What exactly is a sales pipeline? Having a precise answer to this question can spell the difference between success and failure for a sales team.
Put simply, a sales pipeline is a precise expression of a company’s sales process. It consists of the individual steps taken by salespeople from the initial contact with a prospect, to qualifying the prospect into a lead, further validating that lead into an opportunity, and following through the remainder of the sales stages to a close.
The chances are good that if you are in the business of selling products or services, you are already following a sales pipeline. It’s just a matter of getting it clearly defined and, if it isn’t, exactly reflected in your CRM solution.
How Many Sales Stages Should a Sales Pipeline Contain?
If you’re unsure about the number of sales steps in your pipeline, you should simply write down all of your sales cycle steps on paper, focusing on the most important tasks that lead your customer to purchase. You should limit the number of stages–it has been found through research that too many stages in a sales pipeline can be counterproductive. 6 or 7 stages is ideal.
We have analyzed many sales processes across a number of industries, and have found that on average companies will limit their sales process to five stages that look more or less like this:
- Initial contact
Each step has a different value to the overall process. This value, or probability of closure, reflects the likelihood of that sale closing.
How Do You Define the Closing Probability for Each Step?
You work out your probability for each step based on past experience. Let’s say that on the average you need to call 10 prospects–make 10 initial contacts–in order to qualify 1 prospect to the next step of your sales pipeline. It means that 0% of your initial contacts make it to the second sales step.
You can then calculate the remainder of percentages of your stages based on experience. For example:
Initial contact – 0 %
Qualification – 10 % (10% of the opportunities that make it to this stage have a chance of closing)
Meeting – 30 % (30% of the opportunities that make it to this stage have a chance of closing)
Proposal – 60 % (60% of the opportunities that make it to this stage have a chance of closing)
Close – 100 %
How Do I Measure a Weighted Sales Pipeline?
A weighted pipeline is an ideal method of viewing your future sales revenue. As an example, here is how it’s done with Pipeliner CRM, but it can be calculated this way no matter the CRM system you are using.
A prime feature of Pipeliner CRM is its Dynamic Target feature. Always visible to the right of the Pipeline View in Pipeliner, the Target constantly reflects the overall result being focused on by the sales force.
One of the options for the Dynamic Target is the Weighted Target. The Weighted Target is equal to the sum of the total opportunity values in each sales stage, multiplied by the probability of closure for that sales process stage. For example, if the total of opportunities in a particular sales stage is $100,000, and the probability of closure for that stage is 30%, then the weighted value of that stage would be $30,000. All of those weighted values added together give you the total weighted value of your sales pipeline.
Let’s work this out in a further example for the whole pipeline:
Initial contact – 0 % x 35 opportunities = $0
Qualification – 10 % x 20 opportunities = $20,000
Meeting – 30 % x 10 opportunities = $30,000
Proposal – 60 % x 5 opportunities = $30,000
Close – 100 % x 2 opportunities = $20,000
Using these weighted figures, you can then work out how many leads need to go into the front end of the pipeline for you to make your quota.
A sales pipeline technique is a great sales tool. It helps you to better understand your sales process, increase your sales and raise confidence in your data.
For a more detailed look into pipeline management, have a look at Pipeliner CRM.Get your free trial of Pipeliner CRM now.