Deal Qualification & Forecasting
I learned the value of qualifying my time (and sales opportunities) the hard way when I started selling at the open-source database company, MongoDB.
As a Sales Account Executive, I covered a territory that spanned a few states on the East Coast and, at the time, the open-source version of the product had around 40 million downloads. So, with a little hard work, there were endless opportunities to get meetings with users/companies that loved the product. With that said, since it is an open-source product, there were only a few use cases where users/companies would actually pay for it.
After weeks of cold calling, emailing, and meeting with a lot of prospects in my territory, I was feeling good watching my number of meetings and pipeline continue to rise. Then, in the last two weeks of the quarter, when everything was on the line, a lot of those prospects informed me that they decided to continue using the product for free — essentially invalidating my forecast. Here I was with the most net new meetings and pipeline on the team, but with the lowest amount of closed business (also known as annual contract value or ACV) that quarter to show for it.
“I realized I was making two costly mistakes that can easily get a seller fired or a founder in trouble: 1) I was confusing lots of activity (meetings) with progress (qualified opportunities) and 2) I wasn’t using a defined and repeatable qualification process.”
If I had been using a qualification process from the start, I would have uncovered that a majority of those opportunities in my pipeline never had a compelling reason to convert to paying customers.
Fixing these two areas ( qualified opportunities > more meetings and using a repeatable, scalable qualification process) were critical adjustments that allowed me to go from the bottom half of sales reps to the #1 rep in North America that year.
The below is an outline of how early-stage founders can have a similar transformation, going from lots of meetings, but little closed business to show for it to clear definitions of what a qualified opportunity is and a process to meet/exceed sales targets.
Putting the Fun in Sales Funnels
As an entrepreneur, when you receive your first round of funding, you become a first-time salesperson at the same moment you become a first-time CEO/CPO/CTO. Therefore, like any salesperson, you now have a revenue target to hit and need to set up your sales go-to-market process, which includes organizing your meetings by stage.
With that in mind, most founders start by running searches about how to structure a sales funnel, or they might recall examples from their previous companies, and the results usually look something like this:
Below is a more simplified version:
I use “POCs” here, but know this varies from company to company
Then, the team along with their board typically set a goal for a number of meetings (aka the “top of the funnel”) for the next quarter with the idea that, if they can get a certain number of meetings, it will naturally lead to a number of opportunities, then POCs, and then paying customers.
So, founders do what most people would do — they reach out to any and all contacts in their network, ask for introductions to 2nd/3rd level connections, do some cold outreach, and/or potentially use an internal SDR or outsourced lead-gen firm.
When the next board meeting happens at the end of the quarter, the founders pull up their sales forecast, talk about the positive traction they’ve had, represented by a ton of meetings, which could look like this:
Stop: Can you identify what’s wrong with the forecast shown above?
“Including “Meetings” in your Sales Forecast Funnel is one of the most common examples of confusing activity with progress”
In the funnel above, the difference between a meeting and a qualified opportunity is that the latter has made it through your qualification process while the former has not yet answered the necessary qualifying questions to be considered an opportunity, it was merely a conversation with a new prospect.
It’s very common for founders and board members to stare at versions of this funnel where the number of meetings is 5x or 10x the amount of qualified opportunities. Detailing what good conversion metrics look like and how to review a forecast deserves its own separate post, but the biggest takeaway here is meetings should never be represented in a sales forecast funnel.
By including meetings here, you potentially give yourself, your team and your board a false sense of progress by focusing on the high number of meetings (activity), and not the low number of qualified opportunities/POCs (progress).
Instead, your sales forecast funnel should only have qualified opportunities and POCs and closed/won customers, with the number of meetings being represented in a sales outreach funnel.
So, next time you prepare a sales forecast slide for a board meeting or team review, it could look like this:
( Takes off rose-colored glasses and squints) Feel the difference in the sense of urgency around creating more qualified opportunities, aka “top of the funnel”, when you take the number of overall meetings out?
All of this is not to say that meetings are not important — they are crucial, but should be seen as a sales outreach metric and not a forecast component. By separating them out, it also forces you and your team to track all other associated outreach metrics to see where there might be areas for improvement:
Then, if you show both side-by-side in a deck, you can also analyze the conversion rate of meetings to qualified opportunities (8 out of 56 in this case, or 14%) which is an important conversion metric:
To Trust the Process, You Need to Have One
Now, being able to separate meetings and qualified opportunities into two separate funnels is predicated on having a process to do so.
There are numerous qualification methods you can research and apply, and some may be better for your product/industry/buyer persona than others (I personally like MEDDPICC).
“The key isn’t so much which method you choose,the key is having a method you adhere to and stick with for every opportunity, company-wide”
It can evolve along the way, and it will, but there needs to be agreement across everyone involved in customer acquisition on what a qualified opportunity means at your company so you can speak a common language when reviewing/discussing deals.
What I’ve outlined below (and in the accompanying tool) is my take on qualification criteria that early-stage founders can use for every opportunity, which are also generally applicable across industries, products, buyers, etc.
For every qualified opportunity, you need to be able to fully answer the first four questions:
- Do you have a Champion?
- Why does this company need to do anything?
- Why does this company need to do it now?
- Why is your product the best fit to help them achieve this?
- Is there a budget allocated?
- What would the deal size be ($)?
- Who is the Economic Buyer?
- What is their Decision Process?
- Have you identified and confirmed all Competition (external and internal)?
I’ve “mandated” the first four questions in order for an opportunity to be considered qualified since they are the building blocks of any sales opportunity. The qualifying components after those (5–9) can be discovered as you progress through the sales stages, but the first four are the hurdle you need to clear for a meeting to become qualified.
I’ve included detailed definitions for each qualification criteria in this accompanying tool (below), which I encourage you to look through and apply to your current opportunities/pipeline.
Once you’ve checked off the qualifying aspects you know for each opportunity, I would sort them by the “Score” from highest to lowest, prioritizing ones where you know the most information (closest to new revenue) and working your way down to those where you know the least (furthest from new revenue).
The Most Scarce Resource a Founder/Seller Has is Time
How you spend your time and where you spend your time in any given quarter will determine its results, so utilizing a systematic way to qualify your time (i.e. should I keep engaging with this prospect?), and therefore your opportunities (based on what I know, what is the chance they turn into a paying customer this quarter or next?) is great first step to directing your time where to go instead of wondering where it went.
Key Takeaways
- A lot of founders/sellers confuse activity (meetings) with progress (qualified opportunities)
- You should have two separate funnels for sales: Sales Forecast Funnel (numbers of qualified opportunities, POCs, and customers) and a Sales Outreach Funnel (outreach metrics, meetings scheduled, meetings held, etc.)
- Implementing a standard qualification process is key to determining where real opportunities are and where you will prioritize your time. It also allows you to have a common language when discussing deals
- I created this Qualification Tool & Definitions to use as a filter for your current pipeline or as a guide for future meetings
- Time is your most important resource, if you don’t tell it where to go you’ll wonder where it went
Originally published at https://www.field-guide.unusual.vc.
