Do We Have Enough Pipeline? The One Simple Metric Many Folks Forget.

Pipeline is a frequently scrutinized SaaS company metric because it’s one of relatively few leading indicators in a SaaS business — i.e., indicators that don’t just tell us about the past but that help inform us about the future, providing important clues to our anticipated performance this quarter, next quarter, and the one after that.

Thus, pipeline gets examined a lot.  Boards and investors love to look at:

• Aggregate pipeline for the year, and how it’s changing [1]
• Pipeline coverage for the quarter and whether a company has the magical 3x coverage ratio that most require [2]
• Pipeline with and without the high funnel (i.e., pipeline excluding stage 1 and stage 2 opportunities) [3]
• Pipeline scrubbing and the process a company uses to keep its pipeline from getting inflated full of junk including, among other things, rolling hairballs.
• Expected values of the pipeline that create triangulation forecasts, such as stage-weighted expected value or forecast-category-weighted expected value.

But how much pipeline is enough?

“I’ve got too much pipeline, I wish the company would stop sending so many opportunities my way”  — Things I Have Never Heard a Salesperson Say.

Some try to focus on building an annual pipeline.  I think that’s misguided.  Don’t focus on the long-term and hope the short-term takes care of itself; focus consistently on the short-term and long-term will automatically take care of itself.  I made this somewhat “surprised that it’s seen as contrarian” argument in I’ve Got a Crazy Idea:  How About We Focus on Next-Quarter’s Pipeline?

But somehow, amidst all the frenzy a very simple concept gets lost.  How many opportunities can a salesperson realistically handle at one time? 

Clearly, we want to avoid under-utilizing salespeople — the case when they are carrying too few opportunities.  But we also want to avoid them carrying too many — opportunities will fall through the cracks, prospect voice mails will go unreturned, and presentations and demos will either be hastily assembled or the team will request extensions to deadlines [4].

So what’s the magic metric to inform you if you have too little, too much, or just the right amount of pipeline?  Opportunities/salesrep — measured both this-quarter and for all-quarters.

What numbers define an acceptable range?

My first answer is to ask salesreps and sales managers before they know what you’re up to.  “Hey Sarah, out of curiosity, how many current-quarter opportunities do you think a salesrep can actually handle?”  Poll a bunch of your team and see what you get.

Next, here are some rough ranges that I’ve seen [5]:

• Enterprise reps:  6 to 8 this-quarter and 12 to 15 all-quarters opportunities
• Corporate reps:  10 to 12 this-quarter and 15 to 20 all-quarters opportunities

I’ve been in meetings where the CRO says “we have enough pipeline” only to discover that they are carrying only 2.5 current-quarter opportunities per salesrep [6].  I then ask two questions:  (1) what’s your close rate and (2) what’s your average sales price (ASP)?  If the CRO says 40% and $125K, I then conclude the average salesrep will win one (0.4 * 2.5 = 1), $125K deal in the quarter, about half a typical quota.  I then ask:  what do the salesreps carrying 2.5 current-quarter opportunities actually do all day?  You told me they could carry 8 opportunities and they’re carrying about a quarter of that?  Silence usually follows.

Conversely, I’ve been in meetings where the average enterprise salesrep is carrying close to 30 large, complex opportunities.  I think:  there’s no way the salesreps are adequately servicing all those deals.  In such situations, I have had SDRs crying in my office saying a prospect they handed off to sales weeks ago called them back, furious about the poor service they were getting [7].  I’ve had customers call me saying their salesrep canceled a live demo on five minutes’ notice via a chickenshit voicemail to their desk line after they’d assembled a room full of VIPs to see it [8].  Bad things happen when your salesreps are carrying too many opportunities.

If you’re in this situation, hire more reps.  Give deals to partners.  Move deals from enterprise to corporate sales.  But don’t let opportunities that cost the company between $2,000 and $8,000 to create just rot on the table.  As I reminded salesreps when I was a CEO:  they’re not your opportunities, they’re my opportunities — I paid for them.

Hopefully, I’ve made the case that going forward, while you should keep tracking pipeline on an ARR basis and looking at ARR conversion rates, you should add opportunity count and opportunity count / salesrep to your reports on the current-quarter and the all-quarters pipeline.  It’s the easiest and most intuitive way to understand the amount of your pipeline relative to your ability to process it.

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Notes

[1] With an eye to two rules of thumb:  [a] that annual starting pipeline often approximate’s this year’s annual sales and [b] that the YoY growth rate in the size of the pipeline predicts YoY growth rate in sales.

[2] Pipeline coverage = pipeline / plan.  So if you have 300 units of pipeline and a new ARR plan of 100 units, then you have 3.0x pipeline coverage.

[3] Though there’s a better way to solve this problem — rather than excluding early-stage opportunities that have been created with a placeholder value, simply create new opportunities with value of $0.  That way, there’s nothing to exclude and it creates a best-practice (at most companies) that sales can’t change that $0 to a value without socializing the value with the customer first.

[4] The High Crime of a company slowing down its own sales cycles!  Never forget the sales adage:  “time kills all deals.”

[5] You can do a rough check on these numbers using close rates and ASPs.  If your enterprise quota is $300K/quarter, your ASP $100K, and your close rate 33%, a salesrep will need 9 current-quarter opportunities to make their number.

[6] The anemic pipeline hidden, on an ARR basis, by (unrealistically) large deal sizes.

[7] And they actually first went to HR seeking advice about what to do, because they didn’t want “rat out” the offending salesrep.

[8] Invoking my foundational training in customer support, I listened actively, empathized, and offered to assign a new salesrep — the top rep in the company — to the account, if they’d give us one more chance.  That salesrep turned a deal that the soon-to-be-former salesrep was too busy to work on, into the deal of the quarter.