There is an old sales joke that goes like this –
A sales team’s success is known by three things: 1)The thickness of the carpet in their office 2)The area of their desk 3)The volume of their car’s engine.
We would like to add a fourth one to it – the effectiveness of their sales pipeline.
Whenever one thinks of sales, they narrow their thoughts and perceptions to the actual closure of a sale. They conveniently ignore everything around it, probably because everyone is focused on the destination, not its path.
This ‘everything around it is nothing but your sales pipeline. It is the path to the successful closure of the sale. It gives you a birds-eye view of the various stages traversed by a lead until they become a paying customer.
So what is a sales pipeline? Here is a classic definition –
“A sales pipeline is a visual description of your company’s sales process and how your company tracks a prospects’ progress through each stage of the process.”
Some describe a sales pipeline as a funnel, while some keep it simple as a horizontal line. Either way, they show the various stages of prospect-customer transformation.
A sales pipeline is more than just a fancy word in the world of sales. It is one of the most important tools of all sales management operations. Unfortunately, not many sales managers are trained in the effective management of pipelines. A study by HBR proves this. It found that 61% of executives think their sales managers are not adequately trained in pipeline management.
And that’s where this guide can be handy for you and your team as we break down every important detail of the sales pipeline, including some handy tips to manage it better.
📄 Table of contents
- Introduction to Sales Pipeline
- Why is Sales Pipeline so Important?
- Factors to consider while building a sales pipeline
- Main stages of a sales pipeline
- How to build a sales pipeline for your organization?
- How do you manage your Sales Pipeline effectively to achieve high-velocity sales?
Introduction to Sales Pipeline
Mark Sellers, founder, and CEO of Breakthrough Sales Performance LLC defines sales pipeline management as:
“The tracking and management of every sales opportunity through every stage to a successful close of a revenue-producing contract.”
He adds, “It’s about the task in total: finding, qualifying, and winning not just one sale, but doing the right things throughout the year to help salespeople do what they are expected to do – achieve their sales quota.”
Because sales processes are not only different for every company but for different products within a company, every sales pipeline should be unique and reflect the typical buyer’s journey for that product.
An effective sales pipeline helps a business identify minor issues much before they cascade into more significant problems that impact revenue. On the flip side, by not having a well-oiled pipeline, you are just driving into the dark, unable to spot those important milestones on the side of the road.
When you manage your sales pipeline well, you will have total access to information such as –
- The total number of deals in your pipeline
- The average size of each deal
- Present stage of the deal
- Weighted value of the deal
Why is a Sales Pipeline so important?
Sales pipeline breaks down the complete sales process into trackable and measurable tasks and will direct the spotlight on stalling deals or those that are generating the most revenue. It can have a direct impact on your revenues too.
According to research by Vantage Point Performance and the Sales Management Association, businesses that adopted a healthy pipeline management practice saw their revenues grow 15% faster than their peers. Moreover, the businesses that mastered the below three specific pipeline management practices experienced 28% higher revenue growth.
- Clearly defined the sales process.
- Spent three hours a month on pipeline management.
- Provided pipeline management training.
The importance of the sales pipeline is highlighted in the Modern Selling Podcast titled – ‘Why your sales pipeline is the headlights of your business’. The guest Scott Walston quotes, “For sales leaders, the sales pipeline is the headlights of the business, allowing them to do sales forecasting based on their amount of pipeline and their close ratios.”
He further adds, “Now when you’re thinking about it from a rep’s perspective, the pipeline is what allows them to make life-changing money. It’s what creates wealth for them.”
Here are some benefits of managing your sales pipeline –
1. Improved visibility
A sales pipeline points out which opportunities to spend less energy on and which opportunities to pursue more vigorously. By utilizing data collected from a sales pipeline, it becomes much clearer for sales reps on how to nurture prospects into customers by building more personalized interactions.
2. Effective monitoring of sales team
Sales pipeline helps analyze key metrics related to your sales team’s performance. This helps you identify challenges faced by each rep much before they start to impede their performance. For some businesses, it can take weeks to close a deal while for others, it can last several months. By using a sales pipeline you can understand how long it is typically taking your sales team to move leads from the top of the funnel to the bottom.
