What is sales pipeline management and how to build one for your business
A sales management system is pivotal for your business. While sales management focuses on the application of sales operations, techniques and processes to meet sales objectives, sales pipeline management focuses on one key element—the sales process. A sales process defines the way you sell to customers, and pipelines help you break down the opportunity into stages.
Staying on top of opportunities requires some sales efforts—following up with prospects, setting up meetings, creating tasks, etc.—so you can successfully win those opportunities and not lose track. This is where you’ll learn why the sales pipeline is significant for success of your sales department.
The definition of a sales pipeline
Sales pipeline is a visual representation of where your opportunities are in the sales process broken down by stages. It outlines the series of actions your sales rep should perform to convert a prospect into your customer.
The progress of opportunities through your sales pipeline differs from opportunity to opportunity. It depends on how interested the prospect is in your services, their sense of urgency to purchase, their budget challenges, etc. Sometimes, there could be prospects who’ll skip certain stages of the sales pipeline. For example, if your prospect has good knowledge of your services and is already prepared to buy, then you can get down to the nitty-gritty and move the opportunity to the final stage of your pipeline.
The probability of an opportunity closing depends on the outcome of each stage of the sales pipeline. The success of closing is based on the effectiveness of the sales rep and the subsequent actions the prospect takes. For better sales pipeline management, businesses use CRM system to track the progress of opportunities, remind sales reps to follow-up, automate sales actions, and overall to help maintain a well-organized pipeline.
What is the difference between sales pipeline and sales forecast?
It is very common to confuse sales pipeline with sales forecast. The pipeline includes all opportunities handled by a sales team. Sales forecast, on the other hand, is a calculation of the potential opportunities that will close during a specified period in the future.
The two also serve different purposes. As a sales representative, you use your sales pipeline to track the progress of opportunities, and to determine the appropriate actions you must take to close the sale.
As for sales forecast, managers use it to get an estimate of how many opportunities the sales team will close in a time period—weekly, monthly, etc. For example, if the sales forecast predicts that your expected sales do not meet your sales goals for the period, then you can identify the reasons why and get your team on track to meet targets. But if your team is on its way to meeting or even exceeding targets, then motivate them to close the opportunities successfully.
What is the difference between a sales pipeline and a sales funnel?
People often say “sales pipeline” when they imply “sales funnel”, and vice versa. The two terms are often misused, and their meanings misinterpreted.
Sales funnel is a representation of the journey prospects go through before they become paying customers. The sales pipeline represents opportunities, whereas the sales funnel prospects.
The concept of the sales funnel is to attract a large number of prospects to convert a good number of them into customers. If you look at this from the point of a sales pipeline—to have a lot of opportunities making it to the end of the pipeline you must have a larger number of opportunities to begin with. For instance, for a sales team to close 100 opportunities, you must have at least 300 prospects to pursue. Because not all prospects who enter your sales funnel will travel to the bottom of the funnel and ideally convert into customers.
The most successful sales managers and sales reps have a ratio of prospects to closed deals between 1.25x and 1.5x. This is where lead generation comes to play.
How do you build a sales pipeline?
There are a few basic steps you can follow to build a sales pipeline. They are outlined below:
- You should begin by having a clear definition of the stages of your sales process, including a comprehensive definition of your sales cycle.
- You should an estimate of the number of leads that typically make it from one stage to another during a sales cycle.
- You should then try to work backward to come up with the number of opportunities you need at each stage of your sales process if you want to meet your sales objectives.
- You should take stock of what all the converting prospects have in common at every stage. This includes the actions you take as a sales rep and also the responses given by the prospect.
- You should create a sales process that is tailored to these statistics and actions for optimal results.
Now, you’re probably wondering how to build a sales pipeline. There is no one answer to this question because it depends on several factors related to your business and prospects. Like, the product your business sells or your buyer persona to determine your sales pipeline stages.
The stages of a sales pipeline
The best way to define your sales pipeline stages is to come up with a template suited to your business model. Because a prospect’s journey through the sales process is unique from a seller’s perspective.
Before we dive into how to define your sales pipeline stages, let’s see what the buyer’s journey entails.
