What a sales pipeline is, and how to build one successfully

The term ‘sales pipeline’ is frequently mentioned in sales conversations, often in contexts such as ‘filling the pipeline with leads’ or ‘expanding the pipeline’. This reflects its significance in the sales world and its role in driving business growth. 

A sales pipeline is not just a trendy sales term; it’s a fundamental tool for sales management. It visually maps out where the deals are in the sales cycle, making it easier to spot roadblocks and understand what sales actions generate revenue for the business. 

The lack of a sales pipeline can lead to numerous missed opportunities and inefficiencies, potentially stunting revenue growth. According to a study by Harvard Business Review, companies that do not effectively manage their sales pipeline experience 15% lower revenue growth than those that do. 

This article will help sales managers understand the concept of a sales pipeline in detail and manage the various stages effectively to meet sales targets. We have packed this article with practical and actionable advice on how to build and optimize a sales pipeline. 

What is a sales pipeline?

A sales pipeline is a visual representation of the various steps taken to move prospects from initial contact to closed deals. 

It is often visualized in a Kanban-style board as a series of steps or stages denoting the various stages of the prospect. The stages in a sales pipeline typically include lead generation, qualification, meeting, proposal, negotiation, and closing. Each stage represents a specific phase in the sales process, enabling teams to manage activities, track leads, and forecast revenues. 

The sales pipeline focuses on the progression of prospects through these stages, thus helping sales managers understand where each deal stands and what actions are required to move prospects to the next stage. This structured approach can significantly improve efficiency and effectiveness in converting leads to paying customers. 

The terms “sales pipeline” and “sales funnel” are often used interchangeably, but they have distinct differences. A sales funnel is customer-centric, focusing on the lead’s journey from prospect to customer. A sales pipeline is team-centric, focusing on the activities and steps sales teams perform to close deals. A sales funnel emphasizes understanding and nurturing the customer’s journey, whereas a sales pipeline emphasizes managing and optimizing the sales team's workflow and processes.

Why is a sales pipeline important for business?

A sales pipeline is crucial for business as it provides a comprehensive overview of sales activities and progress. This visibility allows sales reps to see exactly where prospects stand and what action needs to be taken to move them forward. It also helps identify bottlenecks and take timely action.

Sales pipelines are also instrumental in sales forecasting and planning. By analyzing the stages of the pipeline, sales managers can predict future sales and set realistic revenue targets. This helps make informed decisions about resource allocation, marketing planning, staffing, and budgeting.

A sales pipeline also enhances team coordination and alignment with other departments. It ensures that everyone, from marketing and sales to customer service, is on the same page about the prospect's status. This fosters better collaboration and improves overall efficiency while also providing an enhanced and seamless customer experience.

Finally, sales pipelines aid in process improvement, measuring key metrics, and goal setting. They provide valuable insights into the performance of sales strategies and highlight areas that need improvement. By understanding these metrics, sales managers can set benchmarks and objectives that drive performance and motivate the team.

Benefits of a sales pipeline

A well-structured sales pipeline offers various benefits to businesses, helping them streamline their sales processes and enhance overall efficiency. By providing a clear visual representation of where prospects are in the buying journey, a sales pipeline enables sales teams to prioritize their efforts and allocate resources effectively. Other advantages of a healthy sales pipeline include: 

1. Increase sales efficiency

A sales pipeline provides a clear structure for tracking and managing prospects across each stage. This enables sales managers to know exactly what step to take, reduce time spent on unqualified leads, and focus on high-potential opportunities. It also helps identify bottlenecks quickly, thus leading to quicker deal closing. Considering sales reps only spend two hours per day selling​​, a sales pipeline can ensure that their efforts are directed toward closing deals rather than administrative tasks. 

2. Accurate forecasting

Sales pipelines enable more precise forecasting by providing a picture of the expected revenue. With precise forecasts, sales managers can see how likely they are to hit revenue targets and adjust strategies and plans as needed. By analyzing the number of deals, their stages, average deal sizes, and historical conversion rates, businesses can predict deal conversion rates and project future revenue with greater accuracy. This predictive capability helps in financial planning and in making other informed decisions.

