CVC Guide: Channel Sales Pipeline Management 1 A CVC Guide Channel Sales Pipeline Management Measuring and Managing Sales Cycles to Sustain Cash Flow and Profitability in Technology Products and Services July 2010 www.channelvanguardcouncil.com CVC Guide: Channel Sales Pipeline Management 2 CONTENTS Overview ............................................................................................... 3 Pipeline Perspectives ............................................................................ 4 Building Pipelines .................................................................................. 5 5 Stages of the Pipeline ......................................................................... 6 Stage 1: Prospects to Qualification ................................................. 6 Stage 2: Technical Win .................................................................... 7 Stage 3: Proposal ............................................................................ 8 Stage 4: Business Win ..................................................................... 9 Stage 5: Closing ............................................................................... 9 Pipeline Management in Practice ....................................................... 10 About the Channel Vanguard Council ................................................. 11 Supporters ........................................................................................... 12 Copyright © 2010 Channel Vanguard Council — All Rights Reserved. No part of this document may be copied or republished without prior written consent of the Channel Vanguard Council. www.channelvanguardcouncil.com CVC Guide: Channel Sales Pipeline Management 3 f cash is the lifeblood of every business, sales is the heart that keeps cash flowing through the system. Sales is more than whatever definition is applied to “salesmanship.” It’s more than finesse, more than slick presentations and more than marketing collateral. Sales is the combination Iof selling skills, product, marketing materials and messaging, customer relationships and — ultimately — value that is bound by a process that ensure a business is maintaining an adequate sales volume for sustenance revenue, profitability and reinvestment capital. The IT reseller channel has a mixed performance record on pipeline and sales management. Depending on the size of an organization, structure and management maturity, sales management could produce accurate projections of a reseller’s business performance or could lead a solution pro‐ vider to a false sense of security in revenue and profitability planning. Understanding the essential elements of sales lifecycle management is crucial for not just knowing the health of a business at any given moment, but the abil‐ ity to measure performance over time and know an organization’s ability to withstand cash‐flow disruptions and plan for future growth and investment. The Channel Vanguard Council devised this set of definitions and best practices for sales management. Through this extensible framework, IT resellers, solution providers and technology services companies can gain a better sense of their financial health as it relates to sales and how to truly project cash flow and progress toward financial goals. www.channelvanguardcouncil.com CVC Guide: Channel Sales Pipeline Management 4 PIPELINE PERSPECTIVES Sales pipeline metrics are a key performance indicator in the health and viability of any sales organization and, ultimately, a business. What makes sales pipeline management in the channel challenging is that the health of each organization’s pipeline is a reflection of their company’s fiscal health, as well as the fiscal health of every partner in their value chain. In this section, we’ll review the criticality of sales pipeline management from the different segments of the IT channel. Solution Providers: As the end point in the channel value chain, solution providers hold and maintain a direct relationship with their customers and prospects in the field. The solution provider’s sales pipeline is the lifeblood of its organization’s financial performance, providing intelligence on the effectiveness of its sales campaigns, field engagements efforts, lead generation programs and other marketing activities. The sales pipeline performance is a leading indicator for cash flow and fiscal health. Distributors: Beyond their own fiscal health, distributors use pipeline management and intelligence as a leading indicator of the economic health of their marketplace. This intelligence is critical in managing supply chains, logistics and inventory. A distributor’s pipeline, in some regards, is an aggregation of the sales pipelines of all the resellers and integrators in their network. Transparency of sales pipeline activity provides distributors with the information they need to order parts and products, stock warehouses and perform balanced logistics management. Pipeline intelligence gives distributors a tool for demonstrating their value and strength to the original equipment manufacturers (OEMs) and software publishers in delivering sales through the channel. IT Vendors/Suppliers: One of the greatest channel management problems vendors face is gaining true insights into their partners’ pipeline. Some will argue that a solution provider’s sales pipeline is proprietary. Perhaps, but vendors need partner pipeline intelligence for gauging field activity for market sales and support coverage, product launch planning and their own sales forecasting. Vendors often allocate incentives and preference benefits to partners that have consistency in sales performance. However, many are willing to assign extra resources to partners who build strong pipelines and need help converting a business win to a sales win. Vendors also spend billions of dollars www.channelvanguardcouncil.com CVC Guide: Channel Sales Pipeline Management 5 annually generating sales leads that are passed on to channel partners. Through pipeline intelligence vendors measure the effectiveness of partners to act on leads and gauge the success of their own marketing efforts. Ultimately, the strength of the solution provider’s pipeline is a reflection of the vendor’s health and one of the leading economic indicators used by investors. BUILDING PIPELINES Management guru Peter Drucker once said, “The purpose of business is to create and keep a customer.” The meaning of this quote is often interpreted as a customer is created by a business making a product that he wants to buy. Making money is a derivative of the process of making great products. But making good products doesn’t mean that a company will be successful. The euphemism “build it and they will come” rarely works in the business world. Building a business requires sales and marketing, and the result of those activities is the sales pipeline – or the cumulative report of sales prospects and customer relationships. The process of building a sales pipeline is often referred to as “lead genera‐ tion.” Leads are the product of marketing efforts that are designed to identify and capture the interest of “qualified” sales prospects. Qualified is an important notion since marketing efforts will often generate tremendous interest ranging from people with a true need and ability to buy a product to enthusiasts who are generally interested in technologies but have no intent or ability to buy. Marketers craft programs that are geared toward specific customer segments for which a product or service is designed. As noted above, IT vendors spend billions of dollars annually on lead generation programs and pass long many of those leads to solution provider partners. However, lead generation is a responsibility of every organization in the channel. Regardless of if you’re a vendor or a solution provider, creating a qualified sales lead is no trivial matter. Lead generation is expensive – it takes time, money and effort, and no one activity will generate a qualified lead. In fact, it takes a consistent, recurring process to produce leads at varying levels of qualification. The Channel Vanguard Council has determined that building a sales pipeline with qualified leads follows this general rule: 10X‐10X‐3X. • 10 cold calls are required to produce a soft lead • 10 soft leads are required to produce a prospect • 3 “touches” – or sales engagements – are required to turn a prospect into a business win • 3 business wins are required to convert to one sales win www.channelvanguardcouncil.com CVC Guide: Channel Sales Pipeline Management 6 As you can see, this means an organization’s sales and marketing team must reach out to hundreds of potential customers to achieve a handful of sales. Naturally, the actual scale of prospecting and lead generation activity will vary on the size of an organization, geographic sales and service area, and the density of the market opportunity. Smaller organizations – particularly smaller solution providers – won’t necessarily have to undertake a massive lead generation program to achieve sales success. However, the ratios are relatively consistent across the entire channel community. Pipeline building is often thought of as a “hunter” sales activity, or the exercise of finding new customers. However, this same process is applicable to the side of sales known as “farmer” – the art of expanding the relationship with existing customers by introducing new products and services to the account or estab‐ lishing relationship with different divisions or teams within an existing account.