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The Lead Generator Ezine

Tricks of the Trade for Successful Sales and Marketing

Funnel Management (Issue 1)

Introduction

As you already know, The Lead Generator provides the best quality sales leads available, but that's not all there is to successful selling. This ezine is designed to provide you with additional practical methods to you be more successful in sales.

Funnel Management

Prioritizing your work is the key to effective time management, but the question is, How do you do it? Do you come in in the morning, open up your contact manager and ask yourself, let's see what I have to do today? Or do you have a method for prioritizing your work that will make you, and your company, the most money in the shortest amount of time?

We have found that a simple spreadsheet is the easiest way to make sure that you're "doing the right things," not just "doing them right."

The theory behind our Funnel Management spreadsheet is the concept of the Expected Value of a prospect. The Expected Value is a function of "what a sale would be worth" if it pans out, and the "probability of success" of that sale. Thus, if a sale to Prospect #1 is worth $500 if it closes, but the probability of it closing is only 50%, then its Expected Value to you is $250, not $500.

This becomes important because, if you have an opportunity with another prospect, you can compare them and decide objectively on which one you ought to be working. So, for example, if Prospect #2 represents a potential sale of $400, but has a probability of closing of 75%, its Expected Value is higher, at $300, than the $250 value of Prospect #1. All other things being equal, Prospect #2 is the one you should be working on.

This is summarized in the spreadsheet below:

Prospect Potential Revenue Probability of Sale Expected Value Comments
#1 $500 50% $250 Even though this has the higher potential
#2 $400 75% $300 This is the one to work on

This gets you a long way towards effective time management, and the model can handle a lot of prospects and activities. But it's very rarely the case the "all other things are equal," so we need to add another factor.

The next most important factor to consider is time. That is, when will something close? When something closes, with "sooner" usually being better than "later," is important because we never want to have too much quota left over at the end of the month. Anyone can make quota, given unlimited time; but we don't have unlimited time, so we have to account for it.

The Funnel Management approach differentiates opportunities on the basis of when they are going to close, as well as what they are worth. Borrowing a technique from Strategic Selling, we differentiate between Suspects, "C" prospects, "B" prospects and "A" prospects on the basis of which are "closest to closing" versus those which are "farthest from closing." An "A" prospect is closest to closing, and a "C" prospect is farthest from closing, with "B"prospects somewhere in the middle. And a Suspect is someone whom we haven't qualified yet, so we don't know how close they are to closing. (Almost every prospect starts out as a Suspect on our funnel.)

In practice, the question of "closeness to closing" requires us to think of more than just time. We also have to consider the work we have to do in order to move the prospect forward in the sell cycle. (Work, of course, takes time, so you can see the connection.) In funnel management, our units of time aren't just hours, days, weeks or months; we have to include "effort."

Prospect Potential Revenue Probability Expected Value Expected Close Date To Do Comments
#1 $1,000 90% $900 Oct. 1, 2000 Schedule 1 person This is the "A" Prospect
#2 $1,000 90% $900 Dec. 1, 2000 Schedule 10 people This is the "B" Prospect

Think about two new examples, each one is a $1,000 opportunity with a 90% chance of closing (i.e. EV=$900,) based on what you know today. In the first case, all you have to do is schedule one User to attend a training class, and the sale is done if he likes what he sees. In the other case, also worth $1,000 and with a 90% probability, you have to schedule 10 Users for the class, and again, only the one guy has to like it. Obviously, the first case requires less work than the second. In fact, it may take you into the next month to get the second one scheduled, no less get it closed.

Even though the probability and value of the sales are the same, they don't mean the same thing to you. The second one will take more work, and it may even get "screwed up" in the process. In fact, that 90% probability on Prospect #2 might even go down if we can't get everyone scheduled.

That's why we might call the first case an "A" prospect, because getting one person into the class is a "no brainer;" while we might call the second one a "B" prospect.

It's these type of factors, mostly time and effort, that force us to categorize prospects as "A", "B" or "C;" and at any point in time, we should always be able to say who are our "A" prospects, who are our "B" prospects, and who are our "C" prospects.

