Your backlog is awesome. Your sales pipeline is a mystery. The cliff is closer than you think.
The economy is good, and professional services firms of all types are busy. Very busy. In fact, their biggest challenge is delivering the work they are contracted to do in a very tight labor market. Recruiting and retaining great talent is hard. Sales pipeline management might not be a top concern. You might not be paying too much attention to your backlog, pipeline, and the cliff.
Nevertheless, there’s an end to your contracted revenue. It looks a bit like a cliff. And it’s closer than you’d like it to be. You’ll need to take a deeper look at your backlog, pipeline, and the cliff.
Your Backlog
I’m not referring to any pending economic downturn, banking meltdown, or some catastrophic global event. I’m talking about the moment that your glorious backlog – the work you’ve won and are contracted to deliver – drops below the break-even line. That’s likely some revenue amount or percent-of-total-capacity level. Let’s illustrate this.
The blue in the graph above is your backlog. Let’s say that today, which is basically zero on the horizontal x-axis of time, you’re at a wonderful 100% workload capacity and absolutely nailing your revenue goals. Nice work! Looking 2 units of time (weeks, months, whatever) farther along the x-axis, you’re still in good shape, but there’s a drop in revenue and workload on the horizon. The family vacation to Aruba is still looking pretty good. Well, pretty much.
After 4 weeks/months, things are looking dicey. That 75% line is your break-even line. Too much time spent below that line, you’ll need to start tightening things. It might begin with that marketing budget (and marketing team). And then things are going to get really ugly. That’s also the point where you are losing sleep.
But wait! We forgot about the pipeline!
The what?
In the graph above, there are two things going on.
First, we’ve taken that big blue blob – your backlog – and broken it out into various contracts (projects, etc) of various durations and amounts. This might be an even better, more detailed depiction of your backlog of work. You should do this. It’s fun.
Then, I’ve layered on this big purple thing. What’s that?
It’s your sales pipeline! And like I said at the very beginning, it’s a bit of a mystery. It consists of a bunch of future contracts, some of which are a sure-thing and others are highly speculative WAGs (Wild A$$ Guesses!). The thing is, you just don’t know what that big purple thing is. But you think it might help with that issue of the cliff.
Unfortunately, it’s a mess.
Your future new business opportunities are a chaotic mess. You don’t know which one of your colleagues has something in there. You don’t know how big that purple blob should be… or even needs to be. You’re not sure how long some of those things have been kicking around in there. You don’t know the likelihood of most of those new opportunities – except, of course, Bob’s stuff, ’cause his stuff is a sure thing. He watched Glengarry Glen Ross and loves Alec Baldwin. Bob’s a closer… most of the time.
Let me go right at it. You can run a well respected professional services firm that is successful and does good work without an organized sales pipeline and sales process. But in today’s hyper-competitive marketplace where you are up against firms who bring a high level of rigor and focus on finding, winning, and keeping clients, you can’t do it forever.
Not only is sales pipeline management critical to your financial success, it’s also your crystal ball into the future, providing months of visibility into future resource demands, the types of clients you’ll be working with, and the opportunities for growth. It is entirely possible to take control of your pipeline – to partner with the best and most profitable clients, to inspire your team with exciting work, and to sleep better at night.
And to stay well away from the cliff.
More on your backlog, pipeline, and the cliff
If you’d like to explore this further, the article titled Unraveling your Sales Pipeline is the follow up to this post. It dives into the details on what should be in your pipeline and how to construct a quality sales pipeline that enables your team to forecast and prepare for future new work.
This podcast episode with Jeff McKay and Jason Mlicki on their excellent podcast Rattle & Pedal talks through the “Pipeline Cliff” and underscores the importance of a clear, well-developed sales pipeline in your professional services firm.
Wainwright Insight provides fractional sales management and consulting to organizations who want to take control of their pipeline and build future sales leaders—but could use a little, part-time expertise. I work with professional services firms, and the experts in those firms, who need to get better at chasing and winning big deals when the stakes are high.