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Sales Pipeline Analysis: How to Lead Revenue Forecasting Meetings

Published by Summit Marketing Team on Mar 18, 2024 10:11:45 AM


The Modern CPA Success Show: Episode 115

In this episode, Tom and Adam discuss the critical role of pipeline management, focusing on its influence on sales, operations, and finance and understanding sales pipeline analysis. They highlight the importance of understanding the sales cycle, the necessity for accurate data, and the strategic benefits of pipeline meetings. Challenges such as managing waiting percentages and techniques for evaluating and forecasting pipeline opportunities are also discussed. They emphasize that pipeline management is not an absolute science but a tool for guiding predictions and aligning different departments. The conversation aims to provide insights for accounting firms to look forward and optimize their operations.



Intro (00:00:00) - Welcome to the Modern CPA Success Show, the podcast dedicated to helping accounting firms stay ahead of the curve. Our mission is to provide you with the latest and greatest insights on cutting edge tools, innovative marketing strategies, virtual CFO services, and alternative billing methods. Join us as we change the way people think about accounting.

Tom (00:00:22) - Adam, how's it going today?

Adam (00:00:24) - Doing well. How about you, Tom?

Tom (00:00:25) - I'm doing really well. You know, as we go through our podcasts, we do our webinars. We talk a lot about our course, the CFO playbook course, teach everything that that we can about how we provide services. And I thought maybe it'd be a good chance to dive into one of the topics today and talk a little bit about that one. I was thinking about pipeline. Sound like good topic to go through.

Adam (00:00:44) - Yeah. Can I change my answer on how I'm feeling today? Yeah, pipeline is a great conversation. We can talk about that for sure.

Tom (00:00:52) - So anyone who's wondering what pipeline is, you want to give some idea of what it is and why we focus on it?

Adam (00:00:58) - Yeah, basically.

Adam (00:00:58) - I mean, whenever we talk to our clients, we're always talking about, leading lag indicators. And so, you know, a good lead indicator obviously to sales is going to be your pipeline. And then of course you can go even further back in downstream, and you can look at things like, you know, the activities that create the pipeline, which are natural conversations. but the pipeline is that, that pre-meeting where you have the ability to, you know, look at what the future is going to be and how you're going to fill in those gaps because, you know, nobody's ever met a forecast they didn't like. Right? We can just throw a bunch of sales numbers up there and say, this is what we're going to do, but how are we actually going to execute on that? And so those pipeline conversations, regardless of the industry, you know, because they take different forms, right? If you're selling projects versus even somebody that's in retail or something that, you know, the format of those meetings change a little bit, but the conversation is still super important.

Adam (00:01:52) - And it's not only to make sure that you're going to hit target, but it's also an opportunity from an operational standpoint to bring finance operations and pipeline kind of all together in one meeting.

Tom (00:02:04) - Yeah, that's a great point. And I can talk to us a little bit about what we actually do in those meetings. So I'll focus on service companies that lots of times do projects, as you mentioned those, but I'll be the one who's preparing for those conversations. And a lot of the data that we're bringing is one side is what's already been committed. So you've got some projects under contract that you can tell me for the next several months what that's going to be. And so we can compare that to what your capacity is and say that's two thirds that you've got your pipeline two thirds full for the next period. So now we can turn and say, then let's look at what potential is in our clients. Have some kind of a customer relationship management system, Pipedrive or HubSpot or something like that. And so then we're pulling the data from there and sharing them back with it.

Tom (00:02:47) - Hey, here's what you're showing with the opportunities. And one thing that's pretty cool in those systems is you can look like, what's your average sales cycle? How long does something take from the beginning to the end? What's the percentage of these things that you win? And then how long do things last? And as you know, with that data, we can tell people, here's how big your pipeline should be if you're trying to hit a sales goal. So it is us feeding back information. But you've probably had the experience that I have is a sometimes a customers look at their own data and they're learning things or they're saying, well, this isn't right. And then you're helping them say, okay, well then let's get it accurate. So this can be a more fruitful conversation.

Adam (00:03:23) - Yeah. And I mean, I think it's important to frame that this isn't an absolute right. What's absolute is the financial statements. These are more guardrails. And so they're intended to just kind of be more of a you know, let's take the temperature of where we're at and what we need to improve.

Adam (00:03:36) - And so especially in a service-based business, maybe you're going to break it down between recurring clients and and new clients. So, you know, or you might break it down by geography or the size of clients so that you can because you're going to have different win rates. You know, if it was just a cold lead versus a warm lead, you know, those kinds of things. So and you can go back through and predict and look at your historical information. That's what's really cool. You can go back and look to see how much of that you've done historically. So like you said, length of time to close, percentage win. Those are very important in determining, you know, and when it's actually going to get started. You know that as well because you want to kind of bake that into, you know, how much do I need in my pipeline. And we can usually step back and, and with a formula, be able to tell a client like, hey, your pipeline should be, you know, $3 million, you've only got 1.5.

