Category: Purchase Order

Smart Sales Operations – Pipeline vs. Estimated Revenue

When I began speaking about Sales Operations, I mentioned there is some bleed between selling and sales ops. One of the critical pieces which companies focus on is pipeline. Where sales and Sales Operations depart, is how pipeline is used to estimate revenue and revenue is used to determine pipeline.

What do I mean? With a few employers, when I entered in an opportunity and my estimation of percent completion, the company then provided a calculated revenue equivalent for the opportunity.

For instance, if I identified a $100,000 opportunity, and was in the initial stages, having maybe had an introductory meeting, I would set the probability at 10%. My employer shows revenue of $10,000. As I progressed through the sales stages, the probability would increase, and so would the estimated revenue, for instance at 40% equaled $40,000.

There is a problem here though, because this IS NOT revenue. It is pipeline. By forecasting revenue dollars inevitably the company would begin looking at this number as real dollars–essentially “counting chickens before they’re hatched”. This, in turn, would lead to greater pressure on the rep to close the deal. And if the deal fell through, which does happen to deals, the company would go into a tizzy. No wonder reps sandbag their deals…

When I’ve asked different companies why they do it this way, they explain it is for budgeting purposes, resource planning, etc. Okay, I can understand the need for planning for resources and budgeting, but it shouldn’t be done off of imaginary numbers. If anything, it should be planned using pipeline probability. A $100,000 opportunity with a 10% chance of closing doesn’t represent $10,000, it represents ZERO dollars and a chance at $100,000 dollars! If the deal proceeds down the pike and gets to 70%, 80%, even 90%, it still represents ZERO DOLLARS.

As a tangent, this mentality is seen in the statistical situations. If you ask anyone what the likely outcome would be if they flipped a coin 10 times, they would say five heads and five tails. But if they are flipping the coin themselves and run into a streak, say, heads four times in a row, then instead of using statistics to predict the next toss, they use their human math and predict what the next toss will be. The problem is, statistically, each toss is 50/50. It doesn’t matter if there has been a streak of heads or tails, as each toss isn’t dependent upon the previous toss or the coming toss, only the current toss. Prediction doesn’t cut it.

Why am I so emphatic about this? Because if pipeline is set up this way, it creates a situation for management to scrutinize deals farther along the pipeline as needed revenue, without considering–among so many other things which can sink a deal–competition or buyer indecision. If you’ve sold before, then I bet you’ve had a customer sit on a deal decision for many months longer than expected or you’ve lost in the eleventh hour to your competition. These things happen to even the best sales people. But to be on the hook to management for a deal which doesn’t close because management is forecasting revenue, well, that’s just bad accounting. Not bad selling.

In Smart Sales Operations, Pipeline Percents represent confidence–how much confidence does the sales person have that a deal will close. Based upon that, estimates of potential revenue are either shown at 100% or nothing. If a company is trying to use some sort of percentage to allocate resources, then it should take the quote which is in consideration by the customer coupled with where it stands in the pipeline, and forecast resource availability. This is a topic within itself, but suffice it to say, resource availability is significantly different from estimated revenue–and I can’t bill my resources against estimated revenue. Only real revenue.

And if it hasn’t been sold, then potential revenue equals nothing. Once it’s been sold, it becomes real revenue.

Last, remember once you have real revenue, then the deal is truly done when the business gets paid real dollars–and the rep gets paid commission.

Thinks, Inc. is a consulting firm which specializes in Smart Sales Operations. If you’d like for us to come and assess your chaos, drop us a line at contact@thinks-inc.com

PS The Infrastructure Guy  and Smart Sales Operations are Trademarks of Thinks, Inc.

Smart Sales Operations – Front Office vs. Back Office – Getting Paid, Part II

Last week I talked about processes internally for taking an order to fulfillment so sales gets paid. Knowing you have dutifully addressed all the bumps and burrs impeding your order processing in the past week, I want to address the next big looming issue: Customer Payment.

Let’s go back to last week at Company X where the sales rep has received a PO. The order gets processed and pushed through the back office, the customer has received their product and/or services, and they have been invoiced.

What happens next? In an ideal world, the customer receives your invoice, smiles at the thought of the good work or product you’ve provided, and then happily cuts a check. And Company X, in turn, excitedly rewards the sales rep by paying the rep their commission due.

Did you notice a lot of smiling and a lot of processes happening? Daisy-chained together and executed without a lapse? Unfortunately, in our more accurate world, the customer hasn’t paid, for any number of reasons, and now the invoice is thirty-days old, the goods and/or services are sixty days past delivery–meaning the customer only has a vague remembrance of Company X–and you, the sales rep, haven’t seen a dime of commission.

How does this get rectified? In a sweeping generalization, many of these issues need to be dealt with up front. And I don’t mean in PO language (a topic for another post). I mean, talking to the customer about how an order gets processed, who on their side of the company touches it and ushers it through, and what obstacles loom which could stop your company from getting paid.

Herein lies the rub. This part of the typical sales cycle is either brushed aside or avoided because it is uncomfortable. It makes the rep anxious as they don’t want to be presumptive of the sale, and it makes the customer irritated, because of the aforementioned (potentially) but also this is typically not an area of expertise and they don’t have the knowledge or understanding to answer these questions.

One of the recommendations which was made to me by one of my former managers and a mentor to me, is to have the customer purchase something small from you. Whatever you can consider “small”, it is more the exercise in getting the flywheel moving so when the big purchase comes through, the axles are greased, the engine is ready at idle, and the wheels are ready to roll.

Why? Most companies have myriad documents to sign before they can engage in business. Non-Disclosure Agreements (NDA) and Master Service Agreements (MSA) are two big ones. Ask to see a copy of the company’s PO, especially if it may contain additional language. Many times customers will state their payment terms on their PO. It is quite a surprise to send in your quote which states payment is expected within 30 days of invoicing, and see this trumped by the customer’s PO which states that the customer will pay within 45 or even 60 days of invoicing.

To hammer the PO language catch example home, a former customer of mine had a clause on its PO which stated that if the customer paid within 30 days, they would take a 3% discount off the invoiced amount. We always received payment from the company on the 29th day. Another customer paid for services on a different timeline than goods–60 days versus 30 days. Each of these smells a little rank in terms of ethics, and due to the fast paced nature of business, these iniquities were allowed–with a lot of grumbling. Only when the customer was addressed about the difficulties their policies presented to us did they relent. But if we would have known about this upfront, the surprise for me and my back office would have been a lot less.

While many companies use their purchasing policy to create a mechanism for “float” it doesn’t have to be that way. If you have done the homework and asked the questions up front, you should be able to alleviate many of the speed bumps which get your company paid and you receiving commissions.

Of course, there is much more which can be done, but consider this is a musing’s first blush.

Your task for this week? Go to that customer who is always slow to pay. Ask them if there is anything you can do on your side to get them to pay on time. And if possible, help them streamline their process.

Any better ideas for Front Office vs. Back Office? I’m always interested in learning.

Thinks, Inc. is a consulting firm which specializes in Smart Sales Operations. If you’d like for us to come and assess your chaos, drop us a line at contact@thinks-inc.com

PS The Infrastructure Guy  and Smart Sales Operations are Trademarks of Thinks, Inc.