3. Targeted resource allocation
Only a certain percentage of your leads will convert into opportunities won. By identifying where you are in the pipeline for each opportunity, you can determine which deals are critical, and channel resources to those sales accordingly. A sales pipeline analysis also provides insights into which of your sales rep closes the most sales, has the highest ticket values and needs more resources and training to hit their quota.
4. Analyze aggregate sales velocity
Sales pipeline management can help a business figure out the rate at which a sales rep can convert a prospect into a customer. This is defined as aggregate sales velocity. An analysis of this number helps to schedule marketing and sales campaigns and project results.
Factors to consider while building a sales pipeline
1. Buyer Persona
The first thing you need to consider while building a sales pipeline is your buyer’s persona. A buyer persona is nothing but a fictional avatar of your ideal prospect. It helps you prune out prospects at every stage of a sales pipeline who do not fit the ideal profile.
When you craft a buyer’s persona, you’ll know the probability of conversion along with other details such as who should you be selling to? When the prospects want to buy something, how will they behave? and so on. All these details will help you set up your pipeline accordingly.
2. Sales Process
A sales pipeline is nothing but a visual snapshot of opportunities in different stages of your sales process. So a well-defined, structured, repeatable sales process enables your sales team to navigate the prospects effortlessly through a sales pipeline. A sales process will help them understand exactly what they need to do to close a deal. By defining a sales process, your sales managers can plan out a well-defined sales pipeline that can generate more revenue with optimum effort.
3. Revenue Targets
Think of a sales pipeline as a tool that will help you meet your revenue goals. Hence to build a healthy, successful pipeline, you’ll need to have your revenue goals ready. Here are some of the questions you need answers for –
- What must be the number of deals to close in order to meet your revenue goal for the month or quarter?
For example, if your revenue goal is $2 million and your average order size is $2,000, you’ll need 1000 opportunities/deals to meet your goal.
- What should be the number of sales opportunities you will need in your pipeline to close the requisite number of deals necessary to meet your revenue goal?
If your conversion rate to a sale is 10% and you need 1000 orders to meet your revenue goal, then you’ll need at least 10,000 opportunities in your pipeline.
- What should be the number of leads you need in order to generate the requisite number of sales opportunities necessary to meet your revenue goal?
Now say your conversion rate from a lead to an opportunity is 20%, then you’ll need 10,000 opportunities in your pipeline to meet your revenue goal. That means you need 50,000 leads to make this happen.
By calculating the above metrics, you’ll be able to use your sales pipeline and analyze clearly how many deals you need to be adding to the top of the pipeline to reach your goals.
4. Sales Team
Always design your sales pipeline by including your sales team in the discussion. After all, a pipeline is specifically built for them, so it makes total sense to include their inputs in it. Keep the pipeline flexible and as and when you receive new suggestions from existing reps, incorporate them.
Main Stages of a Sales Pipeline
Prospecting is the first stage of your sales pipeline where you convert a lead into an opportunity. This stage is all about reaching out to the prospects through different channels like emails, phone calls, social media, etc. This stage also encompasses researching and categorizing the prospects based on their likelihood to convert.
During the qualification stage, it is important to make sure that the prospects you’ve discovered are really a good fit for your business. Use a method like BANT (Budget, Authority, Needs, and Timeline) to identify their fitment. For example, if your prospect has the right budget, the authority to make decisions, has needs that are fulfilled with your product, and has the right timeline to purchase, then odds are this deal will close faster.
3. Initial Contact
In this stage, you make first contact with your prospect either via email or telephone. The purpose of this touchpoint is not to make a sale but to build rapport and gain a holistic view of the prospect, their business, and objectives. This step also helps you gain a more in-depth understanding of the prospect’s pain points and requirements so that you can personalize the product demonstration.
4. Book Meeting
The obvious next stage in a sales pipeline is to book a meeting with the prospect (and other key decision-makers in the organization). An important factor to keep in mind during this stage is to understand if the prospect would prefer a video call or if they’d like to meet in person. This would again depend on numerous factors like deal size, product type, preference, etc. After the meeting is booked, your sales team has to go about preparing for an effective and personalized sales deck and product demonstration.
