“We must be sceptical even of our scepticism.” Bertrand Russell, 1928.
Well yes. Maybe.
When it comes to the accuracy of the revenue forecast for this month, experience shows it is sometimes right to be sceptical.
That’s because deals that we assume will close this month, sometimes slip to the next month. And that’s painful.
In the ideal world, we can confidently rely upon every opportunity that is due to close this month. Close dates are always accurate. Customers sign agreements when we expect. And this months’ revenue forecast is always spot-on.
But life is not that simple.
It’s a fact of life that deals slip. Often through no fault of the salesperson. It’s just the way life is.
So we need pointers to help us decide which opportunities to question. Which deals can we be confident will close this month and which should we question more deeply?
Here are three pipeline quality metrics that give us those pointers. They highlight when you should ask questions about deals due to close this month. And those questions will help you improve the reliability of your revenue forecast.
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Pipeline quality metrics
The challenge is to identify deals that will not successfully close in a given time period according to the pipeline quality metrics.
These are the deals that should be questioned.
These questions can be asked by sales managers who are reviewing the dashboard. But they can also be questioned by salespeople – the reps who own the Opportunities – to scrutinize and self-manage their pipeline.
These are the three key pipeline quality metrics:
- Number of Close Date Month Extensions.
- Number of Days since the last Stage Change.
- Number of Days the Opportunity has been Open.
No single pipeline quality metric dominates above all else. They need to be used in conjunction with each other.
Working together, these three pipeline quality metrics highlight deals that have a high probability of slipping.
This means you can use these pipeline quality metrics to get a more robust sales forecast. They allow you to accurately assess whether you have enough deals due to close to meet your sales quota. And they help you identify the dormant deals that are over-inflating your sales funnel.
Think about it for a moment. Let’s say your average sales cycle is 3 months.
You have a deal due to close this month. It’s making an important contribution to your revenue forecast.
Suppose the Close Date has already slipped from one month to another 4 times. It’s in the final Negotiation Stage, but it’s been there for over two months. The Opportunity has been open a total of 180 days.
You’re probably right to question the close date of this month.
Here’s an example of these pipeline quality metrics on a single salesforce dashboard table.
In our example, the table shows deals that are due to close this month. But the time period can be anything you choose. The key message is that these pipeline quality metrics are an excellent way to gauge the reliability of your revenue forecast for the time period.
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Pipeline quality metric #1 – Number of Close Date Month Extensions
There’s a statistically robust way to forecast tomorrow’s weather.
Whatever is happening today, predict that’s what the weather will be like tomorrow. You’ll be right more often then you are wrong.
It’s the same with opportunities. If a deal slipped last month, there’s an increased chance it will slip this month.
The Number of Close Date Month Extensions gives us this data. This pipeline quality metric counts the number of times the Close Date has slipped from one month to another.
Close Date changes within a month don’t matter. Nor do changes that make the Close Date earlier. This metric counts the number of times the Close Date has been extended from one month to another.
Pipeline quality metric #2 – Days Since Last Stage Change
This pipeline quality metric counts the number of days since the Opportunity Stage was last updated.
Life is not linear. Opportunity Stages don’t change at regular, pre-determined intervals. But a lengthy period without a change – in the context of your average sales cycle – is a sign of a dormant deal.
Let’s say the Opportunity Stage hasn’t changed for a significant period. The deal has slipped from one month to another several times. Then you are probably right to question the close date of this month.
Pipeline quality metric #3 – Number of Days Open
This pipeline quality metric counts the number of days that the opportunity has been open. The clock stops ticking when the deal is set to Closed (Won or Lost).
This pipeline quality metric is valuable in its own right. But the primary purpose is to put context into the other quality metrics.
Deals that have had a significantly longer than average sales cycle have a lower chance of closing successfully this month. Particularly if the opportunity has already slipped from one month to the next several times. And especially if the Stage has not been updated for quite a while.
Pipeline quality metrics underlying report
Here’s the underlying report that shows the three pipeline quality metrics for all opportunities due to close this month. Click on the image of the report to enlarge it.
We have added conditional highlighting to the report to help focus the eye on the deals we might want to ask questions about.
In our case, for example, 3 or more Close Date Month Extensions are shown in red and 2 in amber. One or zero values for this pipeline quality metric are not highlighted.
If you download our dashboard (see the form at the end of this post) then you can set the conditional highlight to whatever values you choose. Feel free to set the values that are right for your business.
The report shows the pipeline quality metrics for all the deals due to close this month, grouped by Opportunity Stage.
It also separates the opportunities into those relating to new customers – and those for existing customers.
This is because – as a rule of thumb – deals with new customers will take longer and can be subject to more uncertainty than deals with existing customers. Although it depends on the customer, of course.
To emphasize, it’s not about one single pipeline quality metric. It’s about understanding the context. But what the report and dashboard chart do, is draw the eye to the deals about which you might need to question.
To demonstrate, let’s take some examples from our report.
This Opportunity is in the Prospecting Stage which immediately makes me nervous about whether it will close this month. (We’re assuming here, of course, that the opportunity is in the correct Stage and that there isn’t a case of sandbagging going on).
The Number of Days Open and Number of Days since Last Stage Change are the same because the opportunity has not progressed from the date it was first opened.
The opportunity hasn’t slipped from one month to the next. But given that this is a new customer and the opportunity Stage hasn’t advanced, I’m doubtful the deal will close this month.
One that has a good chance of slipping, I’d say.
The deal has slipped once already. It’s been open over two months. We’re still only in the Investigation Stage and it’s due to close this month.
The opportunity is for a new customer. Again, another one to question. At least as far as a successful close this month is concerned.
The opportunity has been in Customer Evaluating for over two months. The Close Date has twice moved from one month to another. Presumably at some point, the salesperson thought it will close long before now.
This deal is for an existing customer. On the face of it, that gives us more confidence the deal will close successfully.
What do we know about Brown Estates? Are they a good customer that has purchased from us many times before? How long do they usually take to make a decision? Do we have a relationship with the customer that allows us to have a straight dialogue about whether the deal will close successfully this month?
The answers to these questions may give us assurance the deal is likely to close this month. Again, it’s a matter of context. But overall, the pipeline quality metrics may make me doubtful about including this deal in my revenue forecast.
Take a look at the pipeline quality metrics on this one.
The deal has been open 4 months. The opportunity has moved from one month to another 4 times. It has been in Negotiation for over two months. It’s for a new customer.
I’m definitely going to question this one!
High Hill Estates
Does this deal look better? Quite possibly.
The deal is 48 days old. The Days Open pipeline quality metric alone might make me doubtful about the close date of this month if our average sales cycle is 90 days. On the other hand, it’s for an existing customer, so a shorter sales cycle is a reasonable possibility.
The opportunity hasn’t slipped from one month to another. It was updated to Negotiation 4 days ago. If I look at the opportunity itself, are there planned actions that will expedite the negotiation? As the sales manager, do I know our trading history with High Hill Estates? Does previous experience and my knowledge of the context of the deal make me confident in the close date?
Get the pipeline quality metrics dashboard chart
Coming soon – a fully configured FREE dashboard that includes this dashboard chart and the underlying table.
The dashboard also contains 15 other components that allow managers to track the size, trend and quality of your sales pipeline. Together they give tremendous visibility of the funnel and sales performance.
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