The Way a Consultancy Manages Its Pipeline Is the Way It Manages the Consultancy

For a service business of any type, the pipeline of work is the most critical indicator of business health.

Consultancies are no exception. The pipeline represents potential revenue, growth opportunities, resource demands, and recruitment needs. 

However, managing a consulting pipeline effectively is a challenging feat. Consulting leaders must deeply understand their market, clients, service offering design, and internal capabilities. 

In my experience, there is a strong connection between how consultancies manage their pipelines and how they manage their business internally. 

If one is managed poorly, odds are, internal processes (be it new business development, project and scope management, internal task allocation, hiring and knowledge management, etc.) are managed just as poorly.

Pipeline management and how it can be used as an indicator of consultancy management is the topic I’d like to dive into in this post.

Pipeline management and forecasting in the consulting business

Pipeline forecasting and management – while two very different processes – are both challenging. Both require a disciplined and reliable approach to make sense of an inherently unpredictable business that is consulting due to such constantly changing factors as client needs, market conditions, and unexpected challenges.

10 reasons why consultancies find it challenging to forecast and manage their pipelines

This list is not exhaustive by any measure. However, it does include some of the most common reasons and complexities of pipeline forecasting and management.

1. Uncertainty in project timelines: Consultancy projects often depend on external factors  – e.g., client availability, regulatory approvals, third-party resource availability – that can be difficult to predict, making it challenging to estimate project timelines with a high degree of accuracy.
   
   
2. Inconsistent demand and ever-increasing competition: Many consulting leaders note the unpredictability of client demand for consultancy services, coupled with competition increasing daily, leading to pipeline fluctuations and making it difficult to forecast revenue.
   
   
3. Limited resources: Most consultancies have limited resources, including staff, third-party solutions utilised during projects, and/or budget considerations. This requires pipeline management to balance competing demands for time, attention, and other resources.
   
   
4. Complex sales cycles: Sales cycles for consultancy projects can be long and involve various layers of engagement across multiple stakeholders and decision-makers, making it difficult to manage and predict the pipeline.
   
   
5. Changing market dynamics: Market trends and customer needs can shift quickly, making it challenging to stay ahead of the curve and deliver services that meet evolving demands.
   
   
6. Staffing challenges: Consultancy projects often require specialised expertise, and finding the right talent with the necessary skills and experience can be difficult, particularly in a competitive market.
   
   
7. Client retention: Building long-term relationships with clients is essential for the success of a consultancy, but retaining clients can be challenging, particularly if they are dissatisfied with the quality of service or value proposition.
   
   
8. Financial management: Consultancies often have complex financial arrangements, including fee structures, billing schedules, and payment terms that require careful management to maintain cash flow and profitability.
   
   
9. Balancing quality and efficiency: Consultancies need to balance the need for high-quality services with the need to deliver projects efficiently and cost-effectively, which can be a delicate balancing act that requires careful planning and execution.
   
   
10. Ensuring internal alignment: Any pipeline management prioritises resources, client projects, etc. This proves challenging when a consulting business lacks the ability/willingness to communicate and justify priorities effectively.

Recommended reading: 4 Lessons Learned From A Consultancy Due Diligence

Pipeline management and forecasting are exponentially more challenging for unfocused consultancies.

As complex the processes of managing and forecasting pipelines are, they become infinitely more difficult for businesses that do not have a clear focus on their work. Such focus offers a buffet of services to a giant pool of prospects. 

• Lack of clarity on target clients: If a consultancy does not understand its target audience and needs, it will struggle to generate consistent demand and build a reliable pipeline.
  
  
• Pursuing too many opportunities: If a consulting firm pursues too many opportunities simultaneously (none of which deliver high profitability margins), it will spread itself too thin and struggle to devote sufficient resources to any project, leading to delays and missed deadlines.

"What consultants need is the confidence that "the void" that is created by saying no, becomes an opportunity to do things that bring them further and closer to what they want to do. And with that comes the confidence that something else will come along, because they're worth it". (David Ducheyne, founder of Otolith Consulting)

• Failure to prioritise tasks: If a consultancy does not have a clear focus, which means the ability to say no to non-ideal clients, it will struggle to prioritise incoming requests and, subsequently, tasks effectively.
  
  
• Ineffective communication and weak internal alignment: Unfocused consultancies will always struggle to communicate a crystal-clear value-proposition-driven message to their clients and internal stakeholders. This will inevitably result in the consultancy struggling to build trust and maintain reliable relationships and overworked/dissatisfied employees.
  
  
• Lack of strategic planning: Consulting firms that try to cater to too broad an audience with a long list of services will fail to have a clear strategic plan that outlines its goals and priorities. It will not have the foundation for decision-making when determining which opportunities to pursue, making pipeline forecasting all the more difficult.

Recommended reading: Furiously Successful Consultancies Put All Their Eggs in One Basket.

The link between pipeline management and high-quality consultancy management

Having conducted dozens of assessments of consulting firms’ pipeline management and forecasting processes, I have yet to come across a firm that does a poor job of managing and predicting their pipelines yet doesn’t have the same issues in consultancy management. 

These processes are strongly and inherently tied together.

Here are a few dimensions of high-quality pipeline management and forecasting and how they instantly translate to consultancy management.

Pipeline management success dimensions

Let’s look at the sales process.

A clear and consistent sales process with standard stages helps ensure that all deals are accurately tracked and managed.

Firms that fail to set up and standardise the system cannot effectively track and optimise the work of their sales, marketing, and business development executives. It will make it difficult to track and evaluate the performance of employees in these departments, provide actionable feedback, and determine whether there are inefficiencies or skill gaps.