5. Follow Up
Subsequent to a meeting with a prospective buyer and convincing them with a winning sales pitch, you need to be in regular touch with them to convert them. In this stage, the sales rep must discuss the price, features, implementation plans, etc. After clarifying all queries that may arise from the prospect’s side, your sales team can customize the proposal to address the specific requirements of the buyer.
6. Negotiations/Objection handling
When a prospective buyer exhibits interest to buy your product, it is always accompanied by a stage of negotiation. In this, your sales team must enter into strategic discussions to adjust the price, increase or customize the terms of the agreement, all of which must end with a mutually beneficial relationship with the prospect. Also, the sales rep must be an active listener and deftly handle any objection that comes up during the discussion. The negotiation stage of a sales pipeline could involve a single meeting or a series of discussions.
7. Deal closing
In this stage, you have got the thumbs up from the prospect that they are ready to move forward with you. However, the pipeline does not come to an end when the deal is closed. Instead, the customer should be handed over to the post-sales team or customer success team, who will take care of upselling and renewals.
💡How to Build a Sales Pipeline for your Organization?
1. Identify your buyers and sales stages
The first step is to identify who your ideal buyers are. In other words, you need to create your ICP. Create more than one ICP as you seldom have only one type of customer. Along with that, identify the different sales stages traversed by your customer. For most businesses, the stages are the same as what we defined in the previous section. But the time taken by different reps and prospects will greatly vary in each section.
2. Define your sales activities for different stages of the pipeline
The stages in a sales pipeline are built around the actions that reps or a sales team take to convert prospects into customers. However, it must be understood that every business is different and will have different sales activities for every stage. For example, in the prospecting stage, some businesses would consider building relationships at industrial events as one of the critical sales activities. For others, it could be doing cold outreach through cold emails or cold calls.
3. Define your overall sales cycle length and for each pipeline stage
The Average Sales Cycle Length is the time taken from your first touch with a prospect till closing the deal. It is typically averaged across all won deals. By defining and measuring the time taken for all the stages, you can analyze where in your sales process your prospects or leads are stalling. You can then remove this bottleneck to improve your future sales. For example, outbound sales tend to have a longer sales cycle length in the book meeting stage because the prospect doesn’t have a lot of purchase intent at this point.
4. Estimate your ideal sales pipeline size
Next, you have to calculate the right pipeline size for your business. As a sales manager, you need to know how many opportunities you need to have in your pipeline in order to reach your sales goals for the quarter or the year. By calculating this at the outset, you can scale your prospecting and lead generation stages to reach your goals on time rather than scrambling at the end of the month. Here’s how to do it:
- First, determine your target monthly or quarterly revenue (e.g – $20,000).
- Next, divide that by your average deal value (eg: $20,000 ÷ $200 = 100). Now you know exactly how many deals you and your team need to close to reach your goal.
- Lastly, divide this number of deals by the average conversion rate for each stage.
For example, if 50% of deals in the negotiation stage are converted, and you need to close 100 deals to reach your goal, you’d need 200 leads to reach the negotiation stage every month.
By moving backwards through your pipeline following the same steps, you can get a clear view of how many leads should be entering the top of your sales pipeline per month. Additionally, you can determine monthly or quarterly sales targets for all your salespeople by dividing quarterly revenue by average deal size.
5. Define the KPIs to measure the performance of your sales pipeline
Some of the most important KPIs you should be tracking to measure the performance of your sales pipeline include –
- Number of new leads per month – the average number of prospects tagged as Sales Qualified Leads (SQL) and/or Sales Accepted Leads (SAL) every month.
- Number of deals – the number of SQLs the team or an individual seller is currently engaging.
- Pipeline value – This indicates the value of the opportunities in your pipeline. Knowing this will help you accurately forecast your goals, and be better prepared to reach them. To calculate pipeline value, start with the number of deals in your pipeline. Then, multiply that by your average deal size.eg: 40 deals x $5,000 average deal size = $200,000.
