Most, if not all, of us still religiously rely on the sales funnel to drive the effort to meet and exceed the revenue plan. And we do so even though the funnel fails us time and again. After more than 100 years of use, it’s not that the funnel concept is obsolete; it was just never the right way to model the problem in the first place.
The funnel has always been a convenient idealization to try to drive sales process improvement. We attempt to improve the shape, remove friction, and constantly feed the funnel. We’ve even tried to define more evolved shapes or lifecycles to better understand and affect revenue outcomes.
There’s a more fundamental issue to address here, “Does your funnel give you a way to maximize your chances to hit your targets and desired outcomes?” For most companies, the answer is firmly no. Because no matter the shape or spreadsheet model or opportunity tracking system, every quarter is a nail-biting finish with a hit-or-miss as far as making "the number." This has always been a recurring nightmare for executive, sales, and marketing teams, and it needs to stop.
So why we haven’t been able to move beyond the funnel? The fact is that it’s really hard to separate signal from noise in the pipeline and quantify risk and return across all revenue opportunities at any given time. And even if we did, we likely wouldn’t know how to properly account for risk, and make the right trade-offs to allocate limited resources, and price effectively to drive the outcome we want.
What we need is an early warning system that helps us correct course. And not just before we hit the rocks, but before the rocks are in sight. We can make this vision a reality by rethinking the sales funnel and by adding the proper frameworks to augment decision-making to drive consistent hitting of targets or desired outcomes.
First, it’s time we treat our our customers and prospects as the financial assets/instruments they really represent. Each has a probable outcome and risks that need to be accounted and managed for in the context of our target for a return on investment. And the right way to manage financial assets is through portfolio management frameworks.
Today, you probably already consider the upside and downside of each active deal with an associated probability. However, the ideal scenario would be to roll up all of those deals so you can not only aggregate the probability across the entire portfolio, across products, regions, teams, reps, etc. for a given month, quarter, year, etc, but also take into account portfolio effects: diversification and global portfolio optimization vs local/regional portfolio optimization.
Here are some examples that different “portfolio managers” inside a company need to consider:
- Regional Sales Head: For an individual sales rep, should he pursue a smaller value deal with a higher probability of close or a higher value deal with a lower probability of close? What’s the right decision in the context of reaching his target and our larger goals?
- Senior VP of Sales: Different business units are competing for the same limited resources to make their respective ‘numbers’. How should I allocate those resources? What is the risk-adjusted valuation model for each business unit so I can make better decisions?
- CFO: Will discounting a large deal right now help to win it right now? Or is the deal at a stage that I am only negotiating against myself and simply lowering price and margin for a future date close?
- CEO: I have a complex portfolio of interconnected business units, geographies and products with new, recurring, incremental, and potential revenue streams. Looking out over the next three quarters, how are we likely to perform? What are our biggest risks? And what would be the impact of trade-offs around pricing, investments in new hires, and new product offerings for our forward guidance to our board and investors?
Answers to these and many many other questions, in the context of a broad and complex portfolio of revenue assets, will allow executives to make the right strategic decisions around sales, marketing, services, and support to grow revenues efficiently in highly competitive and fast changing environments—just like making the right trading decisions taking into account risk appetite, desired outcome, and available pool of securities, and capital.
To manage a portfolio of any reasonable size and complexity effectively, you need a portfolio management tool to measure risk and return, to evaluate different scenarios for what-if analysis that will let you make critical decisions so you can achieve your goals. Portfolio management tools use advanced mathematics, machine learning frameworks, and high performance computing to extract patterns/signals from historical performance data and from market signals. Wall Street recognized the need for these tools 20 years ago. Back then, quants were a novelty; today, an investment bank isn’t in business without quantitative analysis to support any investment or trading decision.
Today, we’re at that same inflection point in the enterprise. Sales, finance, and marketing leaders are more ready than ever before to accept that a simplistic funnel doesn’t work. They need more comprehensive representation of their potential and existing revenue assets. Imagine a world where you get early warning signals about the risks in your pipeline (portfolio) so you reallocate and re-balance your resources (capital) to focus on the right deals (investments) to improve your chances of hitting your goals (your desired rate of return).
The ultimate goal is not to “avoid the miss.” The bigger goal is to think like a portfolio manager or trader: be proactive and be smarter, change your organization’s mindset about a linear sales funnel, and imagine a world in which critical decisions are made taking into account all available information across your entire portfolio to allow you to systematically pursue the holy grail of consistent and repeatable revenue over achievement.
