INTRODUCTION

As per a recent report by Harvard Business Review, companies with structured sales pipeline management process reported 28% higher revenue growth.

WHAT IS SALES PIPELINE MANAGEMENT?

Pipeline management in sales is a scientific way to capture, measure and analyze your sales opportunities and their corresponding sales stages. It allows you to make data-driven decisions rather than just intuition and gut. It is also commonly referred to as Funnel Management in sales. It is an integral part of any sales management process.

WHY IS SALES PIPELINE MANAGEMENT IMPERATIVE FOR STRATEGIC DECISIONS?

For your business to thrive, you will need to make many strategic decisions on a daily basis.

Decision making in sales is most effective when you have answers to questions like –

• How to accurately predict and forecast your business?
• What customer segments and industries offer the most opportunities for your offerings?
• Which territories or regions have the highest potential?
• How many opportunity conversions are required for you to meet your business goals?
• How many leads are getting converted into deal closures – also referred to as conversion-rate or win-rate?
• What is the average deal size and sales cycles you are witnessing across segments and territories?
• How many sales activities are required to close a deal?
• Are you observing any specific customer-buying trends or patterns?
• How do you measure aspects like market coverage and penetration? 
• Which sales channel is most effective for specific offerings and segments?
• What resources and training needs are required for your team?

Efficient pipeline management will allow you to answer these difficult questions and make those critical decisions strategic to your business performance to stay ahead of your competition.

TOP 8 METRICS THAT YOU SHOULD MEASURE IN SALES PIPELINE

Sales Pipeline management should be effectively used to track and measure data points across following aspects of your business –

Number of opportunities pursued by your sales teams

As in any funnel, your inflow of opportunities at the top of the funnel has a direct bearing on the outflow. This inflow at top of the funnel is also referred to as Leads.

Every organization should have a strategy and process to maximize Leads through a lead generation or demand generation process.

One of the most fundamental metrics you need to measure is the number of opportunities that your team is pursuing.

Deal conversion rate

Once a lead is captured in your system, it is the responsibility of your sales team to qualify, mature and convert the opportunity into closure. This is referred to as the conversion rate or win-rate. A higher conversion rate implies more opportunity getting closed by your team.

This metric also gives you a good idea on the quality of leads that are assigned to your sales team.

Deal value of your opportunities

While your sales reps are pursuing many opportunities, it is a good idea to keep a watch on the average deal value across different customer types, segments, period and geographies.

Measuring this would help you identify specific trends to take appropriate decisions on prioritization. You will also be in a better position to replicate what is working and avoid what is not working for your teams.

Deal movement across pipeline stages

This is possibly the most critical aspect of pipeline management. This defines your team’s ability to progress the deals through the funnel towards closure.

To measure this effectively, you must define the different stages of the pipeline and communicate the same with your teams. I am covering below this topic in detail to arrive at the right pipeline stages for your organization.

Sales cycles or closure timelines

Sales cycle is the number of days it takes your team to convert (or win) a sales opportunity. It is also referred to as deal efficiency as shorter sales cycles mean better results in a shorter time.

Sales cycle could vary depending on your sales reps, solution, customer segment, deal value, customer relationship etc. Measuring this metric across these parameters can provide you valuable insights about your business.

There are many ways to achieve shorter sales cycles. These include better deal qualification, deeper client engagement, crafting compelling value propositions, providing incentives to customers for faster closure, etc

Sales Velocity

Sales velocity is the most powerful metric that business leaders should track to accurately measure business traction. It is numerically calculated based on following four variables or business levers:

1. Number of opportunities
2. Average deal value
3. Win-rate percentage
4. Length of sales cycle in days (L).

You should measure this metric consistently every quarter. That will help you objectively analyze all the business levers to consistently improve sales velocity. It will also provide insights for you to stay ahead of your competition.

Rolling Four-Quarters Pipeline

Historical data about your deal size, conversion-rate, sales cycles etc. will give you an insight into the ideal pipeline that you should strive for. This is often referred to as a 3X or 4X pipeline depending on your industry or past trends. For e.g., your probability of achieving a target of 100 is very high only when you have a minimum pipeline of 300 (3X).

This measurement is effective only when you measure it quarter-on-quarter, ideally for consecutive four quarters including your current quarter (CQ). This is what is referred to as the “Rolling four-quarters pipeline” – CQ, CQ+1, CQ+2 and CQ+3.

When measured, this metric can help you answer following questions –

• How likely are you to achieve your immediate short-term targets?
• Do you have sufficient pipeline to improve your chances of achieving your targets in the upcoming quarters?
• Do I have adequate data points to substantiate my forecasts and projections?
• Is the team constantly putting in efforts to build and nurture pipeline?
• Which teams or segments or geographies are lagging behind?
• What support can you provide to your teams to improve the pipeline?
• Can you envision specific marketing campaigns or promotions to improve your pipeline?

Weighted Pipeline

Weighted pipeline is calculated by considering the likelihood or probability of an opportunity conversion.

