Do the Math: Understanding Your Channel Partner Pipeline

Many see a “pipeline” as a list of opportunities a salesperson is working on.

Properly managed, however, the pipeline is a guide driven by simple mathematics, and enables a salesperson to start each day, week & month knowing exactly what they need to do to beat their quota.

The Butterfly Effect

Every opportunity begins life as a “lead.” It then goes through a continuing series of metamorphoses until it becomes the butterfly that is a closed sale.

Leads can come from many sources. The phone book is a great list of poorly qualified leads. Many data vendors sell lead lists that have substantive demographic & firmographic information, but are still poorly qualified. Unless a lead takes a “hand-raising” action such as requesting a demo or downloading an asset, most come into life cold. Your first contact may be chilly, since they don’t know you. Everyone tasked with outbound prospecting acknowledges that.

The first call to a given lead should be performed by a talented prospector, someone with developed skills to uncover needs. Their job is to determine whether or not this lead has a pain point or challenge that is hindering their ability to do their job effectively. If they do, the caller proceeds to collect as much qualifying information as possible. If the interest and the qualification answers warrant it, it becomes a Marketing Qualified Lead (MQL). This is the top of the sales funnel the lead will travel down on its way to becoming a sale.

MQLs are now given to a salesperson with superior knowledge of the products and services, and solution selling skills. They will go beyond qualifying the contact and work to qualify the sales opportunity as well. When they are satisfied that the potential customer and potential sale are well qualified, it then becomes a Sales Qualified Lead (SQL).

SQLs are then added to the pipeline and moved down the funnel. Many sales organizations carefully track the time it takes to move a lead to MQL and then SQL to gauge how efficiently their sales engine is running, or what the conversion rate is from one to the next. The overall movement of the lead is its funnel velocity. The other key metric that will be extracted from the funnel is the “closing ratio” between how many opportunities are worked on and how many actually become closed sales.

Don’t Become the “Pipeline Police”

The pipeline is a guide to progressing through the sales process. What’s important is not so much the guide as it is the process, and this is where many channel account managers can potentially damage partner relationships.

Most CAMs are accustomed to pressure from above to produce more sales revenue. That’s not unusual. Some respond to that pressure by passing it along to their partners. They visit and their first and only question is “what’s in your pipeline?” These CAMs can be referred to as “Pipeline Police” and nobody, absolutely nobody, likes them.

What channel sales professionals seek is true partnership, collaboration, working together to move each opportunity further down the funnel.

Proactive CAMs sit down with partner salespeople to discuss each opportunity in detail. Not so much to quantify the opportunity as to guide the sales process further along. They discuss strategy, and how to overcome objections. They provide valuable help in completing sales. Yes, at the same time they are learning what the opportunities are, how far along the process each one is, and what still remains to be done to close them. But they’re doing it in a way that increases the trust-relationship between them and the CAM rather than damaging it.

Smart CAMs already have all the details they need to perform the pipeline math that tells each salesperson whether or not they’re going to meet and beat quota or not.

The Math Behind Your Channel Partner Pipeline

Those smart CAMs know pipeline math because they’re calculating it for themselves at all times.

Pipeline Math

The sales pipeline becomes a planning tool and action guide when it is built and used to track the path to fulfillment of goals. Teaching it to partner salespeople is one of the best ways for your CAMs to increase channel partner enablement. Here’s how:

You start with the variables you already know, like quota, average margin, and the closing ratio we spoke of earlier. Say your partner has assigned a salesperson to achieve $100,000 in gross profit to fulfill their quota. We already know their average margin is 10%, so they need $1,000,000 in sales to achieve that quota.

The next question becomes how many sales to close that $1,000,000 successfully.

To answer this accurately you need to know their closing ratio. That is, what percentage of the sales they pursue do they actually close? This can be calculated by comparing what is in their pipeline against their sales report. Over time, the accuracy of the calculation will become more and more accurate.

To get started, let’s assume that a salesperson closes 20% of the deals they pursue. A little quick math shows us that the salesperson will need $5,000,000 in opportunities on their pipeline to produce $1,000,000 in actual closed sales – given that 20% closing ratio.

The very next thing that must happen is for that salesperson to make sure they have that $5,000,000 in their pipeline. It’s a bad idea to stuff the pipeline with junk that won’t close. The sales manager will know it was junk because they know the math when things are done right.

To keep the pipeline math accurate so it drives success, each salesperson must understand that any opportunity that comes out of the pipeline, no matter whether it’s won or lost, must be replaced. If it takes $5,000,000 to beat quota consistently, it should always contain that $5,000,000. The best way to reduce that target is to increase your closing ratio by closing more sales.

CAM Pipeline Math

Any good CAM can show you their pipeline of channel partner opportunities. This is what they update based on their pipeline discussions with channel partner salespeople. If they know their quota, their average margin, and their partner’s average closing ratios they will be performing their own pipeline math.

Success. It’s all in the pipeline.

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