Chapter 6

The Opportunity Management Index

TYPES OF ORGANIZATIONS WHERE THIS METRIC IS APPROPRIATE

Certainly all organizations that sell to other businesses or government organizations need this metric. Selling to large organizations is complex and there are multiple levels of potential customers who care about different things. Businesses that sell to consumers might also need this metric to manage the process of selling to retailers or distributers. Trying to get a big company like Target or Costco to carry your product can be an enormous amount of work. I have worked with several government organizations that developed an opportunity management index. The Cold Regions Research and Engineering Laboratory (CRREL) in Hanover, New Hampshire, gets a big portion of its work from the Army Corps of Engineers. However, that is not their only client. They do work for the National Science Foundation, universities, other foundations, and companies. Deputy Director Dr. Lance Hansen and his boss, Director Dr. Bert Davis, were concerned with measuring and managing the pipeline of future work. Scientists and engineers spent money and time going to meetings, conferences, and workshops and participating in committees for professional associations. Everyone intuitively believed that this sort of outreach was good for building future business. Meeting new people and collecting their business cards could lead to future work for the laboratory, or it could not. Many of the scientists could describe examples of meeting someone at a conference five years or more ago, exchanging cards, and five years later that individual became a good client with an interesting project. While that was surely true, there were many other people they met and exchanged e-mails and even papers with who never became paying clients. In order to measure and manage this process more systematically, CRREL decided to develop an index that tracked the same sorts of things for-profit companies track: contacts, prospects, qualified leads, demonstrations, proposals, and awards of new projects.

HOW DOES THIS IMPACT PERFORMANCE?

Trying to fill your pipeline with quality prospects and possible new customers is a never-ending task. Nothing lasts forever, and that relationship you have with a key client may someday end abruptly. I lost my two biggest clients in the same year after eight years of working together. We parted friends; one company just had a change in direction, and the other felt that I had trained them so well that they no longer needed my help. That’s the goal of any good consultant, to work yourself out of a job. However, while I was busy racking up those billable days each month for years, I had not been doing much marketing and had nothing in the pipeline when the business dried up with my two biggest clients. No matter how good business is right now, it is important to keep up the marketing efforts and focus on building a backlog of possible new business. I am just one guy, so it is challenging to balance marketing with billable work and with product development like writing books and articles. This balance is much easier to achieve in companies that have armies of full-time people to do marketing, sales, and account management. However, even in organizations with large sales staffs, the metrics they track are often flawed or drive the wrong behavior.

We all know that you get what you measure, so if you incentivize sales dollars, salespeople will focus on bringing in as many as they can. I recall working with IBM in New York City, which at the time was changing the way they measured and incentivized their sales force. Paying salespeople for sales dollars was causing them to sell hardware (high price) versus software (high margin). Paying them for the dollar value of the sale also caused them to sometimes recommend extras that customers later found out they didn’t need. Remember when Sears Automotive Centers got in trouble for doing this? IBM was changing the measurement of their salespeople from revenue to profit margin and customer satisfaction. This did a lot to drive different behavior from the sales force, which was to IBM’s benefit. Salespeople were now pushing high-margin software and services and never recommending anything that the customer did not really need. Customer satisfaction went up, as did profit margins.

Being able to do more accurate forecasting is another way a good opportunity management index can help an organization improve performance. Having reliable estimates of future business allows an organization to plan for future resources such as raw materials, employees, facilities, equipment, and capacity. Having solid data on future business also has a big impact on spending. Organizations these days have to be selective about whom they decide to pursue as potential customers. A lot of money and time can be wasted going after business that will never materialize. I used to respond to posted government requests for quotations (RFQs) and requests for proposals (RFPs), and never got one of them. I learned over the years that most of these things are already locked in with a preferred or incumbent supplier and that the organization is just going through the motions with the RFP when it already knows who it wants to do the work. Some consultants actually help write the RFP so that no one can meet the requirements except them. Being on the inside and doing this is a good place to be—an outsider does not stand a chance and can go broke writing proposals that have zero chance of resulting in work.

Having an accurate measure of the number and quality of leads and prospects can dramatically improve an organization’s ability not only to land more business, but also to land the right kind of business. It can also help to back away from opportunities that may end up as big liabilities or prevent you from bringing in customers or accounts that are not profitable and cause much distress for your people. When my client decided to tell GM it was not going to sell to GM anymore, everyone breathed a sigh of relief.

COST AND EFFORT TO MEASURE

The cost and effort to develop an opportunity management index for most organizations is quite low. Most medium to large organizations have CRM and sales software that is used to document and track progress with opportunities. Much of the data from this software will end up in the index. In an organization like CRREL that I mentioned earlier, this measure was a lot of work to establish. The research organization had never measured prospecting or pipeline before, except with “How’s it going?” data. Systems had to be developed for tracking and recording contacts, qualifying leads, and keeping track of follow-up activities. Staff had to be trained to use the new tools, and the organization had to establish a new level of discipline for a process that had never been measured or managed before. This took some time and effort. The cost was minimal, however. No new software or tools were required.

