Why You Should Always Create Sales Opportunities at Zero Dollar Value

Quiz:  Your marketing team generates an MQL.  It’s passed to an SDR, who does basic BANT-style qualification and decides it’s real.  They create a sales opportunity in your pipeline and pass it to a seller.  What number is in the opportunity’s value field at this time?

Four answers I hear frequently:

  • I don’t know.  C’mon Dave, that’s a detail, why would I care about that?  Keep reading.
  • Some semi-random proxy value, say $25K.  Because, well, we’ve always done it that way, and I’m not sure why.
  • Our average sales price (ASP), say $100K.  For extra credit, our segment-specific ASP:  SMB opportunities get valued at $25K and enterprise ones get valued at $100K.
  • Zero dollars.   And that’s the only way I’d ever do it.

What’s my answer?  Zero dollars (and that’s the only way I’d ever do it).  Before I tell you why, let’s remind ourselves why we should care about the answer to this question.

Do you ever look at:

  • Pipeline coverage, as a way to determine your confidence about the future or to give investors confidence in the future?
  • Pipeline conversion rates (on a regular or to-go basis) as a way of measuring pipeline quality or triangulating the forecast?
  • Pipeline generation efficiency (e.g., pipe-to-spend ratio) in order to determine which programs or channels are better than others?

If the answer to any of those question is yes, you need to care about your definition of pipeline.  And while many people think about stage (e.g., should that SDR-created, stage-one opportunity even be considered pipeline?), few people seem to think as much about value.

In a typical funnel [1], by the time you get to stage 3 or 4 of your sales process you may have weeded out half your pipeline.  Now imagine it’s early in a quarter and your pipeline is loaded with stage 2 and stage 3 opportunities, all valued at $100K.  You may have a big air bubble in your pipe.

You think, alas, no worries, Dave, I can handle that in other ways:

  • When we say pipeline around here, we actually mean stage 4+ pipeline, so we just exclude all those opportunities.
  • When we look at stage-weighted pipeline, we weight at 0% all the stage 2 and 3 opportunities, so they’re effectively ignored.

Doing this will bleed a lot of air out of the pipeline, but let’s step back for a minute.  You’re telling me that you’re putting in a $100K placeholder value at opportunity creation time and then systematically ignoring it?  Yes.  Well, tell me again, why are you putting it in the first place?!

The answer to that question is usually:

  • We want to show a big pipeline to get everyone excited.
  • That’s how everybody does it.
  • We want to be able to compare against companies that use placeholder values.

Before challenging those answers, let me object to the air bleeding processes mentioned above:

  • Pipeline should mean pipeline.  If there’s no adjective before the word pipeline, it means the sum of the value of all opportunities with a close date in the period.  It’s sloppy to say, “pipeline” and then revise to, “oh, I mean current-quarter s3+ pipeline.”  They’re not the same.  Which one are you using when?
  • Pipeline that’s ignored in analytics is usually ignored in operations.  If your company defines “demo” as stage 4 (which you shouldn’t) and measures conversion rates from stage 4, I can guarantee you one thing:   the stage 1-3 pipeline is a garbage dump.   I have literally never met a company that does analytics from stage 3 or stage 4 where this is not true.  As Drucker said, what gets measured, gets managed.  And conversely.  This is bad practice.  All pipeline is valuable.  It should all be inspected, scrubbed, and managed.  That doesn’t happen when you systematically ignore part of it.
  • How do I know if a given $100K opportunity has a real or placeholder value?  You can’t.  Maybe you have a rule that says by stage 3 all values need to be validated, but do you know if that happened?  If you create opportunities with $0 value and say, “don’t enter a value unless it’s socialized with the customer,” then you’ll know.  Otherwise you’ll never be able to tell the difference between a real $100K and a fake one [2].
  • Stage weights should come from regressions, not thin air.  For those regressions to work, stage definitions should come from clear rules.  Then, and only then, can you say things like, “given our (consistent) definition of stage 2 opportunity, we typically see 8% of stage 2 ARR value converted in the current quarter and 9% more converted in the quarter after that.” [3]  Arbitrarily zeroing-out certain stages due to poor pipeline discipline and despite their actual conversion rates is bad practice.

Let’s close with challenging the three answers above:

  • Everybody does it.  Ask your parents about Johnny and bridges.  That’s not a good reason to do the wrong thing when derived from first principles.
  • We want to get people excited.  Good.  How about we get them excited by creating a real pipeline that converts at a healthy rate [4], instead of giving everyone a false sense of security with an inflated big number?
  • We want to be able to compare to (i.e., benchmark against) others who use placeholder values?  Super.  Then create a new metric called “implied pipeline” where you take all the zero-dollar opportunities and substitute an appropriate placeholder value.  You can compare to Johnny without following him off the bridge.

