This article originally appeared here in the salesforce.com blog Quotable.
Pipeline management and forecasting are both important to a sales force. Consequently, companies invest heavily in specialized technology and tools just to manage these two activities. However, the true magnitude of the investment is only known when the time and energy expended by the sales force is also considered.
In a study Vantage Point conducted of nearly 100 B2B sales forces, 72% said they expected their sales managers and salespeople to meet more than once a month, sometimes daily, to discuss their sales pipelines and forecasts. On average, these meetings last 53 minutes. Even if every sales manager only meets twice a month for 53 minutes with each of their sellers, that’s a lot of time. Pipeline management and forecasting might unknowingly be the biggest investment a sales force makes in improving its performance.
There’s just one problem: Pipeline management and forecasting are two different things. In order to enable the healthiest pipelines and most accurate forecast, it’s useful to pull the two apart and to take a unique approach to each. However, our research shows that most companies don’t.
In our study, we asked members of the sales leadership why they bothered to have a sales pipeline — what was its primary purpose. Ideally, their responses would focus on monitoring sales activities, identifying areas for coaching, and determining how to win more deals. However, the number one reason was none of those. The majority of sales leaders told us their primary use for sales pipelines was to create accurate forecasts.
This actually makes sense when you think about how pipeline management takes place in most organizations. We hold a weekly pipeline review session, out of which comes a sales forecast. As a practical reality, pipeline management and forecasting commingle on our calendars. And this is what hobbles many organizations’ efforts to build healthy pipelines and effective forecasts: They don’t separate the two tasks.
Imagine your sales leader is the captain of a ship, and that ship is your sales force. Pipeline management is all the things the captain does to navigate the ship to its final destination, like directing the sailors, turning the rudder, and making constant course-corrections. Managing sales pipeline is about getting the ship there and back safely.
Forecasting, on the other hand, is estimating the ship’s time of arrival. The captain does this by staring at the horizon, monitoring milestones, and judging the ship’s progress toward its destination. It’s a heads-up activity versus a heads-down activity. Managing the ship and predicting its time of arrival might be equally important tasks for the captain, but they’re unquestionably different.
Unfortunately, most sales forces expend too much energy trying to estimate their arrival. Neglecting the operation of their ships, they often drift off course — sometimes missing their destinations altogether. Do a good job of managing the ship, and you’ll likely arrive on time. But spend all your time watching the horizon, and rough seas could force you to abandon ship.
How do you separate forecasting and pipeline management activities? Or, even more simply, how do you tell them apart? To answer those questions, let’s briefly examine the goals of each task and how to know when you’re achieving them.
The two goals of pipeline management are to build a healthy pipeline and to win more deals. In our research, we found that companies measured pipeline health across three key dimensions — size, shape, and contents. Deals were won through focused coaching on individual opportunities. Therefore, if you are examining the overall health of your sales pipeline or coaching your reps to win a deal, you’re probably steering the ship.
The only goal of forecasting is to accurately predict future performance. Typically, you step into the realm of forecasting when you begin to make three specific assumptions: the size of a deal, the likelihood you’ll win the deal, and the date you expect it to close. When you say things like, “this $100,000 deal has a 25% likelihood of closing next quarter,” you’re unquestionably forecasting. You’re using three assumptions to estimate when your revenue will arrive. Nailing those assumptions will not make you more likely to win that deal, nor will it make your pipeline any healthier. But it will make your prediction more accurate, and that’s the goal of forecasting.
There’s much more to be said about pipeline management and forecasting. Both are rich topics that require unique strategies, tactics, and analytics to do well. But the first step toward improving them both is to successfully separate them in your minds. Know your goals, know what you’re doing, and you’ll realize better outcomes for both. Learn to manage the ship while still minding the horizon, and you’ll arrive both safely and on time.