Pipeline Risk: When One Deal Carries the Forecast

A Single Point of Failure in the forecast exists when the feasible pipeline of a rep or segment rests almost entirely on a single opportunity. This pipeline risk shows in the largest deal’s share of the pipeline, read against its own history and with the number of deals beside it. A deal review and new pipeline follow.

How do you notice that a forecast depends on one deal?

A sales rep’s numbers look good for the quarter. Expected revenue covers the target. In the forecast meeting there is no reason to ask questions.

In the conversation, only one customer name comes up. Everything else in this pipeline is small or still at an early stage. Everyone in the room knows the situation: if this one deal closes, the quarter is good. If the deal does not close, little is left.

Three everyday observations point to the pattern:

• The conversation about a rep’s quarter is a conversation about a single customer.
• One postponed close date at that customer changes the expectation for the rep almost completely.
• The question about the other deals is answered with a short list of small amounts.

The team forecast shows none of this. In the team total, the rep is one line, and that line adds up.

Funnel Economics calls this pipeline risk a Single Point of Failure. It means extreme concentration: a single opportunity carries almost the whole expectation of one rep or one segment. Opportunity is the name a deal carries in the CRM.

A segment is a delimited part of the business, such as a team or a territory. The pattern can therefore occur with one person or with a whole unit.

One deal is not a pipeline.

Why the total hides the risk

A forecast built from weighted deals is a total. bEFV, the structural expected value of the funnel, multiplies each deal’s amount by its stage win rate and adds up the results.

The stage win rate is a value from the past. Funnel Economics measures it per stage, meaning per phase of the sales process, and per sales rep, from periods that have run. The stage win rate is neither estimated nor set as a fixed value.

When a deal sits in a late stage whose stage win rate is historically high, bEFV counts the deal at almost its full amount.

That valuation is arithmetically correct. The valuation only says that a high share of the decided deals in this stage have been won so far. About this one customer, the stage win rate says nothing.

For a pipeline with many deals of similar size, that is not a problem. Some deals are won, others are lost, and across many deals the deviations even out. A single deal has nothing to even out against. A single deal is won or it is not.

rEFV, the risk-adjusted revenue expectation, additionally weights bEFV by SLA Health and is a total as well. SLA Health places a deal by its total age in the funnel, compared with the time targets of its stage.

The pattern is read on the feasible pipeline. That is the part of the open pipeline that, going by historical stage durations, can still close before the period ends, valued as a risk-adjusted expectation.

The high valuation and the total together produce a false sense of security. The calculation looks intact, and the target seems covered. In fact, the calculation depends on one close.

If that deal slips into a later period or is lost, almost the whole expectation falls away at once. The other deals are then valued at an amount, and that amount is named. It is an expected value, not a lower bound.

How does the pattern become visible?

Three pieces of information make the pattern visible: the largest deal’s share, the series of that share across prior periods, and the number of deals. The share and the number of deals come from the open deals of the period; the series comes from the same figures for prior periods.

The share of the largest deal

The first piece is a share. For every open deal of a rep, its contribution to the feasible pipeline is known. The largest contribution is divided by the whole feasible pipeline of that rep.

For a segment, the calculation is the same. The pipeline of the segment takes the place of the pipeline of one rep.

The result says what part of the expectation depends on a single opportunity. In a Single Point of Failure, that is almost the whole expectation.

The yardstick is your own history

There is no fixed mark for this share. A share is conspicuous against the history of this same concentration. That history is the series of the same share across prior periods, built the same way every time.

What a share means depends on the size of the portfolio. In a territory with few open deals, the same share is something different than in a territory with a great many.

The number of deals belongs beside it

The third piece is the number of deals behind the pipeline. The number of deals always stands beside the share.

The example shows both sides of the pattern. The total covers the target. The share, its series and the number of deals show that this total depends on one close.

What should you do when one deal carries the pipeline?

The answer consists of two measures that run at the same time: a deal review for this one deal, and new pipeline.

This article recommends four steps:

1. Run the deal review immediately. The rep’s first-line leader reviews the carrying deal now, not in the next regular meeting.
2. Build new pipeline in parallel. New opportunities at the top of the funnel spread the risk across more deals.
3. Put a figure on the other deals. Beside the expectation stands the expected value without the carrying deal.
4. Keep watching the share. The yardstick stays its own history, with the number of deals beside it.

The tasks are divided. The sales leader names the Single Point of Failure. The rep’s first-line leader runs the deal review and, in parallel, drives the new pipeline.

Four questions for the deal review

The pattern calls for a deal review but does not define its content. This article recommends four questions for the deal that carries the pipeline.

The first question concerns the valuation. The high stage win rate describes the history of the stage. The deal review checks what is actually evidenced for this one customer.

The second question concerns age. The SLA Health band is a statement about the deal’s total age, which is compared with the time targets of its stage.

The third question concerns time. The deal review establishes whether the deal can still close before the period ends.

The fourth question concerns the other deals. The deal review records what the expected value of the other deals amounts to if the deal slips.

What the finance leader needs

This article recommends a short note for the finance leader: which deal, what share, how many deals, what expected value for the other deals. That makes clear how much of the expectation of a rep or segment depends on one close.

Whether a forecast has held across several periods is a separate question. That question is covered in the article on Forecast Integrity, the check of a forecast against plan and actual result.

One deal is not a pipeline. When a rep’s expectation rests almost entirely on one opportunity, that deal belongs in a deal review and new pipeline belongs in the funnel.

How a Single Point of Failure differs from Bulk Risk Concentration

Both patterns describe concentration. The patterns are read at different levels and lead to different measures.

Bulk Risk Concentration is concentration risk in the forecast: a very small number of deals carries a dominant share of a period’s expected funnel value (bEFV or rEFV).

That view of the whole period is described in the article on concentration risk in the forecast, with the share and the concentration sensitivity.