Adam (00:04:27) - Seems a little light unless you're going to do better than what you did before, you know, those kind of things. And so it's again, it's not an absolute they could win all that 1.5. And that's maybe all we needed. And they could be great. But it gives them just a little bit of confidence and understanding like what they need to do. And then they start having these conversations about the lead indicators for it. Even getting to the pipeline in different avenues. And so it leads into a lot of strategic conversations about how to execute on bringing in new client work. Yeah.

Tom (00:04:58) - And as you said, it's not precise. And as accountants, we love it to be precise. But whenever I tell them, okay, you know, your pipeline should be 3 million, you're sitting in a million and a half. I'm always then saying, is that about are you feeling about the same? You've got about half of what you need, and the majority of the time the client is saying, yeah, that does feel about right.

Tom (00:05:17) - for what I'm looking at, you mentioned bringing in multiple groups like operations and sales. Sometimes those groups aren't together very often talking about projects. And I had an experience with one client where they were really busy. They were fortunate in the sales guy had told me, hey, give me a six week lag between when we sign and start the work because we're really short on people. And it was a fantastic meeting because the VP of ops, they got there and he freaked out when he saw that. He said it doesn't take six weeks. And so they sort of had an argument on there. And as it turned out, there was a particular skill set that they kept saying, we don't have that. But he's like, but all these other skills we do have, and I'm loving it because I'm like, great, we're resolving something really cool because you're sitting there having everything get delayed and this guy saying, you need to change what the salespeople are telling customers. So it was a really cool chance that we had the people together and show data that had them change what they were doing.

Adam (00:06:09) - And the other thing is, is from a finance arm. So not only are you sitting back watching this like this interaction happened and then they were kind of working it out, you can always kind of come in and say and financially speaking. I, I need this. So I hear what you're saying. You you you can't do this, and you have to do that. But I'm just letting everybody know, you know, it's kind of the mediator in the room. This is what we have to have. So you two need to kind of work that out. And then we need to work backwards to kind of figure out, you know, what we need to do another guardrail. That's kind of cool to look at too, because, especially with one of the industries that we work with, the pipeline, sometimes the link the time to close is really light. So they only have like a three. What I mean by that is they only have like a 3 to 4 month visibility into what their, their, you know, the, the work's going to look like.

Adam (00:06:58) - And so four weeks out you can tell them what their booked work is. So again just defining that earlier before. That's people that have like committed signed a contracts that hey we're going to get started. We know that we have carryover work that's going to hit these months. So you can look historically back at what their catch up percentages are based on their pipeline size. So I know four months out you should have 25% of your booked work in three months out. It should be like 50%. And then two months out it's going to be 75%. So you can kind of look back there and you can measure those again, just as a rule of thumb, just taking the temperature. Tell the client they're like, oh, I'm really worried. I've only got 25% booked work for January. It's like historically you only have about 25%. And you can see you always catch up and you land at about 95%. Now, if you're at 40% booked work in January right now and you're historically at 25, then it's like, look at the pipeline.

Adam (00:07:55) - It's like, you might actually be pushing work into the following months if you kind of continue that trend. Again, not an absolute just good conversation about, you know, predicting what's going to happen kind of in the future. And it's an opportunity to connect sales and operations and finance all in one kind of get us all rowing in the right direction.

Tom (00:08:14) - Yeah, that's a cool measure. And also, I mean, you can also help that when people get busy, often they take their foot off the gas on the sales side. And so you could be looking out saying, yeah, I know you're really busy right now, but to give in your number, maybe your 10% four months out and so you give you a chance yourself to give them a little bit of a kick like, hey, you're about to come into a big valley. If I look at the data and interpret it this way, and you might help that, because we probably both had clients that got so busy and then six months later, they don't have enough work because they're like, we took all of our attention to focus on the operational part of that.

Adam (00:08:46) - Yeah. I think the other thing is too is like it's also there's also a forecasting opportunity here in a different way. So what I've had happened in these pipeline meetings before is, you know, whenever you're talking about that battle between operations, you know, the delivery of the work and the sales side, I've also had it where sales team comes in. It's like, hey, I just killed a whale. You know, this client is going to take so much of our time. It's a $2 million project, whatever that looks like. Everybody's super excited. It's going to feed us for the next six months. And then they go from a staffing perspective. We need to hire six more people. and then you can this is an opportunity again for finance to kind of step in and say, okay, like pause, I get it. You need six more people to execute this contract. Agreed. But now you've built instead of a $7 million company, you need to in the future be an $11 million company, which means your pipeline outside of this deal, instead of being $2 million at any given time, it needs to be like 3.5 million.