# # #

[1] While stage definitions and conversions vary widely, to make this concrete, here’s one sample funnel that I think is realistic:  stage 1 = BANT, stage 2 = sales accepted with 80% conversion from prior stage, stage 3 = deep dive completed with 80% conversion, stage 4 = solution fit confirmed with 50% conversion, stage 5 = vendor of choice with 60% conversion, stage 6 = win with 80% conversion.  Overall, that implies a s2-to-close rate of 16%, which is in the 10 to 25% range that I typically see.

[2] The hack solution to this is to use $99.999K as the placeholder — i.e., a value that people are unlikely to enter and then ignore that.  Which leads again to the question of why to put fake data into the system only to carefully ignore it in reporting and analytics?  (And hope that you always remember to ignore it.)

[3] This in turn relies on both a consistent definition of close date and a reference to which week of the quarter you’re talking about — such conversion rates vary across the week of the quarter.

[4] One of my CMO friends pointed out that sometimes this “excitement” takes dysfunctional forms — e.g., when sales wants to “cry poor” either to defend a weak forecast or argue for more investment, they can artificially hold oppties at zero value for an extended period (“uninflated balloons”).  This, however, is easily caught when the e-staff is looking at both pipeline (dollar) coverage as well as count (i.e.,  opportunities/rep).

2 responses to “Why You Should Always Create Sales Opportunities at Zero Dollar Value

  1. Dave, you know I am mainly a resident cheerleader for the Kellblog, and I fully agree with the idea in this post. We should create an Opportunity at the handover from SDR to AE, and it should have zero value. I think when we do not do this, the AEs wait to create Opportunities until they are more developed, and this gives us false views into sales cycles, conversion rates, and pipeline health. The area I am not aligned is using BANT. I think BANT has become redundant and we need to use other measures for the health of an Opportunity.

    If we start with the “B” – Gartner’s research says that over 60% of buyers don’t have a budget before they start a process and personally I think it is higher than that. Customers go through the process of first finding they have a problem(s), then finding vendors that can solve it, then when convinced they have something that can address the problem, they start to get budget. Gartner also cites that when projects stop, it is most often because the sellers haven’t proven sufficient value – another way of saying, “It’s not that there’s no budget, there’s just no budget for you”. So, if the customer doesn’t know budget most of the time, I think probing for “B” is no longer valuable.

    “A” for Authority is similarly fraught. With as few as 7 people involved in a complex B2B sale, Gartner are now saying there are up to 20 post-pandemic, and I can cite multiple examples of where up to 40 people are engaged, my experience is there is no longer one person with authority. Buying is now a collective team decision, and as per the budget, one that evolves over the buying process of the customer. Trying to work out who is in authority is no longer useful, plus like budget, customers never wanted to tell sellers anyway, because if it wasn’t them, they felt you were going to ignore their needs.

    I will come back to “N”, and look to “T”. If a customer doesn’t have budget established and are unclear on who is making the decision, a timeline is at best a guess, more likely slipperier than a bar of soap in the shower. In some cases there may be an event the customer is building toward, however if they haven’t got budget and authority determined until later in the sales cycle, the timeline has to be elastic at best. I also have not been overly convinced it make a lot of difference to us when we are selling unless we are selling a very high velocity product, we aren’t going to not sell to someone because their timeline is 8 months rather than 6.

    I think the move to SaaS has meant the buying process that was predicated on capital purchase and lengthy implementations, with a synchronous process that started at the beginning, finished in a sale, was pre-planned, had budgets, and deadlines, has changed fundamentally.

    I do focus on the “N” – strive to understand the needs the customer has, the problems to be solved, the job to be done. I think when we can find problems we can see are sufficiently important, it is our job in sales to prove the value, help the customer create the budget. Show the customer how we can get the solution implemented, which in turn drives timelines, and help the people involved make high quality decisions.

    I know you were not advocating for BANT, but when I see the letters, well as you will have guessed buy now, BANT is one of my soap box topics 😊

  2. Mike thanks for reading and I must say I wasn’t expecting an anti-BANT rant in the comments. So, first, I’m happy we agree on creating oppties at zero value. On BANT, well, yes it’s not perfect — back when I first learned solution sales people argued theoretically it was the definition of a bad opportunity. Find them before they’re buying! Find budget owners in pain and solve the pain, they’ll create the budget! One company we both know even went so far as to score leads LOWER when BANT was established (if only briefly during V1 of the rollout) because the solution fundamentalists actually convinced everyone that if all four BANT criteria were established we were destined to be column fodder as the deal was already rigged. I think that’s going (way) too far. Sometimes, people really have decided they want to buy one and send IT out to go shopping for them, which is a situation where BANT works best.

    That said, especially when selling SaaS applications to business buyers in pain, BANT for all the reasons you point out is imperfect. I just didn’t want to fry that fish today. My main point on pipeline entry is the safe deposit box: two keys need to turn. One from a BDR (in an enterprise model that has BDRs) and one from a seller. The criteria for when they turn those keys can be debated vigorously — as long as the answer gets written down.

    Peace and I hope you are well.

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