3. Measure team performance

Tracking progress through the sales pipeline allows managers to evaluate individual and team performance against established goals. Pipelines offer a tangible way to assess and improve sales efforts, ensuring that resources are effectively allocated. By measuring performance accurately, managers can identify areas for improvement and provide targeted training and support. This focused approach drives overall sales productivity and team success.

4. Enhanced team collaboration 

Sales pipelines foster better collaboration between the sales, marketing, and customer service departments by providing a shared visibility into the status and progress of the deals and leads.  Marketing teams can tailor their campaigns to generate higher-quality leads for the sales teams. Meanwhile, customer service teams can prepare for onboarding and support based on the anticipated closing of deals. 

5. Close deals faster

About 28% of sales reps cite the lengthy sales process as a critical reason for prospects backing out of deals. A structured pipeline highlights where deals get stuck, allowing teams to address issues promptly. By identifying and resolving the bottlenecks, teams can accelerate the sales process and close deals faster. This improves conversion rates while enhancing customer experience.

6. Data-driven decision-making

Sales pipelines provide valuable data that can be analyzed to make informed decisions. By leveraging trends and patterns from every stage of the pipeline, businesses can refine their sales strategies, target the right prospects, allocate resources more effectively, and make better decisions. This leads to more efficient operations and significantly better sales outcomes.

7. Process improvement 

A sales pipeline offers detailed insights into every stage of the sales process, allowing businesses to identify inefficiencies and areas that need improvement. For instance, sales reps can see where prospects are getting stuck or dropping off by tracking metrics such as the time spent in each stage and conversion rates between the stages. Using this data, best practices can be implemented to streamline workflows and refine the sales strategy. 

What you’ll need before you start building a sales pipeline

Before building a sales pipeline, it's essential to have certain foundational elements in place to ensure its effectiveness. This preparation includes understanding the target market and building customer personas, defining the various stages of the sales pipeline, creating the sales process plan, and finally setting targets and revenue goals. These should be done in collaboration with the sales, marketing, and customer service teams. 

1. Potential customer list

Prospecting remains the most challenging part of the sales process for 40% of salespeople​. A detailed list of prospects is essential for a sales pipeline that aligns with a business's ideal customer profile. This list should include comprehensive contact details, company information, and the prospect’s role in their organization.

Creating a detailed prospect list ensures that sales efforts are targeted and effective. By focusing on high-quality leads, sales reps can maximize their chances of success and better allocate their time and resources. This approach streamlines the sales process and also improves overall sales outcomes.

2. Sales process plan

A sales process is a structured series of steps designed to guide sales activities toward closing deals, enabling sales reps to succeed consistently. It provides a clear roadmap and ensures that every team member knows their role and the actions needed at each stage. 

If the team already has a defined sales process, it should align with the pipeline stages. If not, developing the sales process while building each pipeline stage can help create a well-integrated system. This alignment ensures that sales efforts are efficient and effective, leading to better outcomes.

3. Revenue goals

A lead pipeline helps sales reps achieve revenue goals by organizing and prioritizing their efforts, so clear goals are essential for designing an effective pipeline. A clear understanding of conversion rates allows sales managers to determine how many deals are needed at each pipeline stage to reach these goals. 

Knowing these conversion rates also aids in resource allocation and strategic planning. By setting specific, measurable, and time-bound revenue targets, sales reps can focus on the most profitable activities. Regularly tracking these goals ensures that adjustments can be made as necessary to stay on track.

4. Plan a meeting

A well-designed sales pipeline improves task management and tracking for both individuals and teams. It allows sales managers to assign and monitor tasks efficiently, ensuring everyone knows their responsibilities and deadlines.

Involving team members in the pipeline's creation ensures it becomes a more effective tool for collaboration, communication, and project management. This participatory approach fosters a sense of ownership and accountability, enhancing overall team performance and cohesion.

What are the stages of a sales pipeline?

