You have a good pipeline of prospective customers. You pitch them but things aren’t working out. You can see it in your low close rates. They are below 15-20% conversion from sales accepted lead to closed customer. You need to answer an important question: are you losing these opportunities because of sales execution or product insufficiency?
Those are the two possibilities. Either the company’s sales techniques are failing to persuade customers to buy the product. Or the company hasn’t built the right product to suit the market’s needs.
Why is the conversion ratio the right litmus test? A lead becomes accepted by sales when a member of the sales team (inside or field) declares it to be a qualified lead worthy of pursuit. In other words, it has been qualified to be in the ideal customer profile and so should have a reasonable chance of closing. In each of these cases, you should measure the reason the opportunity became “closed/lost.”
You can identify product insufficiency simply. You don’t have product/market fit. For companies in existing markets: customers ask for critical features that your competition offers, but your product doesn’t offer. For startups in new markets: the product doesn’t meet an important need, or doesn’t do it well.
Sales execution appears in the numbers. One or two AE(s) consistently attains or exceeds quota. The remainder don’t. The underlying cause can be manifold: ineffective sales leadership, poor lead qualification precision, lack of marketing support for sales, underdeveloped or improperly hired account executives, and so on.
Perhaps we can bastardize a bit of Tolstoy to summarize. “All high performing sales motions are alike; every underperforming sales motion is ineffective in its own way.”
Asking this question is the first step to understanding the most critical friction in your business’ growth. Do you have a product issue or a sales issue in your sales motion?
By Tomasz Tunguz