- Sales pipeline velocity – This metric indicates how fast leads are going through your sales pipeline. This helps you identify opportunities that are taking too long to close. To calculate sales pipeline velocity, first, take the number of deals in your pipeline. Multiply that by your average deal size, then divide it by your average sales cycle length in days. Here’s an example calculation: 50 deals x $5,000 average deal size ÷ 60-day sales cycle = $4,166.The higher this number, the better.
- Conversion rate per stage – Keeping track of this metric will alert you to any potential shifts in the market or with your customers.
- Sales rep pipeline performance – Tracking how each rep performs within your sales pipeline tells you where each rep needs help. Analyze a certain rep and then see the average conversion rate per stage. Then, compare this to the overall average conversion rate, and see how each rep is performing.
- Average sales velocity – The average time it takes sellers to move prospects from starting stage to the final stage of the sales cycle.
- Monthly Recurring Revenue (MRR) – The amount of predictable revenue a company expects to generate every month. This is most common in subscription-based businesses.
- Win rate – the percentage of leads that become paying customers.
- Lead response time – the average time sellers follow up after a prospect takes a lead-qualifying action.
Tip: Conduct regular sales pipeline review meetings with all your sales teams. In these meetings, discuss the KPIs like open rates, conversion rates, average deal size, etc. Through this, you will be able to make critical decisions that will enhance your sales process. Most CRM’s contain reporting and analytics modules that will help you track, measure, and analyze these metrics across your sales pipeline.
How do you Manage your Sales Pipeline Effectively to Achieve High-Velocity Sales?
1. Use a CRM to set up and manage a sales pipeline
A CRM will help you keep track of your pipeline and also automate some of the manual processes for your sales team, which can help them save time and effort. By effectively using a CRM, you can :
- Find your target prospects and key decision-makers
- Keep track of deal stages across your pipeline
- Follow up
- Measure and analyze key metrics.
All of this will help you regularly update and audit your pipeline, which will, in turn, help you achieve your sales goals on time.
2. Sales engagement tool to engage effectively
Following up (after initial interactions) is extremely important in the world of sales. The possibility of your prospect buying your product or service is totally determined by how you engage with your prospects.
Most deals need multiple follow-ups with prospects before they agree to attend a demo. Efficient engagement can be achieved through emails, phone calls, or even connecting with them on LinkedIn. Every time your team engages with the prospect using one of these channels, they get closer to possibly winning that deal.
A sales engagement tool like Klenty will help you communicate to your prospects by striking the perfect balance between personalization and automation. Such tools also help you keep track of key metrics which help you identify where in your pipeline your prospects need the most assistance and attention so as to help them make a buying decision.
3. Meeting Schedulers and sales intelligence tools to manage the sales process
Every bit of information pertaining to your prospects across the different stages of your sales pipeline will help your sales team with quicker closures. A sales intelligence tool will automatically collect and organize this information and present it to you in a readable format.
Additionally, by using a meeting scheduler, you can automate the process of setting up sales meetings by eliminating repetitive back and forth communication between your team and your prospects. Meeting schedulers enable your prospects to select a suitable date and time that is convenient for them to talk to your sales team.
Both these tools help you only bring in more flexibility and automation to your sales process, which will help you manage your pipeline effectively.
4. Automate CRM data entry work
A big chunk of a sales team’s schedule is spent on manual and repetitive tasks such as updating deal stages, taking down notes, composing emails, and more. These activities also increase the possibility of human error. This might even result in a misallocation of resources and lost sales opportunities.
Modern-day CRMs automate these tasks and take care of updating contact information, lead scoring, deal stage management, and more. This automation will help your sales team focus their time and effort on more qualitative and strategic tasks that require complex decision-making. Your sales pipeline will also be more hygienic and better maintained as it will be up to date with relevant information across all leads, contacts, and customers.
Sometimes the difference between crushing your quotas or having a challenging quarter comes down to managing a healthy sales pipeline. The process of building and maintaining your sales pipeline involves several key activities highlighted in this post. Start by designing an optimal sales process along with the right tools. With that, you can ensure effective pipeline management that will help you hit your sales forecasts, improve sales performance and achieve your revenue goals.