It’s important to design a sales pipeline that works best for your business. However, any business that follows a typical B2B sales process is likely to have the following sales pipeline stages:

1. Lead generation

Before you can sell to them, potential customers need to know your business exists. There are many ways to generate leads for your business, including:

• Paid and non-paid campaigns on social media

• Research through online searches and LinkedIn

• Cold calling or cold emailing

• Inbound marketing strategies 

Typically, sales leaders create an ideal customer profile with certain parameters and try to reach prospects who fit this profile. 

Let's say you're running a digital marketing agency specializing in helping small businesses improve their online presence. Your goal is to find potential clients who are interested in your services. To generate leads, you might employ the following strategies:

Content marketing: Publish high-quality blog posts, videos, and infographics on topics like "Top 10 ways to boost your website traffic" to demonstrate expertise and provide value.

Opt-In offers: Offer free gated content, such as e-books or guides, in exchange for visitors’ contact information.

Email marketing: Distribute newsletters with insights, tips, and digital marketing updates, including CTAs, to explore your services or schedule a consultation.

Paid advertising: Use targeted online ads on platforms like Google Ads or social media, directing to landing pages for lead generation.

Referral programs: Create a referral program offering incentives for existing clients to refer new leads to your business.

Search engine optimization (SEO): Optimize website content with relevant keywords to improve visibility in search results, attracting organic leads.

Cold outreach: Directly contact potential leads through email or social media with personalized messages that reflect an understanding of their business needs.

2. Lead qualification

The process of qualifying a lead to find out if a potential customer will buy. This is a crucial step in the sales pipeline; you don’t want your salespeople wasting time and energy on a sales prospect who is unlikely to buy. To find the right buyer, you’ll need to find out a few things:

• Can your product solve the buyer’s pain points?

• Can your prospect afford your solution?

• Does your contact have purchasing power, or should you be talking to their boss?

A couple of the most common examples of lead qualification methods include lead scoring and the BANT framework (Budget, Authority, Need, Timeline):

Budget: You determine whether the lead has the financial capacity to purchase your software.

Authority: You find out if the lead has the authority to make purchasing decisions within their organization.

Need: You identify whether the lead's needs align with the features and benefits you offer.

Timeline: You inquire about the lead's timeline for implementing a new project management solution.

If the prospect isn’t a good fit, that’s ok. Move on to a prospect who is more likely to make a purchase.

3. Initiate contact

At this point in the sales process, the sales rep attempts to contact the lead to understand their needs better.

Depending on your lead generation methods, this can look different. Here are some examples: 

• Cold calling or emailing: After researching prospects on LinkedIn, your team may make contact with the most promising potential customers by calling, emailing, or messaging them on social media. 

• Warm calling or emailing: Using the information from inbound lead generation, your team contacts the prospects using information gathered when they sign up for a gated asset or webinar. 

The nurturing stage helps you map your business services against the lead’s needs, and it also serves as a way to start building the customer relationship. The nurturing process begins here.

4. Schedule a meeting or demo

After your initial conversation, if the customer is interested in your services, a sales rep might schedule a demo or a meeting with the primary decision-maker. These steps will help you move the prospect further down the sales pipeline.

Traditionally, this meant reps would travel to a prospect’s office to demo a product in person, but it’s much more common now for SaaS products to be demonstrated online. A product expert might also be on the call to answer technical questions about integrations and system requirements.

5. Negotiation

The lead has expressed interest, they’re a good fit, and the decision-maker is willing to purchase from you. Now, it’s time to negotiate the deal. During this stage, your team works out the details, including price, scope of services provided, conditions, and anything else that needs to happen to make the deal work for all parties. During this phase, you might connect the buyer with your technical team to work out software requirements, integrations, etc.

This step involves a conversation with a decision-maker who has the authority to make purchasing decisions. It may also involve working with a decision-maker on your end who can authorize deals, discounts, or other incentives. 

6. Closing the deal

This is what you’ve been working toward: the final stage in your sales process. It’s time for your rep to make the sale. 

If the customer isn’t yet ready to buy, don’t write them off just yet. Instead, mark them as ‘nurture’ and check back later. They may be ready in a few months.

