Paul explains how to balance your sales pipeline using the 1-2-4 ratio.
Salespeople struggle to maintain a steady inflow of opportunities. Their pipe has run dry due to a lack of activity.
Other salespeople have a clogged pipeline filled with dead deals. Too often, salespeople leave opportunities in their pipeline because they don’t want to admit they are dead.
The key to managing your pipeline is balance.
“For every red-hot opportunity, you need two qualified opportunities. For every two qualified opportunities, you need four potential opportunities.”
A red-hot opportunity is very likely to close in the next 30 days. With 90 percent certainty, you can say it’s a done deal.
Qualified opportunities are viable sales prospects. There’s a 50 percent chance you’ll win the business.
Potential opportunities might be viable sales opportunities. “You don’t know if they’re viable until you meet and discuss their needs.
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How do I maintain a balanced sales pipeline?
(Transcribed from podcast)
Well, on today’s show, we’re going to talk about pipeline management. I was recently working with a group of salespeople, and prospecting was the main focus for this particular session. One of the topics that came up was “How do I build a pipeline?” so, that’s what we’re going to focus on in today’s session. How do I maintain and build a balanced pipeline of opportunity?
Before we get into that, a quick shout-out to Andrea and her team at The Creative Impostor Studios. If you have ever considered starting a podcast, now is the time to do it. I know, right now, people are at home; they have more time than ever before. Now is the time to get started. There’s no time like the present. Take advantage of the time you have available. Reach out to Andrea and her team. They can help you start it up. They can help with questions you have, support, whether it’s on the tech side of it, whether it’s equipment. Whatever it is you need, they’re there to help. We’re going to, again, have a link to Andrea’s website on this episode’s webpage. Make sure you check it out.
Also, visit Amazon, or wherever you get your books, and pick up the fourth edition of Value-Added Selling. In Value-Added Selling, we talk a lot about prospecting and building a pipeline of opportunity. In fact, half the book, you could say, is dedicated to driving new business. So, pick up a copy. It’s available wherever you get your books. Amazon is probably the easiest, though.
With that being said, let’s get started with the question: How do I maintain a balanced pipeline of opportunity? Well, here’s the challenge. When we work with salespeople, there are a couple of common things we notice when it comes to managing a pipeline of opportunities. Number one, salespeople just don’t have enough opportunities, and usually that’s because they’re not dedicating enough time to activities like prospecting, cold calling, things like that. They have a pipeline of opportunity that has run dry.
Also, salespeople have a clogged pipeline of opportunity. Some salespeople just don’t want to admit that some of the deals they’re working on are dead and that they’re not going to happen. I get that. It happens. But when you know a deal is not going to happen, don’t leave it in your pipeline of opportunity. That becomes like a dream pipeline, and we don’t want that to happen. We want to have an honest look at our business at all times, and that requires a focus on maintaining a balanced pipeline of opportunity. So with that being said, let’s get into how to actually maintain a balanced pipeline of opportunity.
The first thing we need to focus on is the keyword here. It’s not opportunity; it’s balance. Balance is critical when it comes to prospecting and building a pipeline. Balance in your approach, being steady, being committed, making it part of your daily and weekly routine. Maintaining that balance is critical. And on today’s show, we’re going to talk about a ratio that is going to help you maintain balance. And the ratio is one-two-four. Okay? One-two-four. For every one red-hot opportunity you have, you need two qualified opportunities. And for every two qualified opportunities you have, you need to have four potential options.
So I’m going to briefly describe what each of these mean. First of all, a red-hot opportunity, it sounds like exactly what it is. It’s an opportunity that is very likely to buy from you. Let’s say with 90 percent certainty, you can say, “Okay. This opportunity is going to buy from me.” Now, you might feel that way for a number of reasons. Maybe they verbally have told you, “I think we’re going to move forward. We just need to work out the details.” That’s a red-hot opportunity. They have already demonstrated a strong willingness to buy. Maybe they’re already setting up their facility to receive your goods. They’re working through the paperwork. They filled out credit applications. They want to set up an account. You need to look at a red-hot opportunity like it’s not a matter of if you’re going to do business, it’s a matter of when you’re going to do business. And it it’ll likely happen in the near term, within the next 30 days, let’s say. So, that’s a red-hot opportunity. Ideally we want to have as many red-hot opportunities as we can have in our pipeline. But, in order to get those red-hot opportunities, you need to have some qualified opportunities and potential opportunities waiting in the wings.