Adam (00:09:49) - You've never had a $3.5 million pipeline ever. Like never even close. Are you sure you want to hire six people to execute this contract? Can we talk about contractors? Can we talk about, you know, like instead of, like, filling that void? Because what you're about ready to do is you're reacting to this big contract that eventually is going to end. And then you've now built a bigger house, which is going to require a bigger pipeline. And then whenever you turn around and you tell the sales person it's just high five, and about this whale that they just brought in and you go, are you good with finding a $3.5 million pipeline after you, you know, got rid of this one or once the, you know, once the newness of this client wore off and they're just like, well, no, like talk about like, what have you done for me lately? Kind of crap. Right? You know what I mean? It's like I just brought this whale, and now you're telling me I gotta do it again? It's like, well, yes, if we're going to hire six more people, right.

Adam (00:10:47) - Yeah. And so that's where you get, again, it's, it's strategic conversations around the best way to even resource. So this pipeline meeting can just deliver so much value.

Tom (00:10:56) - Yeah. That's great. You are such a wet blanket though in that meeting right. This guy's all excited about his deal. And you're like, here's what it means. But I do love the assumption that I walk in with is, well, we have to hire six people. And so I love that you're picking that one particular thing and saying, here's what it means. If you're saying I'm hiring and they become employees for doing that, which is a great way to look at it.

Adam (00:11:17) - Yeah. I mean, for me as a finance person, I'm thinking, oh. This is cool. And then I look at the numbers and I'm like, oh, wait a minute, like, let's have this conversation. And so, and that was a real situation that I had with a client. And we ended up sourcing it with contractors.

Adam (00:11:33) - We didn't build a bigger house. We didn't, you know, Step Up ended up being very successful, very profitable. we paid a little bit of a premium for our contractors, but whenever the deal was done, we were still had our full capacity. And we're hitting our numbers and and things. We we took the opportunity to, you know, get ahead financially and put some money in the bank because we were so profitable on that big contract.

Tom (00:11:56) - Yeah. That's cool. One thing I've struggled with a little bit is I'm not a sales and marketing expert. Right. So when things are difficult, sometimes it can be hard to know what advice you give them. and I've learned in that. But we've talked about some measures. So if someone said if you're looking at someone saying you probably need to shorten your sales cycle, what advice might you give them to say? Here are a couple places that you could look to make that sales cycle shorter, and maybe mention why you'd want a shorter sales cycle.

Adam (00:12:21) - Well, yeah. So on the on the sales cycle side of things, that's going to go into that formula. Right. Like the longer it takes you to get into sales cycle, the bigger pipeline you're going to need, the shorter the sales cycle, the smaller the pipeline. So it's in your, you know, as whenever you're educating the sales person on these metrics, I think it's important for them to understand all the inputs and how they can impact them. And so for advice in terms of that, you know, sometimes it's just self-awareness like them just understanding how that input affects, you know, the total value of the pipeline. They figure out their own like efficiencies and logistics and follow up conversations to have, you know, they change their meeting structure so that they're answering a lot of questions, more on the up front, instead of like staggering them out and just trying to put a bunch of feelers out there, they're trying to get a little further in the sales process in that first meeting or two.

Adam (00:13:15) - You know, they're a little tighter on their follow ups. You know, those kind of things, they maybe change how they're pricing so that they can deliver a more functional price at a faster, you know, instead of having to go away for three months and come back or two weeks or, you know, maybe they can figure out a way to get the pricing out within the next week. You know, all those things are, you know, really give you the ability to shorten up that, that delivery time, you know, in order to close and then ultimately lowers the, the pressure that you need on the size of the pipeline.

Tom (00:13:43) - Yeah, I think that's great advice. And a lot of it is some of our clients, some of my clients I've looked at don't have a good defined process. So even just getting that to know what happens when so that you're not in the meeting saying, oh, you know, I probably should follow up with that person versus our processes to do this kind of thing that's in there.

Adam (00:14:01) - All right. Tom, so this might upset you and go against your grain. So. Good. but, I am really just I absolutely cannot stand, percentages out wins. So anytime I've ever seen any calculation from software or people, they like to weigh things. And for some reason that always just irritated me. So. And again, I know it's I know what we're talking about. We're talking about estimates anyway, so it shouldn't really be that big of a deal. But whenever people break things out and they say, well, I'm going to weight this at 60% because it's, you know, maybe it's at a different stage in the pipeline. So sometimes people do different stages, which isn't fair, because again, if it's a referral, maybe, you know, it's already an 80% are right out of the gate, you know, so you have to be careful about putting percentage weights on stages. and then of course you can override it, you know, based on gut and how you feel.

