What is a sales pipeline? (And why you need one)
What is a sales pipeline?
A sales pipeline is a visual representation of all the stages in your sales process and where each of your potential deals are on this predetermined path.
Often times a salesperson will get lost in activities like sending emails and making calls without the birds eye view which the sales pipeline gives. For example, with a sales pipeline you can see if your sales team will hit their sales quotas for the month or any given period.
It makes it easier to make strategic decisions and focus on deals that’ll grow your bottom line.
A study by the Harvard Business Review showed that there was an 18% difference in revenue growth between companies that had a formal sales process and companies that didn’t.
So it makes sense to build and take advantage of a formal sales pipeline.
The Sales pipeline stages
We know that the sales pipeline is based on your sales process, and your sales process should match the buyer’s journey of your ideal customer.
In B2B selling there isn’t a one size fits all approach. Different businesses require more or less time to evaluate proposals and it’s up to you to figure out the best sales process to help them make a decision.
Having said that there are some general features - good practises that every great sales pipeline has and we’ll take a walk through these. This will give you a starting place to build your own sales pipeline.
Stage 1: Prospecting
Before you do anything you have to find some prospects to sell to. You can’t sell to everyone so you have to figure out who would benefit from what you’re selling?
You do this by creating an ideal customer profile (ICP). A good place to start is looking at the companies you’ve sold to before, what do they all have in common? You should also look at what problem(s) does your product or service solve and then go out and find people with those problems.
Prospecting is a one to one approach but you can also do lead generation. This is a one to many approach where you’ve got your ICP, and then you figure out where your ideal customers hang out and how they talk.
You then tailor your marketing to attract them to you. This can be through social media posts, your website and email campaigns.
Whatever approach you’re taking the purpose is the same - find people who will buy what you’re selling.
Stage 2: Qualification
This is the great filter.
There is no point wasting your time with people who will never buy from you. So the qualification stage is critical.
Here you ask the questions that will tell you whether they are a good fit for your offering or not. Fundamentally, you need to find out at least these things:
- Do they have the budget to buy from you?
- Are they the decision maker who has the authority to say yes to a deal?
- Does your product or service meet a need they have?
- What is the timeline for implementing a solution?
If as you ask your questions you keep getting negative answers then you’ve not wasted your time. You know they’re not the right fit as your offering can’t help them so you can move on and focus on prospects who you can help.
Qualifying a lead isn’t too difficult, you ask questions to get the background on the prospect’s company and then ask questions to get the detail around the problems they face.
If you can’t see your product being useful in solving their problem and the background information you get doesn’t fit your ideal customer profile then you can part ways without making a huge investment in them. Which is good for you and the prospect. You can check out our B2B cold calling guide which runs through how to qualify a prospect.
Stage 3: Evaluation
Your sales team will have qualified the prospect and they are aware of your offering. In this stage they’re now going to look in depth at your product, they will probably be comparing you with alternatives.
During this stage you’ll probably be doing demonstrations of your product and creating case studies for the prospect.
You might even consider creating multiple options for them to consider - this will of course depend on what you found out during the qualifying stage. Maybe, they don’t need all the bells and whistles and they don’t have the budget for your top tier service but that doesn’t mean you can’t turn them into a customer.
Stage 4: Decision
At this stage the buyer will make a decision on whether to become your customer or not. It isn’t yet a done deal as they could still change their minds and go with an alternative.
There are other things to consider like other stakeholders who need to greenlight the decision. As well as seeing if there are other projects that will take priority which can delay things.
A good salesperson will figure out what needs to be done to get the deal over the finish line. Don’t make the mistake of thinking your work is done yet.
Stage 5: Close
Any prospects who enter this stage are now paying customers. They’ve signed on the dotted line and you’ve won the deal. That’s great news!
But now the task of actually delivering on your promises begins.
Sales Pipeline vs Sales Funnel
What you may have noticed is that as you move down the pipeline your chance of winning the deal goes up.
If you’re at the closing stage there’s probably a high likelihood of turning them into a customer as opposed to an unqualified lead right at the top of your sales pipeline.
Let’s now take a deeper look at this by comparing a sales funnel to a sales pipeline.
Sales Pipeline: Measures what a seller does during the sales process.
Sales Funnel: Measures the conversion rate as you go through your sales process.
The fundamental difference between the two is that the sales pipeline is a process game where you look at the steps to close a deal.
The sales funnel on the other hand is a numbers game where you measure how many prospects go through each stage. The sales funnel is V shaped as it assumes the number of prospects will drop off as you move through it.
Therefore, if you know what your conversion rates are then you can work backwards and figure out how big your sales pipeline needs to be to meet your sales quota.