Let’s move on to qualified opportunities. A qualified opportunity is a viable sales opportunity. Nothing more, nothing less. You’ve qualified them. You’ve researched them. Perhaps you’ve met with a couple of key decision makers. You’ve had a discovery meeting where you’re talking about their needs and what’s important. And they’ve demonstrated some interest in working with you; not necessarily strong interest, but they’ve demonstrated interest in working with you. You’ve determined it’s a viable opportunity, so you’re continuing to move forward with them. You’re taking them through your sales process. That’s a qualified opportunity. And remember, for every one red-hot opportunity you have, you need two qualified opportunities waiting in the wings.
The next potential opportunities could be a viable sales opportunity. We don’t know yet. These could be leads from your sales manager, leads that came in from your lead-generation company. You have yet to really sit down and qualify that opportunity. Maybe you have not even met with a decision maker yet. It’s a potential, and potential opportunities need to be qualified before they can be turned into a red-hot opportunity. So again, a potential lead is a lead from your manager. Maybe you’re driving down the road, you see a new company, a new facility, and you think, “Maybe I’ll stop in there and make a cold call.” That’s a potential opportunity. Remember this—for every two qualified opportunities you have, you need to have four potential opportunities waiting in the wings.
You can see this balance of one, two and four. That is the key to maintaining a balanced sales pipeline of opportunity. Let’s think about what that means. What does balanced mean? Okay, well, let’s say all of a sudden you’re looking at your current pipeline of opportunities. Let’s say you have a red-hot opportunity right now. That’s great. And you have two qualified opportunities. That’s perfect. And you have four potential opportunities waiting in the wings. All of a sudden, let’s say your qualified opportunity doesn’t work out, meaning, they just said, “Timing is not right. We’re not interested in working with you,” whatever it might be. It’s fine. You have to purge that pipeline. Get that deal out of your pipeline because it’s no longer a qualified opportunity.
This means there’s now a gap in your pipeline. You now have one red-hot opportunity, you only have one qualified opportunity, and you still have four potential opportunities. That means you need to continue qualifying your potentials until one of them becomes qualified. And if you go through all four of them and none of them end up being qualified opportunities, you need to find four more.
The key is generating enough activity to maintain that balance. And that includes whether we win a sale or whether we lose a sale. I let’s look at this from another angle. Let’s say you’re looking at your pipeline of opportunities, and once again, you have a red-hot opportunity, two qualified opportunities, and four potentials. Let’s say you close that red-hot opportunity. Now you have zero red-hot opportunities. That means you need to continue working your qualified opportunities until they become red-hot. And until they become red-hot, you still need to backfill those potentials. So you still need to have four potentials that you’re working through, that you’re developing, and you’re trying to push them through to a qualified opportunity, because once a qualified opportunity becomes a red-hot, you then have a gap you need to fill in your pipeline. Again, the key is to maintain that balance. One of the best ways to maintain that balance is generating a high level of sales activity.
Here’s how we can put this to practical use. Let’s say you’re selling software. We’ll use something simple that we’re all familiar with. Let’s say, on average, your monthly target (your sales target) is a hundred thousand dollars in deals. Let’s say the average deal size for you is $50,000. So, to be in balance, that means you need to have two red-hot opportunities every single month. You might be saying, “Okay, how am I going to get to two red-hot opportunities?” You’ve just got to work the formula. For every two red-hot opportunities, you’re going to need four qualified opportunities. And to get those four qualified opportunities, it means you’re going to have to work through eight potential opportunities. You’re going to have to call on those potentials until you can qualify them, and then work those qualifieds until they become red-hot. That’s how you maintain the balance.
Just remember that ratio one-two-four, and every time you win a deal, every time you lose a deal, get over it, especially if it’s a win. Don’t let your head get too big and realize you got more work to do. Celebrate your success, but realize that means you need to go out there and find more opportunities. You keep that balance, you’re going to crush your quota.
Make it a big day.