sales leads), your sales activities will convert more prospects into customers in a shorter period of time.
A high-quality lead, by definition, is a prospect that your current sales team can easily convert into a customer. By contrast, a prospect whom the marketing team thinks the sales team should be able to convert (but can't) is not a high-quality sales lead.
Therefore, the marketing and sales team should work together to define the profile of a high-quality lead. To do this, the sales team should provide the marketing team with regular, direct inputs on who's interested and who's buying, along with all the specific details (like job title, industry, typical organizational structure, etc.).
Once the initial profile is agreed upon, the marketing group should generate and nurture leads that correspond to that profile. For its part, the sales team should commit to keeping the CRM database current and accurate, because that data provides the marketing group with the data they need to keep honing the profile.
2. Decrease the time required to develop a sales lead
Even if you're calling on high-quality leads, a certain percentage won't be potential customers because they don't need your offering or don't have the money to buy it. The quicker you identify these dead-end leads, the more time you can spend on prospects that might convert.
To do this, don't try to sell to new prospects right off the bat. Instead, ask questions to identify whether they're likely to become customers. If they're not, politely end the engagement and move on without wasting more of your precious time.
A point I picked up from Mark Sellers, author of The Funnel Principle, is that your first line of inquiry should always be whether the prospect has budget dollars that could be spent, should the need for your offering be high enough.
Only after you've determined whether they've got the money to buy should you verify if the prospects has a need for you offering... and then combine those two data point to determine what the prospect is losing by not having your offering and would gain through buying your offering. The total of those two numbers, if high enough, helps the prospect raise your offering to the appropriate priority.
For example, suppose during the first meeting with a prospect you ask: "How would you handle this problem if you didn't have a solution like ours?" Two responses might be:
- "We'd probably struggle along for a few more years,"
- "Our market share will plummet and we'll declare bankruptcy."
Which of those responses is most likely to lead to the prospect buying your offering?
3. Increase your average conversion rate
Once a lead is completely qualified as a prospect (i.e. has a budget and knows they must fix the problem or seize the opportunity), your prospect is going to buy... either from you or a competitor. Therefore, increasing your "conversion rate" for a fully qualified lead is always a matter of outselling the competition.
This means talking to the right people (decision-makers and stakeholders) throughout the sales process. It's not enough to communicate with senior decision-makers at the beginning of the sales cycle, and then revisit that connection at the end of the sales cycle. If you take that approach, it creates the opportunity for your competitor to do an end-run.
Instead, keep in regular communication with decision-makers, so that there won't be long periods of time in which you don't know what's going on, or what's changing inside the account. Don't be afraid to ask your contacts who else is calling on them. It's probably not a big secret, and in any case your competitor is probably asking them about you.
Selling against competitors means constantly differentiating your offering so that it fits the prospect's need better than whatever the competitor is offering. Research the prospect's business and the competitor's strengths and weaknesses, versus your own. Remember to state your advantages subtly; rubbishing a competitor makes you look bad.
You'll note that I haven't said anything about closing techniques. That's intentional because if you start with high-quality leads, qualify them up front, and positively differentiate your offering from the competition, the prospect will close the deal for you as in "where do I sign?"
4. Increase the average dollar value of each sale
As any sales manager knows, there is a fixed amount of time and resources connected to every sales effort. While it may take a bit more effort to cut a $1 million deal, it's usually not nearly 10 times as much effort as cutting a $100,000 deal.
So, obviously, the more money that you can make on each sales opportunity, the more you'll make overall. This means fully develop the customer account during the sales process. Give each account your full attention, and spend enough time on it to be able to uncover the full opportunity. This is easier to do if you're implementing the first three steps, because then you'll be selling to fewer prospects but with a better chance of making the sale.
Important: developing the full opportunity must not be an attempt to pump up the sales price. Instead, it's a way to serve your customer better, which naturally increases the size of the sale. It's about helping more, not selling more.
Another way to keep the dollar value high is to avoid discounting. Remember: if you offer a discount merely to secure the sale it not only makes the current deal smaller but result in future discounts and therefore smaller deals in the future.
That's it. Go ye forth and make vast sums of money this year!