Everyone in sales has a leaking funnel.
That’s the nature of the game.
It is, after all, why the sales pipeline is typically displayed as a funnel. There are fewer deals at each successive stage in the sales process.
If the funnel wasn’t leaking you’d win 100% of deals. (If you ARE winning 100% of deals then you have other pipeline management issues, it’s just that a leaking funnel is not one of them!).
In fact, for reasons we’ll come to, sometimes there are not enough deals leaking from the funnel. Opportunities hang around in the sales pipeline long after they have any realistic chance of closing successfully. These opportunities over-inflate the sales pipeline and eliminate any chance of accurate revenue forecasting.
So the two questions for every sales manager are:
- Is the sales funnel leaking to a reasonable extent?
- Is the sales funnel leaking in the right places?
And if the answer to either of these questions is ‘no’, then there’s a third question.
- What should I do about it?
So here’s our 4 step guide to plugging a leaking funnel in the right places.
- Measure funnel leakage.
- Determine where the funnel is leaking.
- Understand why the funnel is leaking.
- Decide what action to take.
All four steps go together. If you don’t know how much the funnel is leaking – and where – then you can’t decide how best to plug the leaks.
1. How to measure funnel leakage
Here’s the Leaking Funnel dashboard chart and report.
The chart is created using a Stage Movement report. It shows the ‘From’ Opportunity Stage for all deals that have been set ‘To’ Closed Lost.
In our case the chart covers Opportunities where this Stage movement occurred in the last calendar quarter.
The leaking funnel dashboard chart and report show, for example, 17 Opportunities were set to Closed Lost directly from the Prospecting Stage. In other words, 17 deals that were in Prospecting, leaked from our funnel in the last quarter.
Early Stage funnel leakage
All other things being equal, there’s nothing wrong with deals leaking from the funnel at early stages in the sales lifecycle.
If the opportunity qualification process is working effectively, this is exactly what should happen. Deals are investigated. If there isn’t a win-win for supplier and customer, the opportunity should be qualified-out.
But how much early stage leakage is too much? One way to gauge this is to look at conversion rates (win rates). Are win rates are broadly in line with what you expect? If so, and the funnel leakage report shows an acceptable number of deals lost from the early stages in the pipeline, then you probably don’t have an overwhelming early-stage funnel leakage problem.
On the other hand, if you do have an early-stage leaking funnel issue, consider the actions outlined in Section 4 of this post.
Late Stage funnel leakage
What about deals that leak from the funnel at late Stages in the sales cycle?
Look the chart and report in our example. Is there a problem? 11 deals in the quarter were lost directly from the Negotiation Stage.
This is not good news. As Bud Suse says, there’s nothing worse than coming a close second.
Opportunities that leak from the funnel at late stages waste time, energy and resources and they drain morale.
It looks like we have this very problem in our example. Read on to see how to investigate further and decide on the right course of action.
2. Determine where the funnel is leaking
Knowing that we have a leaking funnel late in the sales cycle is only the starting point. Before we can take action we need to analyse the problem further.
Let’s start by looking at the same report summarized by salesperson.
This report shows the ‘From’ Stage for all deals that have been set to Closed Lost for each salesperson.
It looks like all salespeople have something of a problem. They are all leaking deals at late stages in the sales process.
Let’s reformat the report again to look at the leaking funnel problem from a different angle. Let’s compare new versus existing customers.
So now we have a much deeper understanding of where the funnel is leaking.
We have a real problem in losing deals to new customers, late in the sales cycle. We could reformat the Leaking Funnel reports in a variety of other ways to analyse further, but you get the idea. First we measured overall funnel leakage, then we investigated where in the sales process deals are slipping from the pipeline.
Now we need to understand why it is happening.
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3. Understand why the funnel is leaking
So now we have identified specifically where the funnel is leaking. But there’s no point taking action just for the sake of it. We need to understand why deals are being lost.
Here are some ways to do that.
Get feed-forward from prospects
This is the most powerful way. Get insight from prospects with whom you’ve lost deals. Go and ask them where you went wrong. Find out how you could have acted differently to win the deal.
We prefer to call it feed-forward not feedback, because you then apply the lessons going forward to future opportunities.
Discuss the issue with salespeople
Have an open conversation about why the situation is occurring. We’ve facilitated many of these discussions – having an external, independent facilitator is a good way of ensuring an open, no-blame discussion. This is particularly powerful if it is combined with advice and insight directly from the prospects.
Implement a Reasons Lost field
Many companies have this type of picklist or text field on the Opportunity. It’s usually combined with a validation rule to ensure information is entered whenever a deal is set to Closed Lost.
Sometimes this yields useful information. But it’s tough to get the depth of information that can truly make a difference using this method alone. Plus, all too often ‘Price’ is entered as the reason the deal was lost. Qualitative information is key to making real change and a difference to future conversion rates.
4. Decide what action to take to plug the funnel leaks
Now we’re finally ready to take some action! Of course, the appropriate action depends upon the results of our analysis and investigation into why the funnel is leaking.
Depending on the situation in your business, here are some possible actions you can take.
Early Stage leaking funnel
- Validate the opportunity qualification criteria and process. Check that deals are not being qualified-out too early.
- Ensure early-stage opportunities for new customers are being followed up appropriately and thoroughly. Make sure they are not being ignored in favor of warm deals from existing customers.
- Re-focus marketing and lead generation activities on target customers in the right segments.
- Implement lead nurturing programs to ‘warm-up’ customers before being contacted by salespeople.
- Implement lead scoring to identify and prioritize the early stage opportunities that should be followed up.
- Implement a feedback process from Sales to Marketing or Telesales (or whoever generates the early stage opportunities in your business). This communication must explain when and why new deals are qualified-out. Use this feedback to improve lead and opportunity qualification criteria.
Late Stage leaking funnel
- Improve the investigation stage in your sales process. Ensure that salespeople are not spending wasteful time chasing deals they have little chance of winning.
- Define your ideal customer and make sure you have a framework for assessing potential deals. Bob Apollo has excellent advice on this.
- Implement a bid / no-bid approval process. If you operate in a big ticket, RFP environment, get formal sign-off to pitching for a deal.
- Review the process for identifying all stakeholders in the buying center. Check that key stakeholders are not being left out of the communication process early in the sale.
- Submit contracts and legal documents for review earlier in the sales process. Get technical and legal issues on the table earlier, before everyone gets too entrenched in their position.
- Get the right balance of focus and pressure. Are sales people chasing too many lame duck deals?
- Check for dormant deals and evidence of sandbagging. Do some opportunities remain outside the pipeline until the salesperson is confident a deal is to be done? If so, then it’s interfering with your visibility of the funnel and conversion rate metrics.
- Implement a lessons learned process to capture valuable information that will reduce funnel leakage in the future.
All funnels leak deals. It’s where, when and how that the funnel is leaking that’s important. Use the Leaking Funnel report in your business today to find out if you have a problem. Then dig a little deeper to figure out the right action for the right type of leak.
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