What is the sales pipeline? A sales pipeline describes an approach to selling, founded on the underlying principles of the sales process. It describes the individual steps salespeople take from initial contact with a potential customer, or prospect, to qualifying that prospect into a lead, and further validating that lead into a sales opportunity followed through the different stages until closed. All sales opportunities arranged along each of the sales steps that make up your sales process is what the sales pipeline represents. Here is a simple definition of a sales pipeline as found on Wikipedia. It is difficult to encounter a sales professional these days the has not heard of pipeline management. As common as the term may be, many sales organizations today are not making use of this powerful sales management methodology. Why is this?
In many cases, you could say, that those companies that are not using sales pipeline management either fail to recognize the benefits it provides or simply don’t know how to shape their sales pipeline to produce a strong sales outlook for their company. To give you an idea of how powerful the concepts behind the sales pipeline can be I will share with you my experiences with pipeline management using Pipeliner sales CRM.
If you are in the business of selling either products or services, chances are you are already using a sales process to guide your sales activities through to the sale. In many cases not clearly documented, the sales process defines the steps to take and best practices to pay attention to when selling to customers or clients. Each sales step describes the tasks and deliverables that need to be accomplished in order to take the deal to the next stage in the sale.
How Many Sales Stages Should my Sales Pipeline Contain?
If you are not sure about the number of sales steps in your sales process, I recommend you to write all of the steps within your sales cycle on paper, and focus on the most important tasks that lead your customer to purchase your product or service. However, do not create too many steps, because
“Having too many stages in the sales pipeline is counter-productive. Six or seven steps is the optimum number of stages in the pipeline.” – Donal Daly
Managing a sales pipeline with more than 7 stages could turn out to be too time consuming. Now, this entirely depends on the length of the sales cycle, in many cases such as government contracts, it might be entirely normal to have well over 7 stages that are necessary to walk the prospect from lead to closing the deal many years down the line. You can quickly get lost inside a flood of data, if you don’t keep a lean sales pipeline involving fewer steps. 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 steps with stages that can look as follow:
- Initial contact
You should also know that each sales step has different weighted value within your sales process. The weighted value, or probability of closure, describes the likelihood of winning that potential customer as a paying one.
How do I Define the Closing Probability for each Sales Step?
There are many different ways of setting the probability of closure for your sales steps. For example, let’s say you will need to call 10 prospects i.e. make 10 initial contacts, in order to qualify 1 prospect to the next step of your sales pipeline. It means that only 10% of your initial contacts make it to the second sales step.
“Commonly, the probability of closure is measured in percent and shows you the likelihood of winning the opportunity for that particular sales step.”
You can freely define your sales step’s probability of closure for your sales pipeline according to your experience. Our research shows that the most commonly used closing probabilities for each of the example sales steps are as follows:
- Initial contact – 0 %
- Qualification – 10 %
- Meeting – 30 %
- Proposal – 60 %
- Close – 100 %
Once your customer enters your sales pipeline, they become a sales opportunity. Each sales opportunity in your pipeline has its own value. By using the information about the opportunity values and probability of closure for each sales step, you can immediately “weigh” your pipeline using the weighted target within Pipeliner.
How Do I Measure a Weighted Sales Pipeline?
It’s reasonable to have 3-4 times the value of your weighted target to make quota i.e. in percentage 300%. In other words, you should have 3 times more active opportunities in your pipeline than your actual sales goal.
“The weighted target is equal to the sum of the total opportunity values in each sales step multiplied by the probability of closure for that step.” – David Brock
Let’s make a calculation (1 opportunity is valued for $1,000):
- Initial contact – 0 % x 35 opportunities = $0
- Qualification – 10 % x 20 opportunities = $2,000
- Meeting – 30 % x 10 opportunities = $3,000
- Proposal – 60 % x 5 opportunities = $3,000
- Close – 100 % x 2 opportunities = $2,000
From these figures, I can immediately see that my weighted value for my sales pipeline is $10,000. Based on the recommendation, I should have about 3 times more value of opportunities than what my quota is. If my quota is $5,000, it’s only 2 times more than recommended. It means I need to do a lot more prospecting…
So, again, what is a sales pipeline?
Below you can find my definition of a sales pipeline:
“A sales pipeline is as a visual representation of your sales process where all your potential customers are displayed and neatly arranged according to their phase in your sales cycle.”
A sales pipeline technique is a great sales tool. A sales pipeline helps you understand you sales process, increase your sales and make you confident about your data. We are happy that we build Pipeliner around this concept.
I hope you can now quickly find the answer to the question “what is a sales pipeline“? For a more detailed look into pipeline management software take a look at Pipeliner CRM or simply try it out for free.