- An awareness of the product – The buyer learns that they have a need for the product.
- A consideration of the situation – The buyer develops criteria for their needs to match the seller’s services for their evaluation. This is the point where the potential for research first surfaces.
- The decision – The buyer finally has a concrete strategy on whether they will purchase the services to fulfill their needs. At this point, all they are doing is comparing the solutions offered by specific vendors, or within the same vendor.
Now, define your sales pipeline stages aligned with your sales process. Your pipeline might have the stages outlined below:
- Initial contact – This is the point where the prospect decides to engage with your company. It could be something as simple as reading an email from your company, or something as engaging as downloading content from your website.
- Meet – At this stage, the prospect agrees to meet a representative from your company. This is where the prospect learns more about your company.
- Propose solutions – The prospect receives a presentation and demo of your solution where you focus on helping them overcome their business challenges.
- Negotiate and close– This is the stage where you send a proposal or contract to the prospect, and try to win the opportunity.
If your selling process is complicated, you should expect the sales cycle to be longer and the pipeline to have more stages. The above pipeline example is for a fairly straightforward selling process.
How to monitor your sales pipeline
It is important to know how long an opportunity lingers in each stage of your sales process. This includes all opportunities (won and lost). CRM system helps you analyze which stages are crucial to winning an opportunity, and thereby allow sales reps to focus their efforts accordingly. Retrieving this data from your CRM will help you better predict the likelihood of any given opportunity to close.
You should also be able to estimate the yield of every stage. This is the rate of conversion that you can expect from the stage. Once you have reliable percentages, it will be much easier to prepare period estimates and more accurate sales forecasts.
What is the ideal pipeline size?
Once you’ve done the groundwork, it should be easier to figure out how many prospects you need at each stage to meet your quotas. You should start with your target revenue per period and divide it by the average amount of your deals. This will give you an idea of how many deals you should close in the given period.
Your target number of deals should then be divided by your conversion rate for each stage, which will show you how many opportunities should reach that stage in the given period.
The idea is to keep your pipeline filled, your sales reps selling, and revenue generating.
Best sales pipelines practices
If you want to keep your pipeline functioning properly, follow these best practices:
1. Don’t let your sales pipeline shrink
Many reps hate the job of prospecting. As a result, they fall into what’s called a “sales trap.”
When your business is generating a lot of good leads and your sales team likely to hit targets, sales reps become complacent and stop prospecting for the future period. Soon, they face a barren pipeline and no opportunities left to pursue.
To avoid this, make sure your sales reps continually prospect, and your sales pipeline is continuously growing.
2. Don’t lose your prospects
If your follow-up process isn’t well established, you will eventually lose prospects. That’s money slipping through the cracks. Your team should have a proper lead management system in place to contact them on time, engaging them with educational content, etc.
When you’re consistent with your follow-up strategy, you can maintain healthy pipelines and know when to disqualify prospects.
3. Don’t let your sales pipeline rot
It’s important to clean up your sales pipeline every once in a while to ensure you don’t get wildly inaccurate sales forecasts. Sales forecasts typically use the stage at which an opportunity is in to predict your winnings.
Consider a situation where you sent a proposal worth $4,000 to a prospect a month ago, and the prospect hasn’t replied to your emails or calls since then. This means your sales forecast will count that opportunity as potential revenue. Your sales forecast data will be off by that amount, and the gap will only continue to widen for as long as you don’t clean up the dead opportunities in your pipeline.
Here’s a quick checklist to keep your pipeline clean:
- Find out which prospects have lived in the pipeline longer than average. You can decide whether they should be removed or not based on your own judgment.
- Send prospects an email before you give up on them. That way you’ll get to know if they are still interested or not.
- Keep your data updated and accurate. Sometimes you may have to demote opportunities to a previous stage in the pipeline due to arising circumstances.
- Review your sales pipeline regularly to find prospects that have gone silent, or deals that haven’t progressed from their current stage for a very long time.
Ultimately, sales pipeline management is an active process, and your sales pipeline will only be as clean and effective as you keep it. It ensures that there is a system to your sales process and, over time, helps you drive your revenue.
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