The major purpose of a systematic staged lead conversion system is to be able to manage the progression of a sales lead through to a sale transaction.
If you examine the history of any sales activity associated with large complex items, you will see that there is a definite path which the prospect follows to arrive at a decision to buy, withdraw or defer. Based on this understanding, it is possible to construct a standard path and manage activities along that path.
What few salespeople appreciate is that there is a very high cost in pursuing prospects who will not buy. Not only are the sales staff devoting time and effort to an ultimately failed end but they are tying up other resources in pursuit of the prospect. There will be administrative activities, out of pocket travel and accommodation expenses, pre-sales consultant’s time and the opportunity cost of not pursuing better prospects.
Many sales people chase the size of the order instead of the probability of making the sale. They will spend an inordinate amount of time on one very large order which may have a very small chance of success simply because the commission is huge if it succeeds. However, with low rates of success, this can tie up significant resources for little end result.
Also, salespeople have a tendency to jump further up the process in the hope of speeding up the deal, not appreciating that the prospect usually has their own constraints and processes to work through. This often results in repeated activities as pre-requisite information has not been collected beforehand to make the activity meaningful. So it is important to stick to the process unless there is sufficient credible evidence to modify it.
Managing stage by stage should enable the vendor to reject prospects at the earliest possible time before significant resources are expended. It is just as important to reject a poor fit as it is to advance a good fit. At the same time, you also want the prospect to withdraw early if they are not ready to proceed or if they find that they have requirements which the vendor cannot meet.
An objective of prospect engagement is for the vendor to build up a cumulative knowledge of the prospect. At the same time, the prospect firms up their requirements. Few prospects come into the process with a fixed idea of their requirement or of the final solution. During the process of interaction with the various vendors competing for the business, the prospect will gain a better understanding of the competitive landscape, understand better what is on offer and refine their requirements based on what new functionality and services are available. They also become more realistic as to what they can achieve with the available solutions. It is partly because of this learning process that the vendor creates the steps which the prospect will pass through. This limits the exposure of the vendor to withdrawals and rejections as well as ensuring the prospect becomes more committed to a solution.
Another reason for the staged approach from the vendor viewpoint is to manage sales resources. With a finite amount of resources in both sales and pre-sales capability, the vendor needs to allocate these to achieve the optimum outcome. They need to balance the requirement of progressing enough qualified leads to ensure sales targets, while also devoting enough time to each stage to progress the best prospects. This is usually done by working with the salespeople to ensure that they have adequate numbers of prospects at each stage in the process.
For example, the ideal scenario might be 100 sales leads to one prospect in final agreement approval. The initial 100 could be allocated across all stages to show what number of prospects should, ideally, be managed at each stage. Thus, if there are 100 new sales leads, there should be 40 at demonstration stage and 20 at RFP stage and so on. It is from this spread that the vendor can expect a steady stream of new sales. Any lumpiness in the process will result in lumpiness in the final sales figures. Too many sales leads will result in a dry patch of sales, while too many in final closing stages will result in a dearth of sales some months out due to the lack of progress at intermediate stages.
Each salesperson should be able to track every prospect in their pipeline and be able to state what has happened, what will happen next, and when it will happen. They should be able to explain what they are doing to set up the next activity and how they are building support for the next step and steps beyond that. Where a prospect has stalled, sales management should review with the salesperson various actions which they can take and other resources that might be used to move the prospect along. It is only by regular and systematic review that progress can be assured and poor performance identified.
Tom McKaskill is a successful global serial entrepreneur, educator and author who is a world acknowledged authority on exit strategies and the former Richard Pratt Professor of Entrepreneurship, Australian Graduate School of Entrepreneurship, Swinburne University of Technology, Melbourne, Australia. A series of free eBooks for entrepreneurs and angel and VC investors can be found at his site here.