7. Post-sales follow-up

Your organization’s work isn’t done after closing a sale. The focus shifts to ensuring customer satisfaction and laying the groundwork for future business. This stage includes activities such as onboarding the new customer and making follow-up calls to address any immediate customer concerns. Additionally, collecting feedback during this stage is crucial for improving future interactions between businesses and their customers.

These efforts not only help in resolving any initial problems customers may have but also demonstrate the commitment to customer success. By staying engaged with customers after the sale, sales teams can build stronger relationships, increase customer loyalty, and identify opportunities for future sales.

8. Customer retention

Customer retention focuses on maintaining and nurturing the relationship with customers after the initial sale is made. It's an important component of building long-term relationships that encourage repeat business and referrals. Effective customer retention strategies include providing ongoing support, implementing customer success programs, offering loyalty programs, and conducting regular check-ins to maintain engagement.

How to build a strong sales pipeline?

Step 1: Identify list of prospective buyers and stages

As a first step, consolidate all your potential customers into your sales pipeline, and place them in different deal stages, depending on where they are in the buyer’s journey.

• If a salesperson has sent out a promotional mailer to a prospect, that deal is in the initiate contact stage of your pipeline.

• If a prospect has requested a demo of your product, the deal is in the schedule demo stage.

• If a prospect has shown a willingness to buy, responded to your emails, met your salesperson, and is discussing the deal, it is in the negotiation stage.

Identifying which stage each deal is in helps you visually categorize your sales opportunities.

Step 2: Assign sales activities for each stage

Do you know which sales activities are likely to move your deals to the next stage of the pipeline?

Sales activities are the specific actions taken by your salespeople to make a sale. These include

• Sending emails

• Making calls

• Tracking email metrics

• Following up with a lead

Sales activities are most effective when they are done during a specific stage of the sales process, but many sales teams scatter their activities across different stages of the pipeline.

Organize your activities by assigning them to certain reps at different stages of the sales process. That way every salesperson knows exactly what they are supposed to be doing at every stage of a deal.

Step 3: Define sales cycle length 

Your sales pipeline is heavily dependent on your sales cycle and how quickly your salespeople close deals. The length of a sales cycle depends on a number of factors, and often varies based on the following factors:

• Complexity of the product: The more complex your product, the longer the sales cycle tends to be. With complex products, multiple people and teams are often involved in the sales process to help the prospect understand the product.

• Customization: If your product requires customization, the deal will likely take longer because your team will have to tailor the product to your customer’s requirements.

• Source of leads: What’s your sales strategy? If you rely on outbound sales techniques, like cold calling and email marketing, your sales cycle will typically be longer than a company that relies on inbound leads.

By fine-tuning your product delivery, lead sources, and sales engagement, you can control your average sales cycle length. 

Step 4: Decide ideal pipeline size

Knowing how many deals are in your pipeline (and finding the ideal pipeline size) is critical for achieving your sales targets and meeting your team’s revenue goals for the year.

You can determine your ideal pipeline size by working backward: figure out how many deals your team needs to close for the year to hit your target. Going after the target is not enough, as many deals rot over time, and may not convert to a sale. In fact, an estimated 24% of forecasted deals go dark.

This might look something like this:

• Your team needs five deals to close every month in order to hit your revenue targets.

• For every five deals your salespeople pursue in a month, a couple of deals may become stagnant over time or may fall through.

• Therefore, to realize your sales goals, your team should pursue about 7-8 deals every month instead of five. 

You can use that information to determine monthly or quarterly sales targets for all your salespeople by dividing quarterly revenue by average deal size.

Step 5: Remove stagnant deals from the pipeline

Unlike wine, deals don’t age well. As time passes, the likelihood of winning a deal diminishes, and the deal is likely to rot in your pipeline.

A pipeline full of rotten deals can distract your team from the opportunities that are likely to close. For this reason, you should keep track of the age of your deals; any stagnant deal that exceeds your sales cycle length should be on your radar. Check in with the prospect one last time, and then remove it from the pipeline.

This process will help you clean up your sales pipeline by getting rid of old deals that are unlikely to convert. It helps to have a CRM that automatically alerts your team to stagnating deals.

