In this issue…
In the Original Equipment Manufacturing business, job horizons are lengthy. The manufacturer owns the factories, the customer owns the brand/marketing company. They negotiate the design, and then the cost. Then the real work starts, where engineering has to make the design work for the proposed cost. In an industry where time-to-market is a key competitive issue, it can take painfully long periods of time to cycle from a “design win”, to mass production.
As US Director of Sales for a publicly-traded Chinese OEM back in 2004, one of my reporting functions was to translate projects into future dollars. Company stakeholders wanted to know what revenues were going to happen, when – even when it was impossible to really know when a design might be ready for mass production.
This is a lot like a CI trying to predict when the various phases of a complex project will actually turn into dollars. And while most CI’s don’t have to answer to shareholders demanding information, it’s still illuminating to analyze what kind of business you have in your “pipeline”.
“Wish Sale”, or “Booked Business”?
The OEM reporting exercise included both a revenue projection and a probability weighting for every project our team was quoting. If I thought a project would be worth $400,000 and there was a 50% chance we would close the deal, it went into the projections as $200K-worth of business. But it was still no better than a “wish sale” – a proposal with no acceptance signatures at the bottom.
For projects where we had a contract, the drill was to project when we would complete beta testing, followed by a pilot run, followed by mass production. Rough-in, trim, final, as it were.
Checking the Pipeline
At least once month, you should evaluate your pipeline of business (the best companies do this weekly). If a bunch of work is stacking up eight weeks out, it’s really helpful to figure that out sooner (now) than later (six weeks from now). You can arrange for extra help, if required, or move some things around so the work isn’t so congested. The more you’re on top of what’s happening in your future, the better you’ll be able to plan and execute.
So, the first step is to meet with your sales staff and tally up the “wish” business – dollars, probability weighting, and when work might commence. What you’re looking for is when you could expect to do the prewire, and how much it would be worth. The math might be, “$20,000 job x 60% probability = $12,000, x 15% for the prewire = $1800 of pipeline biz in month __________.” (fill in the blank).
Next, project your contracted jobs into the timing of revenues. You might already have the work scheduled, but you want to know the dollars. Not just for cash flow, but also because your company can only execute a finite amount of business at any one time. If your pipeline projects more business than you can handle (good problem to have!), you’ve got to hire people, buy tools and trucks, expand your capacity. If your pipeline projects less business than you can handle, you’ve got to get out and sell more.
The VITAL Pipeline Manager
We’ve put together a pretty handy worksheet that makes the pipeline tally easy to do. You assign dollars, probability weighting, and the month that the work will happen. The worksheet spits out monthly totals for you to look at, along with a pretty graph of the results. Email email@example.com and we’ll send you the file. May you grow & prosper.