Adam (00:14:59) - The thing is, is like where I've found that to be challenging is clients never win 50% of the project, or 40% of the project, or 80%. You're either winning it or you're not. So the way I prefer to look at the pipeline is looking at it like, you know, basically like, you know, hey, this is I'm feeling really good about this deal. And 50 over 50. Probably not likely. You know. And so those three things could be based on the relationship, could be based on the first call, it could be based on the stage. But I bucket the full dollar amount into those three buckets, and then I layer them on top of each other so that I can say, hey, your total pipeline needs to be this big, and you have this much of it, you know, and then what I can do is I can take the, the highly likely stuff and stack it on top of their bookwork to show them, hey, if we get all the highly likely stuff on top of your bookwork, we only need this much left, right? We only need, $100,000.

Adam (00:15:59) - And then I look into the 50/50 work, and I see how big the 50 over 50 work is, and that 50 over 50 works. I got $1 million. Okay, well, we only have to win, you know, 10% of these contracts in here in order to get you what we need for booked work for the next couple of months. So rather than, like parsing it out and say, and again, I don't know, maybe you do the maybe you prefer the waiting method either based on whatever. But for me it's either I won it or I didn't. And I like to put it in just like three simple buckets. yeah. And so and I did have a client add a fourth bucket on me, which I understood, and I was fine. So it went from likely to all but one and all but one minute. Like, actually I'm just waiting on a signature. So it's like beyond likely. So they wanted to see it layered in like booked all but one or you know, and then likely they wanted to see those, those things stacked on top of each other.

Adam (00:16:53) - And like a bar graph against the target for revenue for the month. Yeah.

Tom (00:16:59) - I was hoping to disagree with you because I thought it'd be fun to have that, but we're in the same place. The main reason I agree with you, Adam, is when you wait, it's easy to sort of ignore the deal itself and say, well, I only had it at 20%, so I'm not arguing. And when you actually see the deals, a common thing I will find is either your pipeline says it's a million half, but you've got two deals in there that say or a half million each. And so you're like, yeah, your pipeline is this big. But when both of these in your thrilled and lose both of them, your pipeline just fell apart. But if you put a couple deals in, you're looking specifically you can look like if I'm at the beginning of October, looking at October, you can look at the deals in October and say, can you really win and get this much revenue of these three deals? And, you know, you've got three weeks left and then they're like, well, it's going to take a week to sign and a week to get the team.

Tom (00:17:43) - So no, we can't. And that seems important to look at the specific deal that you're talking about. And then I do similar to you where we're saying we call it best middle and worst case. So if I take what you already have and put your worst case on top of it, here's what you look like in the same discussion that you talked about. Yeah, that was in there. And I mean.

Adam (00:18:00) - The fun stuff. And being able to do that and talk about specific clients is, you know, any of our clients that are service-based, that are doing project-based work, it's that's there's a lot of different tools and a lot of things that you can bring. the conversation is not as is, you know, specific like whenever you think about, like a retailer or somebody like that, like, why would you have a pipeline conversation about that? Well, just the focus shifts, right? So now you're talking about, now you're talking about seasonality, potentially you're talking about product sales.

Adam (00:18:29) - So now you're talking about which products are selling when they're selling, you're having sales conversations. By sales I mean, like sales discounts, like pricing, you know, hey, do we need to get more of this in? Do we have high margins here? You know, how can we bring sales up in this in this month or this next quarter, you know, those kinds of things. So you're having maybe pricing conversations and seasonality conversations and those kind of things for product placement and stuff. If you're dealing in like more of a retail environment and not a project based. So the value of that conversation is still there. It's just the focus kind of shifts and maybe the analysis is a little bit different. 

Tom (00:19:10) - Yeah. Hopefully this is a good summer for people. What we do with pipelines. And as I mentioned at the beginning, we have our course pipelines, a module in there. And we'll show you the tools that we use and go into even more depth in this.

Tom (00:19:20) - But if we're looking to advise clients and say that we're starting to look, we want people looking forward. Pipeline is one of the great places where you're looking for, and we've talked about the different ways that it can help people in doing that.

Adam (00:19:31) - Absolutely.

Tom (00:19:33) - Good. Thanks, Adam.

Adam (00:19:34) - Yeah. Thanks, Tom.

Outro (00:19:36) - Enjoy this podcast. Visit our website summitCPA.net to get more tips and strategies for achieving Modern CPA firm success. We are here to be a resource in this ever-changing industry.

Sales Pipeline Analysis: How to Lead Revenue Forecasting Meetings

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