An important side-note to this discussion is that this concept contradicts what a lot of sales managers and business owners think. Many people to whom we're answerable believe that your largest prospects are your "A" prospects - but it is very wrong to think of them that way. Your "A" prospects are where your near-term revenue is coming from, and that may not include the giant prospect in your funnel who may never close. You may choose to work on the giant prospect, but you should do so only because you can justify it.

This also has the benefit of focusing us on what we have to do to move the sale along. That is, as you set up your funnel to reflect "closeness to closing," you identify what you have to do to move someone from being a "suspect" to a "C" prospect, from a "C" prospect to a "B" prospect, from a "B" prospect to an "A" prospect, or from an "A" prospect to a customer.

This enhancement to the model is shown below:

Type Prospect Potential Probability EV Expected close To do
Suspects #1 $500 ? ? ?
Intro mtg
#2 $300 ? ? 12/1/01
Get on bid list
"C" Prospects #3 $10,000 5% $500 3/1/01
Offer seminar
#4 $200 70% $140 1/1/01
Cover bases
"B" Prospects #5 $300 33% $100 11/1/00
Demo
#6 $400 80% $320 11/15/00
Convince VP
"A" Prospects #7 $100 90% $90 10/15/00
Pick up contr.
#8 $600 50% $300 10/1/00
Wait for decision
Total $12,400 $1,450

A very important thing to note is that it is not necessarily the case that an "A" has a higher probability of closing than a "B" or "C" prospect. In fact, it could easily be lower if you know you're going to lose this week! Think of the case where you're in a competitive bid situation with a 50/50 chance of success. There is nothing more you can do, and the decision will be made tomorrow. It's certainly an "A" prospect - but one with a low probability of success.

A second thing to note is that this approach lets you actually plan your work around what will get you the greatest return on your investment of time, money and effort. By showing your "To Do" (or next steps,) on the same form as the Expected Value, you can easily determine whether you ought to work on moving that "B" into "A-ville," or on cold-calling for a few more "C" prospects, or on closing some "A" prospects. (Of course, if you need to show more than just the next steps to keep the work in context, or you need to manage your sales expense, go ahead and add them to the sheet.)

Another important feature of this example to note is the total line. As you can see, there are two totals. The total Potential reflects what the territory would be worth if everything closed, while the total Expected Value shows a more realistic measure of the value of the territory today. Unfortunately, too many salespeople count their chickens (i.e. the potential,) before they hatch (i.e. the Expected Value.) By the way, the ratio of the EV to the Potential (e.g. $1,450 / $12,400 = 12%,) is a good measure of the relative risk in the territory.

A final enhancement you can make to this method is to add a forecast module to it, something which management generally loves to see. This can be done very simply in your spreadsheet by spreading the "EV dollars" into columns (one per month,) to the right, as shown below, based on the expected close date. You can also tweak it by accounting for a collection lag by moving the revenue out a month, and/or by spreading or repeating the revenues for project or ongoing revenue streams. We even know reps who use this to calculate their commission income.

Type Prospect Potential Probability EV Expected close To do Oct Nov Dec Jan Feb
Suspects #1 $500 ? ? ?
Intro mtg
#2 $300 ? ? 12/1/01
Get on bid list
"C" Prospects #3 $10,000 5% $500 2/1/01
Offer seminar
$500
#4 $200 70% $140 1/1/01
Cover bases
$140
"B" Prospects #5 $300 33% $100 11/1/00
Demo
$100
#6 $400 80% $320 11/15/00
Convince VP
$320
"A" Prospects #7 $100 90% $90 10/15/00
Pick up contr.
$90
#8 $600 50% $300 10/1/00
Wait for decision
$300
Total $12,400 $1,450 $390 $420 $0 $140 $500

That's about all there is to it. Funnel Management can save you time, and you make a lot more money. And all it takes is a simple spreadsheet.

For more information on Funnel Management, or any techniques to increase your sales, contact JV/M on the Web. For more information on cold calling, click here.

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