Article
What Do "Pipeline Coverage" and "Forecast" Mean When ...
kellblog.com
Quoted on this wiki
Every place a page here uses this source, in the order the words come in it.
Almost always ignores that time-based nature of close rates “Uses an average sales price (ASP) as the proxy value for an opportunity [7].” In the example above you can clearly see how much of the forecast comes from existing opportunities (51%), how much from the existing high funnel (36%), and how much from planned demandgen activities (13%).
Let’s demonstrate the problem. “quarterly pipeline (defined as the sum of the values of opportunities with a close date in the quarter)” Thus, the concept of pipeline coverage implicitly assumes a sales cycle (significantly) longer than the coverage period. That’s why most companies don’t look at out-quarter pipeline coverage much (though they should) and if they do, they expect a much lower coverage ratio.
Uses an average sales price (ASP) as the proxy value for an opportunity [7]. “In the example above you can clearly see how much of the forecast comes from existing opportunities (51%), how much from the existing high funnel (36%), and how much from planned demandgen activities (13%).” Finally, I have the same problem with the word "forecast" as I do with "coverage" in the short ASC world. They're not quite the same thing as they are in enteprise. First, let me define "forecast," along with its cousins, "plan" and "model."
Almost always ignores that time-based nature of close rates “Uses an average sales price (ASP) as the proxy value for an opportunity [7].” In the example above you can clearly see how much of the forecast comes from existing opportunities (51%), how much from the existing high funnel (36%), and how much from planned demandgen activities (13%).
Marketing, from the high funnel. Use existing MQLs and your standard conversion rates, ideally time-based time-based (not just the total rate, but the rate split by time period) “Marketing, from planned demandgen. Forecast responses, then use standard conversion rates and ideally time-based. (Ideally you can start with your inverted funnel model.)” This approach is preferable to looking only at pipeline generation (pipegen) because a pipegen approach:
Let’s demonstrate the problem. “Most sales VPs like a 3x ratio” Thus, the concept of pipeline coverage implicitly assumes a sales cycle (significantly) longer than the coverage period. That’s why most companies don’t look at out-quarter pipeline coverage much (though they should) and if they do, they expect a much lower coverage ratio.
Let’s demonstrate the problem. “you can meaningfully calculate “coverage” for the quarter by dividing the quarterly starting pipeline by the quarterly sales target.” Thus, the concept of pipeline coverage implicitly assumes a sales cycle (significantly) longer than the coverage period. That’s why most companies don’t look at out-quarter pipeline coverage much (though they should) and if they do, they expect a much lower coverage ratio.
Getting marketing to forecast starting pipeline for month 2 and month 3, based on what they have already generated in the high funnel and their current pipeline generation plans for month 2. “the definition of “coverage” is based on opportunities that already exist in the pipeline.” Now, let’s zip back to reality for a minute. In the velocity companies that I work with, ASC is closer to 60 days and with a pretty broad distribution where maybe 90% of the deals close within 30 and 120 days. Happily, this means you will have month 2 and month 3 opportunities in the starting quarter pipeline, but it nevertheless also means you will be increasingly reliant on to-be-generated opportunities across the months of the quarter.
If quarterly pipeline coverage is basically meaningless in short ASC companies, then what is meaningful? “Examining monthly pipeline coverage. Instead of week-3 quarterly pipeline coverage [6], we should look at day-3 monthly pipeline coverage -- dividing the starting monthly pipeline by the monthly sales target. (After that, you can use to-go pipeline coverage to get continuous insight.)” Treating months 2 and 3 the way you’d treat next-quarter and the quarter thereafter in enterprise. Using a pipeline progression chart to see how the out-month pipeline is shaping up.
This approach is preferable to looking only at pipeline generation (pipegen) because a pipegen approach: “Tends to ignore the oppties that are already there” Almost always ignores that time-based nature of close rates
Let’s demonstrate the problem. “quarterly pipeline (defined as the sum of the values of opportunities with a close date in the quarter)” Thus, the concept of pipeline coverage implicitly assumes a sales cycle (significantly) longer than the coverage period. That’s why most companies don’t look at out-quarter pipeline coverage much (though they should) and if they do, they expect a much lower coverage ratio.
If quarterly pipeline coverage is basically meaningless in short ASC companies, then what is meaningful? “Examining monthly pipeline coverage. Instead of week-3 quarterly pipeline coverage [6], we should look at day-3 monthly pipeline coverage -- dividing the starting monthly pipeline by the monthly sales target. (After that, you can use to-go pipeline coverage to get continuous insight.)” Treating months 2 and 3 the way you’d treat next-quarter and the quarter thereafter in enterprise. Using a pipeline progression chart to see how the out-month pipeline is shaping up.
Examining monthly pipeline coverage. Instead of week-3 quarterly pipeline coverage [6], we should look at day-3 monthly pipeline coverage -- dividing the starting monthly pipeline by the monthly sales target. (After that, you can use to-go pipeline coverage to get continuous insight.) “Treating months 2 and 3 the way you’d treat next-quarter and the quarter thereafter in enterprise. Using a pipeline progression chart to see how the out-month pipeline is shaping up.” Getting marketing to forecast starting pipeline for month 2 and month 3, based on what they have already generated in the high funnel and their current pipeline generation plans for month 2.
Now, let’s imagine an average sales cycle of 30 days and -- rather than futzing with cohorts, statistics, and distributions [3] -- let’s assume that all oppties are won or lost in exactly 30 days [4]. “If we assume that we have 3.0x coverage for month one and that the quarterly goal is evenly distributed across months, then we’d have 3.0x, 0.0x, and 0.0x for the three months of the quarter, or 1.0x overall [5].” In this example, quarterly pipeline coverage is basically meaningless because two-thirds of the pipeline you need to close during the quarter hasn’t been created yet. Assuming a 30-day MQL-to-opportunity lag, one-third is working its way through the high funnel and the other third is still a wink in marketing’s eye.