Step 6: Define your sales pipeline metrics 

Sales pipelines are great visual aids for sales managers to track and monitor their salespeople. 

However, pipelines constantly change. Monitoring sales pipeline metrics can help track the health of your pipeline. It will help you identify how many deals your team needs to bring in to meet targets and earn profits for the year..

What sales pipeline metrics should you track?

There are three different types of knowledge to gather:

Number of deals in pipeline

At any given time, you need visibility into the number of deals being pursued by your sales team. Knowing the number of deals in your pipeline gives you visibility into your team’s workload and a way to predict revenue.

Number of deals in pipeline = Number of qualified opportunities in the pipeline

Average deal value

Every lead in the pipeline is worth a certain amount of business. While a deal’s value may change over time, an approximate deal value will help predict revenue. 

Don’t just focus on the biggest deals. Focus on deals where the prospect shows interest in your product and is willing to invest. Sometimes, a series of small wins is more profitable than one big win.

Average deal value = Sum of value of all deals won/number of deals won

Average win rate

Many opportunities find their way into the sales funnel, but how many actually convert into a sale? Tracking the average win rate for your team and individual sales reps will help you gauge this metric. The win rate is an important tool for a sales manager; it will show you which salespeople need more support to improve their performance.

Average win rate = Qualified leads/opportunities

Conversion rate or lead to opportunity ratio

Opportunities may be won or lost, but is your sales team able to convert them into leads? This metric is a way of showing how hard your team is working to develop leads.

A word of caution, however: While opportunity conversion rate is a good metric to track, it might not give you the whole picture. If a salesperson is focused on bringing in new leads for next month, but their conversion rate for the current month is low, you may not realize how many valuable leads are in their pipeline. For this reason, conversion rate is a long-term metric, rather than a short-term one. 

Lead to opportunity ratio = Closed deals / total deals in pipeline

Sales cycle length

Sales cycle length refers to the amount of time it takes for a lead to move from initial contact to a sale.

For smaller deals, a typical B2B sales cycle is around three months. For larger and more substantial sales, a B2B sales cycle is more likely to fall between six and nine months.

Typically, your sales cycle length will be shorter if you’re selling to SMBs and longer if you’re selling to enterprises because of the number of gatekeepers and processes involved.

Pipeline value

The sum total of all deals in the sales pipeline refers to pipeline value. Pipeline value helps you predict revenue in the coming months and plan your bootstrap strategy. 

Pipeline value = Total value of all deals in the pipeline

How can you continually build on and improve your sales pipeline?

Evaluating and refining your sales pipeline by tracking key metrics like conversion rates, lead generation, and pipeline coverage is crucial for optimizing sales processes and identifying bottlenecks. This approach enables businesses to set realistic, measurable goals, providing a clear view of the sales journey from initial contact to conversion. 

Establishing benchmarks at each stage promotes team accountability and continuous improvement. It allows for the assessment of progress and necessary adjustments to tactics, ensuring the sales system operates efficiently.

A few key indicators to consider include:

Lead generation

Lead generation is crucial for identifying potential customers, and laying the groundwork for sales. Tracking lead generation metrics helps assess marketing effectiveness and sales funnel health. A discrepancy between lead generation and conversion rates may highlight a need for strategy adjustments due to low-quality leads. Exploring sales funnel examples can provide valuable insights into successful lead generation tactics and conversion strategies, guiding optimization efforts for better performance.

Deal progression

Deal progression involves moving opportunities through the sales process, with monitoring essential for understanding advancement and spotting hurdles. Metrics may indicate the need for pricing adjustments or more information to prevent deal stagnation, aiding in accurate sales forecasting and resource allocation.

Conversions

Conversion rate analysis across the sales pipeline highlights strengths and weaknesses, helping evaluate lead qualification efficiency. A drop-off at any stage suggests a bottleneck that needs to be resolved.

Pipeline coverage

Pipeline coverage, the ratio of opportunity value to sales targets, indicates the likelihood of meeting sales goals. Adequate coverage suggests sufficient opportunities for target achievement, while low coverage signals potential revenue shortfalls. This metric aids in revenue forecasting and assessing sales team performance.