Disciplined deal qualification beats the traditional 3X pipeline myth
Sometimes more is more — more money is generally better than less money. Sometimes less is more — showing fewer PowerPoint slides is generally better than showing more PowerPoint slides. However, sometimes more is fake — some deals in the pipeline are never going to happen, continuously getting pushed two quarters out from the so-called expected close date.
This begs the age old question, “How much pipeline is needed to achieve quota?” Traditionally, sales leaders have preached a 3X pipeline-to-quota ratio. I’ve always believed that any salesperson that is legitimately and consistently pursuing a forecastable pipeline of 3X quota has a quota that is too low. This traditional viewpoint is flawed on many fronts, not the least of which is that it discourages salespeople from killing opportunities that are never going to close.
Too often, salespeople cling to comatose deals merely to give the appearance of a strong pipeline or to achieve some made-up pipeline objective. Sales management often goes along with this charade for the same reasons.
Brute force sales forecasting (chasing an overall sales number without knowing which deals will close), gambling that six out of ten deals will likely close without knowing which ones are most likely to close, disappoints more often than not. Instead, line item forecasting, based on MOIC’s Pipeline Grader’s objective criteria (e.g., did we prove our system has unique capability that drives a unique business case? to name just two of the five), is more reliably accurate.
The side benefit of leveraging the MOIC approach is an ongoing scrubbing of the pipeline, meaning that only deals with a 90% likelihood are predicted to close. This results in a reduction of pipeline quota ratio from 3X to 1.5X. While this potentially opens the door to reduce the sales team by half, it yields the same results while improving EBITA and a potential exit multiple at the same time.
If your sales team struggles to kill deals that are never closing and are therefore unable to reduce the needed pipeline to quota ratio to 1.5, log in to MOIC Pipeline Grader at www.moicpartners.com.