Accurate and up-to-date data about each deal, including deal size, probability of closure, and expected close date.

Similarly, firms that fail to measure their sales pipeline accurately inevitably struggle to determine how to efficiently allocate resources internally, which includes the projected time commitments of employees – the consultants.

Regular pipeline reviews (weekly, monthly, and quarterly) ensure all deals progress and any issues or bottlenecks can be identified and addressed promptly.

Call me crazy, but firms that do not bother to regularly review their sales pipelines and identify and address problem areas most likely take the same “hands-off” approach to managing employees. 

The reviews of employees’ performance tend not to be a priority. Regular assessments of skill gaps – not really. Listening to employees' feedback and determining how to address the issues brought up – only when things reach a boiling point.

A positive internal culture builds a more realistic pipeline management and forecast.

A positive internal culture, marked by openness and honesty, is crucial for accurately assessing deal closures in consultancy pipeline management. In environments where transparency and alignment are prioritised, teams feel comfortable discussing the realistic prospects of deals without the pressure of inflated expectations or internal politics. This honesty prevents the pipeline from becoming a vanity tool, where deals are overestimated for appearances rather than accurate planning and forecasting. On the other hand, a culture plagued by pressure, politics, and misalignment leads to an unreliable pipeline, hampering effective decision-making and strategic planning.

Pipeline forecasting success dimensions

Let’s look at the sales forecasting process and its success dimensions.

A consistent methodology for evaluating and forecasting deals in a standardised way.

Consulting firms that cannot standardise the evaluation and forecasting method typically offer a buffet of services. They tend to cater to too broad an audience, chase prospects with never-ending follow-ups, and offer discounts as a way to compete. 

This type of business development strategy typically leads to quite a bit of stress and unpredictability, which, in turn, impacts consulting leaders’ ability to manage their teams effectively.

A data-driven approach based on historical data and current trends.

Data is king, but only when data collection strategies have been standardised and aggregated over time. Unfortunately, firms that do not have a clear – and narrow – expertise focus often end up with meaningless data. It’s spread across a vast audience pool and has too many opportunities to show reliable trends and patterns. This leaves consulting leaders with nothing more than a gut feeling to make forecasting calls. 

It comes as no surprise that this leads to utterly inefficient budgeting of resources. Consultants end up overworked for periods and underutilised for others. The same goes for whatever software solutions the firm uses, support staff, and everything else.

Disciplined adjustment for probability and risk to provide a more accurate view of revenue potential.

An accurate projection of revenue enables consulting leaders to make well-planned decisions. Is there a 20% growth expected towards the end of the year? Perhaps it’s a good idea to recruit new employees 3 months in advance to ensure they are up to speed and hit the ground running when the time comes. Without accurate revenue projections, teams go through turbulent times, utilisation of resources is not optimised, and client deliverables get delayed.

Involvement of multiple stakeholders, including sales, finance, and consulting leaders (of course).

This brings me back to the issue of internal alignment. Consulting leaders who manage their teams effectively understand the value of such alignment and strive for it in every aspect of business. Forecasting is a critical aspect of the business. 

Consultancies can use these success dimensions to assess their performance. That’s how I do it when I do my consultancy performance audits. It can tell a lot about the way a consultancy is managed.

If a consultancy can’t manage and forecast a consulting pipeline in a disciplined and reliable way, it might be a good idea to look under the hood of the business.

Recommended reading: (Case Study) Replicate the Secret of This Highly Profitable Consultancy

Setting the proper habits from the start

Setting the proper pipeline forecasting and management habits is never too early. 

If I had known 15 years ago (when I started my first consultancy) what I know today, I would have started with pipeline management and forecasting from Day 1. 

Why? 

Well, relatively straightforward: to avoid sleepless nights when you have to run the payroll at the end of the month. Cash flow predictability becomes extremely important once the consultancy has a few people on the team. And that's where pipeline management comes into play. 

Pipeline management is an essential aspect of running a successful consultancy, and it forced me in the past to think about strategy, target audience, service offering, leadership alignment, team management, resource planning, internal culture, sales capacity, existential health, etc. 

It's a core component when determining how to ensure a steady workflow and revenue. By tracking and forecasting the pipeline, a consultancy can better plan for staffing needs and make more informed business decisions.

In the early stages of a consultancy, pipeline management may be less complex, with fewer clients and projects to track. However, it is still important to establish processes and systems for managing the pipeline for future success. 

At a later stage (but still early enough), I would always invest in software or infrastructure to ensure the pipeline is effectively tracked and forecasted.

I also strongly encourage consultancies to start tracking an opportunity as soon as it enters the sales process. 

This means the opportunity has been identified as a potential project or engagement, and there is a clear path forward for moving it through the sales process and into the pipeline.

In consulting, most opportunities are generated by the business people (the consultants), so it's helpful to agree on a transparent process internally on how to activate it and by whom. 

What-when-how-who that's what needs to be agreed on. And that's easy but requires discipline and follow-up, given the financial implications.

In conclusion

Over the years, I’ve worked with large and small consultancies, early-stage consultancies, and consultancies that have been in the game for a while now. 

I can’t remember a single example of a well-managed consultancy with substandard pipeline forecasting and management systems. 

Every successful business I audited had robust systems for almost every aspect of running their business. 

They had data at the tip of their fingers that they could seamlessly turn into insights. They could accurately predict revenue for the following 6 months and sometimes even 12 months. They planned, hired, and trained newcomers in advance, not in a reactive manner. They communicated to their teams what to expect, why, and the best way to achieve it. 

Last but not least, you guessed it, these successful consulting businesses had in common – they had a strong focus. They did not get distracted from it to chase irrelevant or non-ideal opportunities. 

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