Most organizations with a dedicated sales force will find that creating an opportunity management index is only a slight change from the metrics they are probably already tracking. One challenge is getting salespeople to consistently evaluate the quality of their leads and prospects and the amount of authority they have in making buying decisions.

HOW DO I MEASURE IT?

There are three types of variables that typically go into the opportunity management index:

Most companies have their own vocabulary for what they call possible opportunities as they move through their pipeline. In most cases, there are at least five categories of opportunities:

Two other metrics that are typically included in the opportunity management index are the movement from one part of the pipeline to the next and forecast accuracy. Movement is calculated by tracking the percentage of contacts that turn into prospects, prospects into opportunities, and so on. In other words, what percentage keep moving forward through the pipeline and what percentage fall out, either by your choice or their choice? Forecast accuracy is also an important overall measure to ensure that salespeople are accurate in their probability metrics.

FORMULA AND FREQUENCY

A generic opportunity management index focuses on counting the number of contacts and how each contact moves through a pipeline to either become more valuable or be discarded as an opportunity not worth expending further resources to pursue:

You can tailor these percentage weights to whatever suits your organization, but you want this to be mostly a leading indicator, not a lagging one. As this was designed previously, 70 percent of the weight is on the leading measures, so you can do a better job of measuring and managing opportunities. Depending on your business, some companies track these measures every day. At the very least, you should collect data once a month and update all of your metrics.

VARIATIONS

One simple variation that I often see is just to track the number of contacts, prospects, and so on, and the percentage that move from one level to the next in your pipeline. My friend’s son works for Zillow, the real estate site, and is dialing for dollars all day long trying to talk real estate agents into having their name and picture on listings. He knows that he has to make 100 phone calls (contacts) to get 10 prospects to get two opportunities to get one sale. By tracking these various statistics, his boss can make sure that all the salespeople are making enough calls and moving enough forward through the sales pipeline. With a sale like this, quality does not really matter. However, it may matter, because not all real estate agents pay the same. An agent in Beverly Hills or New York City might pay Zillow $400 a month, and one in Fargo, North Dakota, might may $50 a month for the same service. For any organization that sells to businesses, quality is probably more important than quantity. Even with consumers, quality might be important. Bank of America is a lot more interested in acquiring a customer with a $2 million portfolio than my friend’s son who spends all of the $3,000 a month he earns and has no savings.

TARGETS AND BENCHMARKS

Targets for the individual metrics in your opportunity management index need to be tailored for your industry and organization. By having enough data on conversions from contact to prospect, and so forth, you can set scientific targets for the early-on metrics. For example, if you know it takes 100 contacts to end up with one sale, you can set your targets based on that. Where it gets tricky is that one really good-quality contact may be more valuable than 100 random business cards you pick up at conferences. My old boss used to encourage us to gather 25 new business cards every time we went to a conference. Half of those cards were either from other consultants or people looking for a job. A very small minority were from prospective clients.

BENEFITS OF DATA

Managing the sales or business acquisition function is fraught with difficulties. Unlike many aspects of organizational performance other than perhaps innovation, sales is part art and part science. We all know salespeople who don’t follow any of the standard processes and techniques and are wildly successful. One my favorite colleagues over the years worked as a consultant for Franklin Covey, and we did quite a bit of work together over many years. Jim was one of the top salespeople in the company, but he was a little bit different than the other consultants and account managers. First of all, he drank (even in front of clients at lunch), smoked, swore a lot, dressed like a slob, and was a bit of a curmudgeon. He did not care for the company account managers in their $200 haircuts and $2,000 suits. Yet he sold more than any of his more polished peers because he was supersmart, completely honest with his clients, spoke in plain language versus the typical consultant double-talk, and always gave his clients solid advice, even if it meant buying someone else’s product or service. Jim also did not like to be managed and resented his boss trying to oversee his activity. “Just tell me how you are going to measure me, what my targets are, and I will exceed them.” He did just that when his boss left him alone. The benefit of measuring the sales and opportunity management process the way I propose in this chapter is that it acknowledges that there are lots of ways to qualify a prospective customer, build their trust, and turn them from a prospect into a client or customer.

Some of the direct benefits clients have experienced using this metric are:

• Identification of the best and worst salespeople.
• Increased revenue from quality customers.
• Improved efficiency of the sales prospecting processes.
• Improved quality of customers, leading to greater profitability.
• Cost savings from not investing in poor-quality opportunities.