A new way to prioritize your work, allocate resources, and sell more
Bottom line: The efficient frontier for sales produces a priority ranking of deals (we call it the Focus) that shows where to focus and when. Working those deals increases your sales without increasing your risk. Our case study found that Focus rankings produced on average 58% more sales than company priority rankings.
When it comes to selling more, it all boils down to what you work on. The efficient frontier is a new and systematic way to help you allocate your time efficiently, and to sell more.
The concept of the efficient frontier was introduced by economist Harry Markowitz in 1952 as part of his groundbreaking work on Modern Portfolio Theory. Markowitz showed that investors could maximize returns for a given risk by finding the optimal investment allocation. The efficient frontier represents portfolios offering the lowest risk for an expected return; or the highest return for a specified risk.
This proven and widely-used concept can be adapted to sales. Sales teams can use the efficient frontier to maximize sales for a given risk by prioritizing the optimal mix of deals to work on, and then working on the rest when they have time.
How it works
Let’s consider a B2B company aiming to maximize sales. The business has several hundred open opportunities in its sales pipeline. How does the executive leadership prioritize and focus? Which opportunities get resources and management’s attention?
Typically this is an ad hoc process. Management reviews deals based on their size, sales stage, and their assessment of the likelihood of winning. Often deals get classified into forecast categories (Commit, Best Case, Upside…) reflecting opinions of whether the deal can close in the forecast/planning period. Management synthesizes these data to come up with their priority list. And for today, that deal portfolio gets priority attention and resources. Tomorrow, it will be a different list.
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Does this list maximize expected sales for the selected risk? Is that deal portfolio on the efficient frontier? The ad hoc approach is a pretty good way to allocate resources. But you can often do better using the efficient frontier.
For instance, say there are 50 deals in a priority portfolio. Funnelcast estimates the portfolio will deliver $10M in sales for the quarter. But the estimated forecast variability shows that 80% of the time, sales will range between $9.1M and $11.2M (a $2.1M range). We would say that the expected sales is $10M with an 80% prediction risk of 2.1M.
Is there a different portfolio with a higher expected return and the same risk? Or a comparable expected return and a lower risk? If so, the selected portfolio is not optimal. Deal portfolios on the frontier systematically maximize expected sales for a given risk.
There are many possible deal portfolios to focus on. Each dot in the figure below shows a different portfolio of the same number of deals ( 20% of the open pipeline). Some portfolios have higher expected sales for the same risk. That black curve at the top is the efficient frontier—maximum sales for the risk. The expert ad hoc processes are almost always suboptimal. For instance the same-sized portfolios by Forecast Category and Deal Size are both suboptimal, far from the frontier.
You can decide how much risk to take. Funnelcast Focus ranking gives you flexibility to select among three risk options—maximize expected value, value optimized, and balanced risk. “Maximize expected value” shoots for the moon. “Value optimized” maximizes sales at reduced risk. “Balanced risk” further reduces risk.
In practice, using the Focus ranking is easy. There’s a lot of math behind it, but all you have to do is select your risk level and work down the rank-ordered list. If you can advance a deal, then great! If not, move on. Use your judgment. You don’t need to worry about forecast submission updates, or overriding management opinions about deals. Just sell.
The Focus ranking systematically helps you work on deals that maximize sales. It enhances your judgment about where to focus your efforts. Sales leadership judgment is usually very good. Sometimes they will be better informed and make better decisions. But combining leadership insights with the Funnelcast Focus gives you an edge.
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