With shorter product cycles, high market volatility and intense competition, relying solely on historical data to generate future forecasts and plans will not suffice. In this environment, business planners are well advised to incorporate other sources of forward looking market intelligence into their planning process. This article talks about perhaps the best source of short and long term market intelligence – the sales force and specifically the funnel.
No one is closer to the pulse of the marketplace and your customers than the sales force. They –better than others-- understand the psychology of the market place and customer behavior. Progressive sales organization track tangible, quantifiable information about their markets -- Are customers ready to buy? When will budgets be allocated? What will they buy? Yet, harnessing the collective knowledge of the sales force is a daunting task for the following reasons:
- Salespeople tend to think in deal terms, not operational planning terms; (i.e. number of systems by customer or total dollars a customer will spend by product line).
- Salespeople tend to not want to share information with the planning organizations for fear it will affect their personal bottom line.
- Each sales rep has his or her own style and way of doing business which leads to different reporting styles, often difficult to interpret.
- Their primary focus is selling, not developing forecasts or supporting demand planning.
- Salespeople typical think in terms of today's deal, not the long term impact on revenue or demand that a new deal may have over time.
- Pipeline gaming and personal sales styles lead to hard to understand and inconsistent opportunity information.
In recent years, Sales Force Automation tools like SalesForce.com have emerged to support the sales process, contacts and opportunities. However, while supporting the sales process, the translation of sales funnel information into meaningful demand planning data is largely missing. We will address the key features and functions that your organization should look for in a planning tool to allow you to overcome these hurdles and get the most out of the sales funnel.
The Art of Bridging the Sales Funnel to the Demand Plan
Translating opportunities is a challenge that needs to be overcome !
Sales opportunities typically have a date and a deal size, a customer, but often do not have a product or product line associated with them. When you look deals on their own, they do not give you a clear picture of demand or provide information that can be directly used to see product planning trends. But, if you consolidate the opportunities, and bridge them into the demand planning process it becomes easy to see the bigger picture. The missing link is the products and product line information. The following example illustrates this challenge:
In the above example, demand planners know two out of three elements (Geography and Customer) but they do not know what is most important to them; what products is this opportunity likely to translate into?
The key to putting this critical opportunity information to work is in the translation. A best-in-class planning tool should provide the translation for you based on historical customer or regional buying patterns and trends, as well as utilizing sophisticated hierarchy models to take high level product line or platform information and translate it down to products based on mix and attach rates.
The result is a tangible advantage over pure historical based planning tools. Planners now have access to the whole picture historical trends and statistical models balanced against actual pipeline trends that are projecting the business. Utilizing a system to overlay these two models allows the planning team to quickly identify exceptions and trends and take action proactively to adjust the model.
Factoring the input of sales provides insight and accuracy
Salespeople are notorious for playing games with the sales funnel sales reps are focused on selling and making their numbers and unless motivated (via tracked incentives) they traditionally do not want to participate in the forecasting process. Salespeople tend to fall into two classes, those that over promise and those that over deliver. Advanced planning tools should leverage this behavior and use it to advantage in the planning cycle. Because you can now identify these trends in the planning process, you can systematically take them into account. Below is an example of typical trend report that allows you to see and react to this type of information.
You can see in this report that Ron consistently has a low win ratio (35%) and that Pat consistently has a high win ratio (80%). Both Pat and Ron are good salespeople that are hitting their quotas and providing valuable sales for the company. Historically, the information that a planner would get from a sales funnel would be near useless or even worse, misleading. Using a predictive sales pipeline intelligence engine, you are able to provided a weighted forecast of the funnel. Moreover, by factoring in the likelihood of each sales opportunity, you can compute a sales forecast that can be compared against the traditional demand forecast. Armed with this information, demand planners can more confidently take the pipeline into account in the planning cycle.
Understand why you win (and lose) deals
Understanding the reason companies win and lose deals is critical to the planning process. If sales and planning organizations are able to understand why deals are won, and more importantly, lost, they are able to not only more accurately forecast the likelihood of deals closing, but actually able to win more deals. Below is an example of a real time exception report that articulates not only changes to deals status, but also categorizes the deals by close type. This allows the organization to assess the trends in how and why deals are won or lost over time. The key is understanding WHY you lose deals, so that these gaps can be filled.
Real Time exceptions in the planning process allow the planning to be proactive vs reactive
As stated initially, the market is in a constant state of flux, and again - the sales force is in the front-line. When important sales opportunities change, demand planners need to know, and fast. A planning solution should address this by enabling exception management through alerts and business rules. These alerts should not replace communication, but enable it. The following example illustrates an exception alert based on changes in sales opportunities:
In the above example, the user receives an email that notifies him/her about an important change in the sales funnel, based on a threshold previously defined. Within minutes, the plan can be updated to reflect the new market conditions.
Conclusions
The sales pipeline, if leveraged correctly, can be a vital part of the demand forecasting and planning process. Steelwedge Software has developed a solution that enables the sales funnel to become an integral part of this process by:
- Translating vaguely defined sales opportunities into meaningful demand planning data.
- Identifying and leveraging trends in the sales funnel to predict accurate close rates.
- Gaining real-time visibility into why deals are won and lost enabling the organization to proactively increase close rates and close any trends or gaps in the process.
- Providing exception alerts to enable right-time planning updates when important changes take place.
About
the Author
EJ Tavella is a co-founder of Steelwedge Software and the Senior Director of Business Development. In his prior role, EJ ran the Steelwedge consulting group and was responsible for business and system solution architecture for customers like Juniper Networks, Tellabs, AFC, and Enterasys. EJ has delivered enterprise-wide solutions focused on business process and supply chain optimization through technology at several companies including Ernst & Young, Hewlett-Packard, Red Envelope, BIGWORDS.com and Read-Rite. E.J. received his degree in Business Administration, Finance from Cal Poly, San Luis Obispo.
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