The Funnel, the Forecast and Time
Hooray for January! We made it through another year! While 2020 is the beginning of the final year in this decade, the next 12 months for sales will follow a pattern that has not changed in the 30 years of my involvement with sales. The sales and buying process takes time. Time is at the core of all “physics”. If you defy the laws of physics, you are literally breaking the law – or, at best, robbing yourself of optimum performance.
Like snowflakes, every market is unique; every region within a market is unique – and, every organization within a region is unique. However, there are two common factors: (1) each organization needs revenue to survive – and; (2) each organization is limited by 24 hours per day, four quarters and twelve months in a year. All organizations are bound by the same time.
It is physics.
Dimension One Time: “Funnel Shmunnel” and the Sales Forecast Fallacy
Outside of retail and “one-call closes”, how many versions of a sales funnel are there? It is probably easier to count the stars in a clear night’s sky. However, I have never seen a funnel that is overlaid with the 12-month buying cycle. Does closing a big sale on January 2nd make your annual revenue goal? Does shipping an order on January 2nd count? Does making a sale on April 2nd make your Q1 sales bonus? Are any customers even in the office on December 31st?
In 2019, Christmas Day fell on a Wednesday. If a customer or prospect was shut down from noon on December 24th through New Year’s Day, there were 16½ business days in December.
So, where is the calendar in the funnel? Funnels are used by management to create sales forecasts.
As the head of marketing in a company, I traveled with salespeople to get a better understanding of our sales process and the amount of time it took to progress through the funnel steps.
On one trip with a sales associate, Chris, he mentioned that he had to get this order today! It was the last day of the month and he had this opportunity on his forecast. I asked Chris about the number of times he had visited this company. He said this was his first meeting. Chris was breaking the law of physics. He did not get the order. Chris was out of time.
Why did Chris’s manager let this account stay on his forecast? If the forecasts collectively impact a company’s financial decisions, Chris’s company was damaged by the frivolous forecast. Some companies whose goods are manufactured overseas build to a rolling 90 day or more forecast. A bad forecast can lead to excess inventory and warehouse costs. For services, inaccurate forecasts can lead to a lost jobs.
Regardless of the funnel design, each step takes an average amount of time. The alternative to a time-based forecast is discounting them based on individual past performance. Discounting is a sign of insufficient internal systems.
Dimension Two Time: The Compensation Plan vs. Company Revenue Goals
If the average sales cycle or buying process takes 30 days, companies should focus on opportunities that are in the forecast at least 30 days before the end of the month, quarter or year. Relying on any new opportunities outside of that window is wishful thinking.
I have seen enormous amounts of organizational energy expended in the last days of a month, quarter or year. The results generally come up short. It is physics.
In the mid-1990’s, I had P&L responsibility for the division of a company. In early November, we were $300,000 short of our annual goal. We recognized revenue when product left the dock. We had two $200,000 machines on a forecast for 90 days. The machines were being purchased in the U.S. for a Chinese telephone company. The build time was 5-weeks – so, if we did not receive the order before Thanksgiving, it would not ship prior to year-end.
I called the buyer informing them that we were finalizing our year end manufacturing schedule and we needed their order before Thanksgiving to deliver that year. The next available delivery date was April. We got the order and made our year.
The forecasted sale was a valid opportunity. Time made getting the order now imperative.
Dimension Three Time: The Buying Cycle
Dimensions One and Two time are linear. They have a beginning and an end. Many companies will compare results from last year to the same period of this year for analysis – however, that ignores environmental factors like the following word problem:
How much energy does it take to roll a 100-pound rock 50-feet up a 20-degree inclined ramp? Ignore friction and assume the rock is moving in a vacuum.
Ignoring economic and environmental conditions can lead to poor decision making. When comparing revenue to previous years, ask these questions:
Has the economy softened? What is the interest rate? Is the stock market up or down?
Has competitor activity increased in your market?
Have new technologies impacted your market? (i.e. 5G)
Is your internal team the same?
Has slow sales resulted in limiting travel or marketing?
The reality is that the buying cycle does not change. The buying cycle is the same every year. Every year has Holidays. Every year has a Spring Break. Every year has summer vacations. Every year has 365 days. Every four years has a Presidential election and a Leap Year. And, most importantly, every year is impacted by new technologies. For example, the Consumer Electronics Show is every January – do you wonder why?
These factors affect when people buy. Perhaps for some industries the cycle shifts a bit. However, the shift is market wide. The standard cycle is shown in Fig.1.
The Funnel and Closing
So, orders are written during six months of the year – but, as you can see in Fig. 1, no Quarters include three buying months. Attempting to make your whole quarter sales or revenue goal in June is breaking the rules! The same goes for December. Quarters one and two only have one buying month.
Many companies exert an extreme amount of sales energy at the end of a quarter. The result is that everyone has a “hangover” at the start of the next quarter. From Fig.1, a sales hangover in April and October will destroy one-half of the buying period in those quarters.
The non-buying months should be used for prospecting and meeting with existing customers to discuss new products, get their requirements – and, budgets for your products or services.
Success and Three-Dimensional Time
If you are disappointed in last year’s results, take last year’s sales funnel and overlay the three dimensions of time. Look at the missed closing dates by month. You might learn something new! Or, overlay your annual forecast for this year with the three dimensions of time. You might have a less stressful year. It is January – get moving!
Educate your salespeople on the buying cycles. Encourage them to aggressively move their prospects through the funnel steps in the blue months. Whatever label you would like to put on your sales process, orders should fall out of it. If closing sales requires expending an enormous amount of energy at the end of a month, quarter or year; you have broken the laws of physics – and, your funnel is a myth.
Have a great, successful 2020!