Systems Thinking Approach to Your Sales Pipeline

In many organizations, sales is like a moody teenager. Pipelines have feelings, like “good” or “bad.” Improving sales is just a matter of confidence and energy. And, of course, “it’s not my fault” and “I believe in you” are often uttered in tough conversations.

On the other hand, the operations side of the business is like the trusty engine in the family sedan. It has inputs, processes, and outputs. You can easily measure throughput, work in the process, and costs of goods sold to track performance.

But what if I told you that sales is just another process in your business? That your sales systems are no different than production or accounting?

By understanding your sales system, you can:

  • Track performance across the sales cycle
  • Understand your pipeline size and velocity
  • Discover opportunities for strategy optimizations
  • Forecast performance and set realistic quotas

Does that sound like helpful information to you? Imagine if you could manage your pipeline to accurate and predictable data!

Example of a Business System

Let’s start with an example of a basic business system.

Each system has a start. This is where the raw materials in a manufacturing process, or the customer project in a services firm, enter the system. These are your inputs.

Each system has an end. This is where the output of the finished good or service is delivered.

In between the start and end, we have the processes. These are the system stages where the “work” is done. These could be design, manufacturing, quality control, finishing, etc.. Each of these processes takes an average amount of time to complete, and an inventory of work in process is built up. Costs are often associated with each individual process in a system.  

Figure 1 – Example Business System Process Map

In Figure 1, you can see a process map for our example system. From an analysis of the system, we can find the following system averages:

  • Work in Process Inventory = 1,026 units
  • Time = 52 Days
  • Throughput = 450 units a month

Managers can then use this system information to implement performance improvement initiatives and forecast future production. It also helps provide additional context to the financial performance of a system within the business.

For example, it can help to answer:

  • How long does a product take to create?
  • How much inventory do we need to have in the process to hit our throughput goals?
  • What costs are associated with creating our product?
  • What is the bottleneck or limiting factor in our throughput?

Operations and finance leaders are used to utilizing process maps like this, and the subsequent data it provides, as part of their day-to-day management. Now it’s time for us in sales and marketing to reap the benefits of systems thinking as well.

Mapping the Sales Processes

We often refer to sales as a “numbers game,” which is true. But simply blasting off a bunch of cold emails or phone calls is not a meaningful use of numbers. Instead, your focus should be on truly understanding your business development processes to improve your ability to manage your pipeline.

By creating a process map, you can gain insight into how value moves through your “sales system” in your organization. In a sales system you’ll find the following components:

  • Inputs – Number and dollar value of leads. These can be inbound and outbound generated.
  • Outputs – The number and dollar value of the closed-won deals.
  • Processes – Each stage of your sales cycle represents an individual process. Qualifying, Discovery, Proposals, Decision Making, etc., are all local activities to be tracked and optimized.
  • Costs – A simple cost approach is tracking just the “lost” deals that detract from your system throughput. You can also track realized costs, such as expenses and billable resource usage.
  • Work in Process – Your open pipeline deals are your “inventory” in a sales system. These can be tracked by deal stage, or as a system total.

Figure 2 – Example Sales System Process Map

In the example in Figure 2, you can see how a process map can be created to apply a systems approach to a sales pipeline.  In this example, you’ll find the following system averages:

  • Work in Process Inventory = $759,867
  • Time = 88 Days
  • Throughput =  $4,875,956 a year in leads. And $1,800,000 a year of won deals (accounting for lost opportunities).

For this pipeline, you can see that the average deal takes 88 days to complete. From lead to close, about 40% of deals are won. Using these metrics, we can calculate the total throughput and ideal pipeline size (work in process). Tweaking any of these variables, based on coaching, process improvement, or strategy changes, we can predict potential outcomes on sales pipeline performance.

Sales Management with Systems Thinking

Is sales as scientific as engineering or manufacturing? Of course not. However, that doesn’t mean you should rely on “gut feel” or simple year-over-year calculations. Taking a systems thinking approach to your sales management will make you a more effective leader and better suited to produce profitable sales.

Here are just a few of the ways you’ll be able to benefit from understanding your sales system:

Operational Data Definitions – First and foremost, you’ll create operational data that is useful and uniform across your organization. Running these analyses will help you standardize your definitions in your process, such as, what is a lead? Or when is a deal qualified? With operational definitions in place, you’ll be able to compare your sales team metrics better.

Accurate and Predictable Pipelines – With a systematic approach to sales data, you’ll significantly improve your ability to provide accurate and predictable sales. This is especially useful for forecasting existing pipeline movement and setting quota goals with your team.

Local Process Optimization – With your stages (processes) fully understood, you can begin implementing process improvement projects focusing on local optimization. This means looking at specific system parts and determining ways to increase variables like throughput and close ratios.

Target Pipeline Size – Your total open pipeline becomes your system inventory, and it can be targeted to ensure you are on the path to hitting quota. You can even target pipeline size based on specific deal stages with good sales data (average times and close ratios).

Coaching Opportunities – As a business development leader, having an objective understanding of your sales process makes coaching your team more effective. You can work with your reps to determine where and when in the process they are struggling. You can also enforce greater accountability by making your team “commit” to results backed by system data.

Leave a Comment

Your email address will not be published. Required fields are marked *