Advisors: What's In Your Pipeline?

From the day that I hired my second producer—the first one being me —trying to forecast business became more complicated.

I needed to understand the average cycle time from identifying a possible client, to the reality of doing business with that client, to the first billing date—it was both critical and challenging. Somehow accuracy in expense forecasting is always easier than revenue forecasting. Here’s what I learned:

Prospects are ‘suspects’ until a specific piece of potential business has been identified and discussed. Contacts are not suspects until there has been a follow-up call or a meeting following the first contact. No one is a ‘prospect’ until a specific proposal has been made. And here’s the most amazing reality: a surprisingly large number of contacts are never followed up on to discover potential business opportunities.

Detailed and accurate call reports are critical to forecasting, and the reality is that this is a truly task-oriented management function—yes, a spreadsheet is required, with columns for contacts, suspects, prospects, proposals, follow-up, and a report of closed, or lost, business. If a name stays in the ‘contact’ column for more than two call reports, that name should probably be discounted. The same rule holds true for suspects. Things only get interesting from a revenue forecasting perspective when we reach the ‘prospect’ column. Closable business, and the timing and value of that business can then enter the realm of meaningful analysis.

These activities are at the heart of activities management. Without these activities, all you have is a wish list.

All this means that the heart of successful business forecasting is the same as it has always been: in-depth analysis and dialogue of the business-development pipeline, combined with frank and rational discussion of probable business and the timing of that business. It is during this same discussion that coaching and advice can be provided.

Finally, all those contacts that do not result in closed business should be kept. Circumstances change, and periodic follow-up will always result in fresh potential.

Moving this concept up one level, having a realistic understanding of how long it will take for a new addition to your team to reach revenue production maturity is also critical. This is very much dependant on the experience and network of the person coming on board, and the norms within your particular sector of business. A colleague of mine used the paradigm that it would take, on average, four full quarters of activity for a newly hired person, even one with experience, to reach production maturity.

So here’s a goal: become as accurate, over a quarterly cycle, with your revenue forecasting as you are with your expense forecasting.