A Revenue Leader facing Sales Pipeline Management is like a captain that sets sail across the sea, he doesn’t just rely on intuition or hope. He uses a compass, follows a chart, and watches the wind. He measures, plans, and adjusts. When it comes to managing sales pipelines, Account Executives (AEs), and Sales Development Reps (SDRs), we need the same rigorous approach. But do we have a comprehensive strategy that guides us through this complex sales journey?
Are we asking the right questions?
The statistics speak for themselves. A Salesforce study shows that only 28% of sales professionals expect to meet or exceed quota in the upcoming year, and 85% of sales leaders say they’re struggling to get budget for headcount. These facts signal the necessity for a systematic approach to sales pipeline management to achieve goals. How can we turn the tide in our favor?
That’s what this post aims to explore. We’ll dive into three interconnected areas of sales management: AE’s pipeline size, the AE-to-SDR ratio, AE’s role in keeping their pipeline healthy and pipeline review and optimization.
Table of Contents
- Optimizing Pipeline Size: The “Range Compass” for AE’s Sales Pipeline Management
- The Optimal SDR to AE ratio
- AEs’ Role in Pipeline Aquisition: The ‘Ebb and Flow Framework’
- Setting Benchmarks: #TheRightQuestions to Measure Performance
- Reviewing and Adjusting the Pipeline
Navigating the Waves: The “Range Compass” for AE’s Sales Pipeline Management
The success of an AE rests largely on the size of their pipeline. But how many opportunities can an AE effectively manage? What is the optimal range, and how do we compute it?
Welcome to the concept of the ‘Range Compass’. It helps you establish the minimum and maximum number of active opportunities an AE can manage effectively.
1. Determine the minimum number of open opps an AE needs in order to be able to hit their quota
Let’s set a scene: imagine an AE, we’ll call her Jane. Jane handles Mid-Market accounts, dealing with deals around $60K on average. Her quarterly quota stands at $250K. To maintain a healthy pipeline, she needs to keep a 20% win rate.
To calculate the minimum number of opportunities, we use the classical formula (Quota/Deal Size) / Win Rate. In Jane’s case, that’s ($250K/$60K) / 0.20, which gives us approximately 21 opportunities per quarter. This calculation ensures Jane has a sufficiently robust pipeline to hit her numbers.
Until here, nothing too fancy, what we all do.
2. Determine the maximum number of open opps an AE can work effectively in their pipeline while delivering a high win rate on.
Here comes the other side of this coin: above a certain number of opportunities, it is imposible to manage them efficiently and the closed-won rate starts to resent. So we need a maximum number of opps that Jane’s pipeline can hold, to be considered a healthy Pipeline.
Let’s assume Jane can work effectively with up to 30 opportunities in her pipeline. This number depends on many variables such as the complexity of the sale, the number of decision-makers involved, and the density of meetings required to win the deal… coming up with this number requires its own research and work. This research may start with an intuitive approach, but should sooner than later count with real data backing up that threshold. By the way, effectively being able to manage that maximum amount of opps, should become a requirement for your reps.
Back to the Range Compass: If Jane’s pipeline dips below 21 (her minimum), she’s at risk of falling short on her quota. If it swells beyond 30, her capacity to manage the opportunities effectively diminishes. This dynamic range between 21 and 30 is her ‘Range Compass’, the range she needs to maintain for optimal performance.
But beware of two warnings here:
- These numbers aren’t static. They slide along with Jane’s performance, market dynamics, and organizational changes. Regular recalibration is vital to keep them relevant.
- The compass just gives you a bird’s eye view, useful to start with and have a general sense of Sales Pipeline Management. As we will see in the next section, when we look at the SDR to AEs ratio, there are more variables that come into play.
So start right there, with the Range Compass, and then move on into more complex formulas that will yield more accurate results.
Taming the Winds: The Ratio Between Sales Development Reps and Account Executives (SDR to AE)
Once you’ve determined the AE’s ‘Range Compass’, it’s time to turn our attention to the ratio between Account Executives and Business Development Reps. The ratio between them significantly influences the effectiveness of your sales team. But what exactly is this ratio, and how does it impact your sales efficiency?
Think of your AE’s as the ship’s sails and your SDR’s as the wind pushing the sails. Too little wind, and you don’t move. Too much, and you risk being overturned. The right balance, however, can guide your ship smoothly across the sales sea.
