How Much Pipeline Activity Does It Take to Close a Deal?By Theresa Lina Stevens | Posted 2004-06-07 Email Print
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Want to know how well your business will be doing tomorrow? Look to how well you're turning prospects into deals.
In my last column, I offered up a series of questions for your executive in charge of operations and/or business development. His ability to readily answer those questions will tell you whether he has a handle on what it will take to meet the revenue goal for this year, whether he is adequately managing your pipeline risks, and whether he will have enough lead time to address weaknesses in the pipeline before they impact revenues.
If that person does not have ready answers to the questions I posed, the remaining articles in this series describe a simple process that will provide those answers. There are many variations on this that will more closely model your business and enhance precision, but we'll keep it simple for now. The first step in this process is figuring out how much pipeline activity it takes to close one deal.
Start by looking at your historical track record of how many qualified targets it has typically taken to ultimately land a signed contract and how long it took to move the target through each step of the pipeline. For example, this hypothetical company knows it has to pursue 10 qualified, cold Targets for nine months to convert five of them to Suspects. You'll soon see that your pipeline looks more like an upside down pyramid, with many prospects shrinking down to done deals. Ultimately, it takes 17 months from the first interactions with 10 highly qualified cold contacts to get one signed deal.
If you don't have much data, work out your best estimate and track actuals going forward to validate or improve your assumptions. Take into consideration the fact that follow-on work and direct referrals can sometimes insert a new opportunity into the lower portion of the pipeline, which enhances the ratios.
A more complex business with several "typical" contract types may need several of these pyramid models, one for each scenario. Once you complete each pyramid diagram, do a sanity check with the marketing, business development and operations teams: Does this accurately model your typical pipeline flow?
In my next two articles, I'll show you how to use this to predict how much overall pipeline activity it will take to meet your revenue goals. In the meantime, however, you can put this to use as is. Look at ways in which you think you can quickly improve the ratios. For example, proposals can be extremely expensive to prepare and present. Do you tend to invest in proposals you have a very low probability of winning? In the future, would you be better off declining those and instead, for example, investing that time and money to convert high-potential suspects to prospects?
This will be a very telling exercise. You may see disturbing built-in expense and inefficiency. For example, with a 17-month lead time from cold introduction to closed deal, the company in this example would realize that none of this year's new business will come from cold targets. If they are already behind plan for this year, all efforts should focus on leveraging existing pipeline and client relationships. This company also needs to start priming the pump for next year. But the biggest revelation is that 17 months is untenable. It must find ways to compress that time frame.
Challenge yourself to take a first cut at this today, and you may be surprised to see how revealing it is. This model can very effectively highlight weaknesses and vulnerabilities that you can start to address immediately.
Theresa Lina Stevens specializes in market dominance strategy and marketing for IT and professional services companies. She is CEO of Lina Group Inc., which helps clients gain and sustain a unique and high-profit, high-growth market position through a proprietary approach called the Apollo Method for Market Dominance. You can reach her at firstname.lastname@example.org or visit the Lina Group website.