Creating an Accurate Sales Pipeline Model to Optimize Investments in Your Teams
How many sales reps do I need? How much should I invest in marketing? These are questions we usually get asked as we help companies build an optimal sales and marketing function. Unfortunately, many times it is asked too late – after a client has over-hired in sales and had to lay off part of the team after burning through investment dollars. Did we really need that many sales reps? I could have used that money differently.
The reality is you can actually calculate how many sales reps you need. No guessing necessary. Of course, you need an accurate model of your pipeline first. That model should tell you exactly how many opportunities you need to be working at each sales stage at any given time to hit your bookings target (taking into account your desired year over year growth rate). If you know how many opportunities you should be working, and how many opportunities an individual sales rep can handle, you will know the right sales team size for your organization.
At the same time, your pipeline model should tell you how many new opportunities should be delivered to your sales team to get to the right pipeline value. That will tell you how large your inside sales team should be, as well as the required marketing lead generation performance.
This seems pretty straightforward, but developing a pipeline model is highly complex. That’s why we developed the ayeQ bookings model – the engineer’s approach to sales and marketing – as a core part of the ayeQ Strategy Automation platform. It is created using your bookings targets and characteristics of your defined sales process.
We use our bookings model to help clients rightsize their sales and inside sales teams, and determine the optimal level of investment in marketing programs. When we successfully rightsize these areas, we see growth targets achieved consistently and cost-effectively.
Examples of the power of this capability are, unfortunately, best revealed through failure. Let me give you a few examples.
Several years ago, a client with an innovative SaaS platform had received significant funding for a new leadership team to grow the company 100%+ year over year. They hired 6 heavy-hitter sales reps out of the ERP/Analytics space to sell the platform plus managed services, with a first-year deal size of about $5M. They hired our consultants to ramp up marketing efforts to feed that team. Not to toot our own horn, but after our consultants built the marketing lead flow engine and a compelling marketing message, lead flow increased 4x over 3 months, and the pipeline value increased 5x.
Then their operations team hit a snag. Several of their implementations were going poorly, and complaints were blowing up social media. Our marketing consultants shifted gears to crisis communications. Their sales team was not able to close deals, lacking referenceable customers. After about 6 months of continued sales efforts, they were out of cash and had to lay off all 6 reps.
At that point, we had just implemented the ayeQ bookings model over their Salesforce.com CRM and Marketing Automation (Pardot) systems. Just as the layoffs were occurring, our consultants sat down with their president, who was responsible for sales and marketing, and showed him the ayeQ model of their sales pipeline. It showed exactly how many deals they should have been working in every stage each quarter to hit their sales target. The president looked at the model for about 2 minutes, and said, “I should not have hired that many salespeople. 2 salespeople could have handled that volume.” At that point, it was too late.
Another example: Just last year in a different organization, a new leadership team had been placed with the goal of taking an analytics company to a higher growth state. Their solution was a SaaS solution, with an average deal size of about $400k annual subscription value. Their sales had stagnated, with only 2 deals closing in the previous year. The new leadership team quickly ramped up sales and marketing, replacing 2 existing sales reps with 4 new for a total team of 5. They also increased their inside sales team from 1 to 3.
Our consultants were using ayeQ to build their lead generation engine. We implemented their bookings model, which revealed that they only needed 3 sales reps and 1 inside sales rep. They decided to stick with the larger team, assuming that some would not be productive.
Again, the lead generation engine that our team implemented was highly successful, increasing lead flow by 400% and increasing pipeline size by 100% over 6 months. Given we could track the performance of each sales stage within ayeQ, we could see that the early part of the pipeline was very healthy. But in stage 3 (of 5 sales stages), opportunities were dropping out of the pipeline dramatically. What was happening here? It was a customer reference problem, once again.
There are a couple of lessons to be learned here. First, before investing heavily in sales and marketing, make sure you have a solid value proposition that is delighting customers. Then, when you have demonstrated success in closing new deals and successfully creating value, you should scale marketing and sales. But scale them wisely. Don’t burn through cash because you have it. Rightsize your team based on a pipeline model that clearly shows you how large your team should be to hit your bookings model.
Today, as businesses are determining how to relaunch post-COVID-19, this is more important than ever. Many had to downsize sales and marketing as demand dropped during the pandemic. Now is the time to take a deliberate, scientific approach to rebuilding your growth function. It starts with modeling your pipeline.
To learn more, watch this on-demand webinar. We’ll show you how ayeQ can help you model your sales pipeline and understand exactly what, and who, you will need in this next phase for your organization.