The sales funnel therefore seems pretty useful but there’s a catch it creates an unrealistic expectation - let's say you contact 300 leads and you’ll then have an expectation to close 50 of them based on your conversion rates.
The assumption that a set percentage of deals will drop out of the pipeline may not always hold.
It’s often a better strategy to work on fewer higher quality deals rather than trying to hit numbers and assuming the percentages will hold. It’s your qualified prospects that matter. If you have a thousand leads that are a poor fit your assumptions will not apply.
Having a focus on process, and making sure you have a solid ideal customer profile when you research your prospects and leads will pay dividends in the long run.
Sales Pipeline vs Sales Forecast
The sales pipeline and sales forecast are not the same thing. They tell you different things. The sales pipeline tells you what the value of all your deals are and where in your sales process they sit.
The sales forecast on the other hand tells you how likely you are to close your deals in a given period. This means you can see how close you are to hitting your targets, and if you’re unlikely to hit them to redouble your efforts.
The type of opportunities your business generates will give you an idea of how to forecast accurately. If you have a high volume of low value deals then you can predict the forecast with your sales pipeline metrics, however if your deals are more complex you’ll have to assess each one in order to get a more accurate prediction of what you’re likely to close in your next quarter for example.
5 tips for effective Sales Pipeline management
1) Look to add new deals and update your sales pipeline regularly
Your sales pipeline is only as useful as the effort you put into it. You want to keep adding new deals as attrition reduces the number of deals in your pipeline, and an up to date pipeline allows you to forecast more accurately whether you’ll meet your quarterly targets, and so take proactive action to do so.
If your sales pipeline is inaccurate it can’t help you make the right decisions.
2) Have a standardised follow up procedure
Make it easy for your sales reps to do their job. You don’t want your leads to go cold so have a playbook they can follow to push them down your sales pipeline. For example, in RealtimeCRM you can assign tasks to other team members so they don’t miss a step, and have your quote templates generated in a few clicks instead of having to be created from scratch for each new deal.
3) Keep track of your Sales Pipeline metrics
By keeping track of your metrics you can assess how you’re doing and whether any changes you’ve made have improved things. The basic metrics you should know are:
- The number of deals in your pipeline
- The average size of the deals in your pipeline
- The average percentage of deals you win (close rate)
- The average lifetime of a deal before it closes (sales velocity)
Based on your metrics you should get an idea of what an opportunity with a high likelihood of being won looks like which should enable you to identify the most promising leads. This means you make the most effective use of your time and focus your efforts where they’ll get the highest return.
4) Review your Sales Pipeline regularly
Review your pipeline to see where its weaknesses are and readjust. Are you accurately reflecting the buyer's journey? When you’re moving your deals from one stage to the next it’s important to cite what factors helped you advance the deal, so you can focus on performing those activities and continue to keep deals flowing in. It could be sending a written proposal, identifying the stakeholders, or getting a budget approved — there’s an event at each stage that moves the deal along. Make sure you know what it is and its reflected in your sales process. Using a CRM will make this easier.
5) Remove dead leads from your Sales Pipeline
One of the biggest mistakes in sales pipeline management is to not clear out your pipeline. If a prospect has been sitting at the negotiation stage for months and there’s been no movement then it should be removed - you can try and resurrect it by writing a breakup email but if that doesn’t work then get it out of your pipeline.
The reason to do this is because it throws off the accuracy of your sales forecast. It’ll create a gap between your expectations and reality, and the more dead leads you have the worse this will be. Let’s say you have a deal worth $1,000 and its sitting at the negotiation where you usually have a 75% chance of closing. That means the weighted value of the deal is $750 which means you can expect this $750 in potential revenue in your quarterly sales forecast.
But this isn’t true, there’s been no activity and your sales forecast is off by $750. Every stale deal in your pipeline will muddy the waters and make your sales pipeline seem healthier than it is. It’ll also mean you won’t really know if you’re going to hit your sales quota or not.
Calculating the ideal size of your Sales Pipeline
There are two things you need to be able to figure out how big your sales pipeline should be to meet your targets. You need to know your close rate and your sales quota.
The close rate is pretty simple, it’s just the percentage of deals won over a given period of time. So let’s say you have a $100,000 in total deals over a year of which your rep wins $40,000. That means their annual close rate was 40%.
Let’s assume that their annual quota is now $80,000. We know that their close rate is 40% so to figure out how big their sales pipeline needs to be you need to divide their annual quota by their annual close rate, which in this case should give a figure of $200,000.
Sales quota ÷ close rate = the perfect pipeline size.
This formula gives you a rough idea of the targets your sales team should be hitting. Obviously, as time goes on the ideal size of their pipeline might shrink as they improve their close rates and other individual factors will apply but this gives you a general rule of thumb to start from.
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