Managing the B2B SaaS Sales Machine — Part 2: Diving into the funnel
Welcome to the second part of our little series on sales controlling and monitoring! It took me a bit longer to finally getting around publishing this — but I guess that’s no wonder with Q4 always being a bit crazy.
In the first part (https://medium.com/senovovc/managing-the-b2b-saas-sales-machine-part-1-arr-and-pipeline-a7dfb885ce04?source=friends_link&sk=ecf28cb6672805054ce2033303e8caa6) I covered the first 3 reports on ARR, Deals Won and Quota Performance.
In this second part I will go one step further and dive into the funnel and deal with the unpleasantries of inactive and lost deals and how a sales funnel should look like and what it tells you.
There will also be a 3rd part a little bit in the future where I will share the underlying Excel so you can see how everything is calculated and adapt it to your needs: https://medium.com/senovovc/managing-the-b2b-saas-sales-machine-part-3-excel-model-5c4491b3908e?source=friends_link&sk=5959bebfb4f58e89d1529c1b26876446
Inactive Deals
An overview on Inactive Deals allows you to identify deals which are not moving in the sales process. The “# of Months inactive” selection refers to deals which have not moved for at least this amount of months. And yes, the number is ridiculously high in this example since it’s based on dummy data.
This reveals
a) process problems and
b) bad quality in the pipeline: it helps to identify deals which are still part of the pipeline but might be less realistic to close. It’s always good to double check if these deals should be removed from the pipeline or be transferred back to a lead nurturing process.
In the above picture it is quite interesting to see that a lot of deals are not moving past Evaluation stage. Reasons for this are often a lack of urgency, unclear ROI and that the decision maker has not been brought into the sales process properly.
Similarly, 8 deals in the negotiation stage which are inactive for 8 months or longer means that these deals are probably going nowhere and either lawyers are haggling forever about T&Cs, there is no sufficient budget or the customer is generally not really convinced he needs your product. My advice would be to take a framework like MEDDICC (Metrics, Economic buyer, Decision criteria, Decision process, Identify pain, Champion, and Competition) and analyze the reasons why things are not moving.
Lost Deals & Reasons
Not every lead will convert into a customer. Sadly. This table helps to understand the reasons behind it. Typical problem areas are a lack of need & urgency, a not sufficiently differentiated product or missing functionality and most points on the above list are self-explanatory.
The most difficult one to tackle is the “no need”:
In my experience this usually signifies one of two things, and they are unfortunately very different problems:
a) a strategic problem: the buyer and the price of the solution are not aligned. The problem you are solving is not high enough on the buyer’s priority list, but your price point moves the decision up in the hierarchy and thus the people who feel the pain can’t make the purchase decision anymore.
b) a process problem: Typically, 90% of leads don’t buy. That’s simply the reality. Now if you’re pre-qualification process is not working well or has the wrong incentives you end up with a high pre-qualification conversion rate and a lot of “no needs” in the mid or bottom part of the funnel. I’ll have more insights on how the ideal conversion rates should look like at the very end.
Funnel Movement
This chart allows you to understand how the deals are moving through the funnel. The stages are on both axes. The status of the prior reporting period is on the left and the status of the current period on top.
When a deal progresses in the funnel the deal is counted on the top-right side of the diagonal grey axis (and marked green). When a deal moves in the wrong direction and gets pushed back up in the funnel the deal is counted on the bottom-left side of the diagonal grey axis (and marked red).
The situation in the current chart shows a problem in the mid end of the funnel. Deals get moved forward too fast for the stage with the effect that they then get moved back when the customer is not ready to go to the next stage.
A simplistic view of your sales funnel looks like this:
1. Prospect — This company is considering buying a car
2. Qualification — They have assigned a budget towards obtaining a car
3. Demonstration — They would like to see how our car performs
4. Evaluation — Alice really likes the car I showed her
5. Negotiation — They want our car for cheaper
6. Closed Lost — They don’t want to buy our car
7. Closed Won — We have reached a sales agreement
Now, if you see that customers aren’t yet actually in the Evaluation phase and get back pushed back to Demonstration, it can be helpful to re-evaluate the entry & exit criteria for the sales funnel stages and if they have been executed properly.
If all this looks good, then you might also think about investigating frameworks such as the Sandler Sales Submarine (https://www.hupport.com/david-sandler-sales-method-sandler-selling-system/) or the give-get framework (https://www.saleshacker.com/givesgets-negotiation/). These frameworks deal with the underlying “cultural contract” between a seller and a buyer and that the solution is really what helps the customer to resolve his issues
Funnel Overview by Stage
This shows the weighted and unweighted ARRs which are in the funnel. A healthy funnel should ideally have larger values in the earlier phases than in the later phases. Otherwise, you risk having a great quarter (or two) but a growth lag after that due to the underdeveloped pipeline.
Accordingly, the problem in the numbers above is that a lot of deals are in the evaluation stage and once they pass this stage there is not enough ARR moving into the evaluation stage for a lasting ARR ramp. The picture suggests that deals are poorly qualified early and are just dumped into evaluation following the idea “let’s just show the customer all the amazing things our solution can do and we’ll sure that will convince him”. The evaluation stage should be used, however, to address a clearly defined problem and be as short as possible. So, it’s absolutely important to figure out your MEDDICC before you move into this stage since this is just the last little “real world” proof point that you can hold up on your promises.
Conversion Rate
Here you find the conversion rates for the entire funnel and broken down stage by stage. Often you will find different conversion rates by contract size, so it’s important to keep that in mind and see if there are differences. Similar to the Funnel Overview, the conversion rate should increase with the funnel maturity. This creates predictability in the pipeline. If you find that the conversion rate drops off later in the funnel then this is a good indicator that you should check the reason for the drop off at an earlier stage — ie qualify more strongly.
By comparing different time points, you can also find out what happens on a cohort basis and get an idea if there are trends within the data and if they are moving into the right direction. This is especially important when you make adjustments to the process and you want to measure the impact that they have on conversion rates.
The numbers above are a bit unrealistic and an effect of us just building a bit of dummy data to for this dashboard. But: if you ever end up with a 41% conversion rate please do drop me a note and you’ll have the fastest term sheet ever 😉.