Weighted Pipeline is calculated as the weighted average of all your opportunities or deals (opportunity value x probability of deal closure)

The below illustration explains the difference between sales pipelines and weighted pipeline. Total sale pipeline for 10 deals is reflecting as 1300K in this case. However, the weighted pipeline after considering the individual deal probability is amounting to only 800K. This value is more realistic than a simple summation of the total sales funnel.

While arriving at an accurate sales forecast is very tricky in sales, a weighted pipeline is one of the ways to give you a realistic sales forecast. It is a good idea to compare this with the verbal forecast that you get from your sales team to come to an even better assessment.

WHAT ARE THE DIFFERENT STAGES IN A SALES PIPELINE?

Stages in the sales pipeline are a set of step-by-step processes to be followed to win any opportunity or deal.

One of the most critical aspects to succeed in sales is to make sure that your sales process is aligned to the customer’s buying process. So you should consider the customer’s buying process in your industry while arriving at the right stages for your funnel. This forms the basis of a strong Sales Management Framework.

I like to refer to the buying cycle framework recommended by renowned sales consultants and authors – Neil Rackham and Mike Bosworth. As per this, a typical buying process of any customer involves 4 stages – (a) their identification of a latent need (b) analysis of their needs (c) their evaluation of possible solutions (d) their commitment to a specific solution to address the need

Based on the above, I recommend the following stages in a sales pipeline –

• Lead
• Qualification
• Evaluation
• Negotiation
• Commit or Forecast
• Closure

While you may consider adding additional stages to this, my personal view is to keep it very objective and easy to measure. These sales stages are well aligned with the customer’s buying process and it also considers your internal milestones.

Lead

Lead is also referred to as “cold prospect”. This stage is more of a placeholder to capture basic details of a prospect like their name, industry, contact details etc. It is an effective way to create a good target database. This database will be used by your sales and marketing teams for their outreach plans and campaigns.

At this stage, you may not have much details about the customer’s needs and priorities. However, as a best practice, it is a good idea to capture as many criteria of a good target customer. That way, you make sure that your campaigns and outreach plan is focused and the probability of conversion is maximized with minimum efforts.

You may want to categorize this further into –

• Cold Leads
• Warm Leads

As the name suggests, Warm Leads are slightly more mature than the Cold ones. In this case, companies expect the lead generation or demand generation team to further qualify the Lead before assigning it to the concerned sales rep.

Qualification

Once a Lead is identified and assigned to the sales rep, he or she is expected to qualify the Lead. The most popular framework used for lead qualification is the BANT lead management framework –

• Budget (B): has the customer allocated a budget towards the initiative or project?
• Authority (A): who in the company has the authority to evaluate and make the decision?
• Need (N): what is the extent of need definition and clarity?
• Timeline (T): is the customer having a timeline to decide and implement the solution?

This is a very important part of pipeline management where the sales reps are expected to either qualify-in or qualify-out an opportunity.

A good rigorous methodology for lead qualification has the following benefits –

• team will save a lot of time and resources when they go after only the Real opportunities as against a wild-goose chase
• focus on the right deals will improve your team’s chances of winning more deals and meeting their business goals consistently
• You can expect an increase in average deal-size when the team engages deeper on opportunities
• Higher Intensity and focus on engagements could reduce your average sales cycle

You will witness improvement in your team’s forecasting accuracy

Evaluation

In the Evaluation stage, your team is engaged with the customer on a regular basis helping the customer evaluate options to address their requirements.

Here are some of the activities usually part of this stage –

• Interviews with customer stakeholders for need gathering and requirement analysis
• Discussion on technical specifications of your solution
• Assessment of problem-solution fitment
• Presentation of your offering to all customer stakeholders
• Solution demonstration or proof-of-concept
• Submission and discussion of your techno-commercial proposal
• Providing customer testimonials, references and other proof-points to customer

Negotiation

Once the opportunity matures, the next logical step is the Negotiation stage. This will constitute a detailed discussion with your customer on multiple parameters across –

• Solution specifications and fitment
• Overall scope-of-work, roles & responsibilities of teams involved etc.
• Pricing/cost discussions
• Payment terms and schedule
• Project delivery schedule and milestones
• Contracting and legal terms & conditions

During the negotiation stage, the objective of your team should be to closely engage with the customer to arrive at a win-win proposition. This is important for a successful long-term mutually rewarding partnership. 

Commit or Forecast

By this stage, your team will have a good assessment of your chances to win the opportunity. By now, the team should have addressed all the questions and concerns raised by the customer. They would also have a good view into the probability of deal closure.

If the probability of opportunity closure is very high, then the team could Commit the deal to the management. This also gets referred to as Sales Forecast.

Sales Forecasting is one of the most critical aspects of opportunity management. It helps organizations to predict their order flows and make necessary plans to fulfill the same. This could include planning across resources, procurement, production, cash-flow etc.

Closure

Closure is the last stage of the funnel. Every opportunity at the closure stage needs to get categorized as one of these –

• Won: deal signed by customer and ready for booking
• Lost: deal lost to competition
• Discontinued: customer postponed the decision indefinitely or opportunity does not exist anymore