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 would win 100% of deals. (If you ARE winning 100% of deals then you have pipeline management issues such as sandbagging).
In fact, for reasons we’ll come to, sometimes there are not enough deals leaking from the funnel.
That’s because 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.
This means two questions for every sales manager are:
- Is the sales funnel leaking to a reasonable extent? And,
- Is the sales funnel leaking in the right places?
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 four 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.
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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.
Create this chart using a Stage Movement report. The report shows the ‘From’ Opportunity Stage for all deals that have been set ‘To’ Closed Lost.
In our case, the chart covers Opportunities where the Stage movement occurred in the last calendar quarter.
The leaking funnel dashboard chart and report show, for example, 17 Opportunities moving 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 is qualified-out.
But how much early stage leakage is too much?
Using conversion rates (win rates) is one way to gauge this. Are win rates are broadly in line with what you expect? If so, 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 leaking from the funnel at late Stages in the sales cycle?
Look the chart and report in our example above:
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 leaking from the funnel at late stages waste time, energy and resources and 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. For example, 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 can 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.
However, 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. 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. That’s because you then apply the lessons going forward to future opportunities.
Read How To Stop Salespeople complaining about Marketing Leads for a great example of insight gathered this way.
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 approach is particularly powerful when it combines 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. Often, a validation rule ensures information is entered whenever a deal is set to Closed Lost.
Sometimes this yields useful information.
However, it’s tough to get the depth of information that can truly make a difference using this method alone.
For example, all too often ‘Price’ is the reason the deal was lost. Yet how frequently is that truly the case in your business. Instead, qualitative information is the key to making real change and a difference to future conversion rates.
For more advice read How To Stop Closed Lost Screwing Up Your Funnel.
4. Decide upon action to plug the leaking funnel
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 actions you can take.
Early Stage leaking funnel
- Validate the opportunity qualification criteria and process. Check deals are not qualified-out too early.
- Ensure timely and thorough follow-up on early-stage opportunities for new customers. Make sure they’re not 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 contact from salespeople.
- Implement lead scoring to identify and prioritize the early stage opportunities for follow 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 time is not wasted by salespeople 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.
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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