The SDR to AEs ratio ratio refers to the number of Sales Development Reps assigned to support each Account Executive.
So, what Is The Right Ratio of SDRs to AEs? No matter what they tell you, the answer to this is not as straightforward as one might think. It’s not as simple as having a universally accepted 1:1 or 1:2 ratio or looking at industry benchmarks. The truth is, the appropriate ratio can vary widely between organizations, and can range from 1 SDR for many AEs, to many SDRs for 1 AE.
Such variability depends on a plethora of factors, including your company’s growth stage, sales cycle, market sector, and more.
To illustrate, if you consider my own journey, I have grappled with this question over the years, making more than a few blunders along the way. I found the advice out there, ranging from one extreme to the other, not particularly helpful. Rather misleading. This wide spectrum of advice left me wondering, how can these ratios vary so drastically?
Here’s the rub – the answer to this question lies not in rigid industry norms, but in truly understanding your organization’s specific circumstances. The key lies in knowing how many opportunities one SDR can generate, and how many opportunities a given AE can handle, sprinkled with Sales Velocity.
The answer lies behind #TheRightQuestions.
So, let’s go back to the question in the previous section: How many opportunities do my SDRs need to generate so my AEs can reach their goal?
If your answer is simply what we came up with previously, only a number with no side comments, most probably is the wrong answer. Or at least, incomplete. Even though I’m going to frame the following explanation in the BDR to AEs ratio, you will find it easy to see how it also affects the Range Compass formulation.
Let’s create a hypothetical scenario. If an SDR can generate 10 opportunities per month and an AE requires 20 per month to hit their target, then you’d logically need 2 SDRs for 1 AE, right?
This simplified logic overlooks the nuanced behavior of opportunities arising from different channels. Direct inbound opportunities might convert at a higher and quicker rate than outbound opportunities, but perhaps the average contract value (ACV) from the inbound channel isn’t substantial enough to hit the quota with just 20 opportunities. In reality, the AE might require 30 inbound opportunities per month, depending on the mix of opps he is getting.
It is your responsibility as Sales Leader, to provide your reps with the size of pipeline needed to achieve quota, but not more than they can handle. For that, you need to understand exactly how each type of opportunity behaves.
Moreover, what if those paid inbounds are converting excellently and showing a high ACV, but are five times more expensive, leading to poor payback on that channel? The complexity is real and can’t be ignored.
So, let’s ask, Are we accounting for different behaviour of opportunities?
The key takeaway here is that the ideal SDR-to-AE ratio is not static and universally applicable; it’s dynamic and must be fine-tuned according to each organization’s unique sales environment. So, while statistics can guide you, there’s no substitute for understanding your own organization’s nuances.
With that in mind, it’s crucial not to get so caught up in achieving the “perfect” SDR-to-AE ratio that we lose sight of our main goal: to maintain an optimally filled sales pipeline, ensuring our sales ship sails smoothly towards its destination.
AE’s role in Sales Pipeline Size: The ‘Ebb and Flow Framework’
The dynamic nature of sales necessitates continuous adaptation. The winds and currents change, and so do the circumstances in which your sales team operates. A fixed number of opportunities may not remain optimal over time as the perfect SDR to AEs ratio can fluctuate more than one can, in practice, actually be 100% real time adapted. Market changes, product updates, new competition, shifts in the buying patterns of your customer base – these can all impact your both your pipeline creation and your AE’s ability to manage their pipeline effectively.
This brings us to another right question: “How can we adapt our pipeline management strategy in response to changes in the sales environment?”
Enter the ‘Ebb and Flow Framework.’ This is not just a calculation, but a dynamic system for sales pipeline management.
Imagine your AE’s workload as a ship navigating through waters of fluctuating tides. At high tide (maximum number of opportunities), your AE operates at peak capacity, juggling multiple deals with precision. As the tide recedes (opportunities fall below the minimum), your AE must take on an SDR-like role, prospecting to refill their pipeline. The aim is to always sail on high tide, ensuring the ship is moving at its maximum pace.
To keep this balance, regular check-ins and rigorous pipeline management are necessary. If the AE’s active opportunities fall below the minimum, they need to ramp up prospecting efforts until they are back at the optimal level. Once they reach their maximum capacity, their prospecting duties can be relaxed, allowing them to focus on closing the deals in their pipeline.
