Pipeline Multipliers: The Math Just Does Not Work

I recently dropped my son off at college for his sophomore year. He’s majoring in engineering, so he brought his trusty scientific calculator and a supercharged PC that he built himself over the summer (complete with really cool internal blue lights that make it look like a spaceship).

These items are both reminders that – lucky for him – he did not inherit my complete loathing of and incompetence with math. He is eons beyond the mandatory statistical math course I took many years ago.

But while I may not be a math genius, I know when the math doesn’t work, such as with pipeline multipliers. The typical pipeline multiplier is 3X, which means to reach $1 million in revenue, I need to manage $3 million in opportunity, assuming that I will lose roughly two deals for every deal I win.

But here’s a typical scenario: The sales organization misses its numbers for two or three quarters with its 3X pipeline. In a panic to reverse this slide, sales and marketing leaders come up with an answer. Eureka! If we can’t hit our number with a 3X pipeline, we’ll just make the reps carry a 4X pipeline! A message is sent throughout the marketing and sales organization to step up the lead gen and cold calling activity and build those pipelines.

Now write “3X” on a piece of paper, and right underneath it, write “4X.” Again, I’m no Isaac Newton, but even I can see the problem with this equation: “X” does not change. (My son confirmed my suspicions with a dismissive “duh, Dad.”)

So, instead of asking our reps to close $1 million in revenue on a $3 million pipeline, we are asking our reps to close $1 million on a $4 million pipeline.

In other words, are asking them to lose three deals for every deal they win, instead of losing two for every deal won. We are asking them to be about 30 percent less efficient!

Increasing the pipeline multiplier means putting more junk in the pipeline and hoping to improve output. Can you imagine a manufacturer taking this approach? We are going to keep output the same by lowering the quality of our raw material and increasing waste.

Rarely is decreasing efficiency the answer to improving rep productivity, as shown by a SiriusDecisions study. We divided more than 200 b-to-b companies into two groups: those that mandated a 3X (or less) pipeline and those that managed a 4X (or greater) pipeline. Here’s what the data showed us:

• Based on conversion rates, the 3X companies outproduced the 4X companies by 32 percent. For every 1,000 sales accepted leads, the 3X companies closed 99 deals, compared to 75 for the 4X companies.

• When comparing conversion rates stage by stage, we saw the biggest disparity at the very top of the funnel, where the 3X companies had a 53 percent conversion rate and the 4X companies had only a 46 percent rate.

• Pipeline velocity also differed most at the top of the funnel, with the 4X companies spending more time at that stage than the others.

In this case, the math couldn’t be clearer – a double whammy to sales productivity for the 4X companies, as they took a longer time at the top of the funnel and had a lower conversion rate.

At our annual Summit, Mark Levinson – service director for our Sales Operations Strategies service – and I introduced the SiriusDecisions Relative Productivity Framework. We recommended that sales productivity efforts focus on increasing the time reps spend on direct selling and higher-yield activities (like closing deals near the finish line) and reducing the time spent on lower-yield and non-direct selling activities (like lead qualification).

By increasing reps’ productivity, organizations can close more deals without using questionable math on their sales pipeline multipliers. Even using my son’s new super-PC, advocating a higher pipeline-to-quota ratio and turning up the heat on marketing and sales to simply create more demand does not compute.