Sales Options ExchangeAs much as sales people are alike, they also differ in so many ways. One way they differ is how their outlook on sales and selling is impacted by what they sell and who they sell to. This brings me to a great conversation I had with my friend Josh who sells into the financial community and is therefore exposed to some creative thinking. Beyond sales, the other interest Josh and I have in common is a fascination with derivatives. Neither of are studied enough to get into some of the exotic instruments and strategies, but we both follow and talk options.
As we were talking about pipelines, pipeline management, which included a laugh about closing probability, and sales people’s odd love/hate relationships they have with their deals or sales in progress. It was one of those moments where a throw away statement leads to deep discussion.
The statement, made by me during my third pint, “Hey Josh, imagine if sales reps or their manager, or their companies could write or buy options on opportunities in their pipeline.” After a good laugh, we started thinking about the possibilities.
At first, we looked at it from the stand point of managing cash flow for good sales people, sort of like factoring for manufactures. You feel good about your pipeline, a specific deal, cash in your commissions now for a bit of a discount, (assuming you can find a buyer); deal comes in, they get the commission everyone is good.
Josh played out a few scenarios, mostly poking fun at the fact that if they are willing to bet on sub-prime, why not on a software sales rep’s commissions. Imagine if you could hedge your deals, he kept saying, “I’d hedge my whole 2011 Q2”. You see he has some fairly big deals that will close at that time, little doubt, “so why not write some calls, pocket some of the cash, by some puts just in case, and voilà”
I began to look at it from the a pipeline management point of view, what if instead of dealing with probabilities, sales people had to deal with the financial accuracy of their forecast. Now, on the one hand they already do, but only in a simple way, they either do or do not make their commission. But in the context of the overall success of the company, there is a bit of misbalance, while a rep who delivers only 70% of a reasonable quota, may make less money, the impact on the company is entirely different. When you consider that according to CSO Insight only 51.8% of sales reps made quota in 2009, down from the previous year. (It’ll be interesting to see what the numbers for 2010 will be.) Much like when a rep discounts as little as five percent of a deal, the impact on commissions, minimal; the impact on the company’s margins could be dramatic. Given the circumstances, why would a company not want to buy some puts.
Another potential upside involves deal times. While shortening sales cycles may be an ambition for many is sales, there is a point beyond which you can’t expect to accelerate or shorten your cycle. On the other hand, most sales leaders would settle for predictability, rather than doing some thing in less and less time, they would much prefer to have deals done in a predictable timeframe. Not only could they count on it, more importantly it would indicate that they are able to communicate their sales methodology, and have their teams consistently execute.
Options have a finite life, as do sales. Man sales people don’t buy that, they don’t distinguish between the active part of a sales cycle and the over all client acquisition cycle. Things would change if there was an expiration date.
In the end it was all good fun, but both Josh and I went back and reviewed our pipeline, looked at what we would keep, what we would dump. What we would cover, and which deals we would write or buy puts on. I am sure we did not come up with a new pipeline management process, but we did get a new appreciation for selling and our pipeline.
What’s in Your Pipeline?
BTW – for those of you at Dreamforce in San Francisco, I will be presenting at the InsideView booth at 11:30, stop by, there some other great presenters. See you there. TS
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