This cyclical pattern of ebb (prospecting when opportunities are low) and flow (focusing on closing when opportunities are high) helps maintain a healthy, active pipeline. By keeping this cycle in motion, AEs are encouraged to keep opportunities alive, while managers get a reliable, performance-based system to ensure quotas are met. Let alone, it keeps Account Executive’s hunting and prospecting skills in shape.
The ‘Ebb and Flow Framework’ offers a fair way to manage AE prospecting. It rewards AEs that keep their pipelines full by giving them ample time to work their deals, without the constant pressure of prospecting getting in the way of closing deals.
Setting Benchmarks: #TheRightQuestions to Measure Performance
The essence of performance measurement is to have a reference point that guides course correction. In this part, we’ll be asking: What benchmarks should we set? How do we know if we’re on the right track?
Setting benchmarks is akin to a sailor using certain fixed stars to navigate, except in our case, the stars are specific performance metrics. Remember, these metrics are not to be blindly compared to industry averages but instead used as a personalized gauge of your AE’s pipeline health. We strive to always improve our own marks, rather than looking at other companies’ numbers. Nevertheless, industry averages are an interesting way of getting a sense of our relative performance and that is why you should be familiar with them, and why I include some stats in this post.
And here, of course, we have the usual suspects in the Sales KPI world. You need to define data-driven benchmarks for all of the following KPIS:
A significant metric to track is the Opportunity Win Rate. This metric indicates the ratio of closed-won opportunities to the total number of opportunities in your pipeline.
Another essential metric is the Deal Cycle Length or Sales Velocity. Dreamdata has found that 192 days is the average B2B Customer journey length – otherwise known as the time-to-revenue metric. That’s over 6 months from the first anonymous touch to closed-won. B2B SaaS have twice as long customer journeys than other B2B Businesses. Although interesting, that is not Deal Cycle Length, since it is counting time since the first anonymous touchpoint, not since it became an opportunity. The benchmark in that same study establishes 79 days as the average for B2B SaaS Deal Cycle Length, 80 for B2B Media and 41 for Professional Services. The critical question to ask here is, Given our optimal sales cycle length, are our AEs managing their opportunities effectively?
Let’s not forget the Average Contract Value (ACV). This metric calculates the average revenue expected from each closed-won deal.
When to Adjust Your Course: Reviewing and Adjusting the Pipeline
You’ve cast your net wide and allowed the currents of your sales strategies to push your boat forward. You’ve used your compass to set your course, balancing your AE’s pipeline optimally with SDR efforts, adjusting to your unique industry conditions and specific needs of your company. Your sights are set on the shore of greater success, and you are confidently heading in that direction. But, as with any good seafarer, the question is not whether you should review and adjust your course but when and how.
Ask #TheRightQuestions: How often should you review your pipeline management strategy? What should you do when your actual performance starts to drift from your original plans? How can you ensure you’re making the right adjustments?
A proactive approach is crucial in sales pipeline management. As with monitoring weather conditions when sailing, waiting until you’re in the middle of a storm to make course corrections isn’t the best strategy. Regularly review your pipeline performance, ideally on a monthly basis, and compare it against your set quotas and targets. Take into consideration the ever-changing market conditions and adjust your strategies accordingly.
Identifying the Need for Adjustment
Perhaps you’re noticing a trend that your AEs aren’t meeting the monthly quota. Or maybe your win rate is declining, or the sales cycle is extending beyond your estimates. These are clear indicators that you need to adjust your course. Delve into the details and look for patterns – is there a specific stage in the sales process where opportunities are stalling? Is there a discrepancy in performance across different teams or regions?
Making the Right Adjustments
Let’s remember that your AE pipeline and the ratio of SDR to AE efforts are interdependent variables. If your AEs aren’t meeting their quotas, one approach might be to increase the number of opportunities provided by the SDRs. However, that may not always be the best solution, especially if your AEs are already stretched thin managing their current opportunities.
Instead, consider improving the win rate by investing in sales training, enhancing product offerings, or implementing a more sophisticated sales enablement tool. You might also want to revisit your sales processes to ensure they are as streamlined and efficient as possible.
In conclusion, managing an AE’s pipeline effectively is a delicate balancing act. It requires a deep understanding of your company’s unique circumstances, an ongoing evaluation of market conditions, and the agility to adjust your course as needed. Keep asking #TheRightQuestions, and you’ll be well-equipped to navigate the seas of sales success.
Fair winds and following seas in your sales journey!