A robust sales pipeline filled with qualified opportunities is one of the most important indicators of sales success. In my many years of working with sales teams, one of the most revealing weaknesses I’ve encountered when it comes to sales goal achievement is a lack of sufficient opportunities in the pipeline. But there’s more.
So, how healthy is your pipeline right now? And what steps are you taking to progressively improve its well-being? Just as your own doctor might measure your body temperature, heart rate and blood pressure before putting you on a personal fitness program, a pipeline doctor before coming up with their diagnosis would want to understand your:
- total pipeline value based on average closing ratio (win rate),
- qualifying factors to ensure the health of those deals, and
- average sales cycle time
Improving any one factor brings obvious benefits, but methodically improving all three factors has a huge impact on your sales performance and could dramatically improve your revenue predictability.
If you’re not regularly measuring and reviewing all three sales pipeline metrics at every level in your sales organization – from each individual salesperson through to the whole sales team – you’ll have a harder time identifying your performance bottlenecks to help your salespeople improve, as well as best practices which if shared with the whole team could improve everyone’s overall sales performance and therefore goal attainment. Together they represent the essential pipeline success formula. Let’s break this down.
Total Pipeline Value Based on Average Closing Ratio
Sales success is largely due to a salesperson working on enough of the right activity; however, what do we mean by “enough” (we’ll cover the “right” activity in the next section).Well, that’s where the pipeline “multiplier” comes in to play. It’s a concept I developed to help salespeople to know if they are working on enough deals to hit their sales goal. And this multiplier is based on a salesperson’s closing ratio – how many deals they close out of the total number of deals they worked on. So as an example, if I worked on 3 deals and one of them closed, then my closing ratio is 33% and therefore I need 3 times my sales goal in my pipeline to be successful at achieving my goal. Now of course, this 1 in 3 ratio would need to be my ongoing average pattern for it to be meaningful to my pipeline.
And since I rarely see a pipeline with enough activity for a salesperson to hit their sales goal, the sales manager needs to step up and help their team to understand this important concept.
And when it comes to tracking the closing ratio, there’s more. A sales team should be tracking all possible outcomes. In most B2B sales environments, there are at least four possible outcomes for a pipeline opportunity:
- you win the deal (champagne anyone?),
- a competitor wins the deal,
- the prospect decides to implement an internally developed solution,
- stalled or postponed,
- business turned down due to capacity or other issues, or
- the prospect decides to do nothing
You’ll miss an opportunity for incredibly valuable learning if you categorize the last three outcomes simply as “lost”. If you’re not evaluating the outcome of every opportunity into at least these four categories, I strongly suggest you start doing so today. You can also do this for recent deals lost as well.
Closing ratios are different depending on a lot of factors, which include, but are not limited to:
- the source of the lead (hot referral vs. cold call),
- the skill of the salesperson,
- the experience/background of the salesperson, and
- how well-qualified the opportunity is.
Qualifying factors to ensure the health of deals
Having enough opportunities in the pipeline is one key element, however, having enough of the “right” deals is another. They key word here is qualified. Measuring pipeline value without imposing a company-wide universally agreed definition of what a qualified sales opportunity should look like will simply generate misleading, unhelpful and ultimately useless data. And “leads” or “inquiries” don’t count – tracking the number of leads generated in the absence of a consistent quality standard tells you nothing and may even lead you to do more of the wrong thing.
You’ll need to craft qualification criteria unique to your business that address the specifics of your offering and your markets. Some general criteria can include, but are not limited to:
- Have you uncovered a clear need that your company can address to make an impact on how this prospect’s business operates?
- Are you dealing with the decision makers?
- Are they likely to buy at this time?
- Do you know if you have a reasonable chance of winning the business?
- Did you ask if they have a budget for your offering?
- Is this an ideal customer for you – do they fit in your company’s sweet spot?
Once you’ve developed your company’s unique qualifying criteria, the answers to these questions become a sort of filter that your salespeople can run each opportunity through to ensure they are all good deals.
Average Sales Cycle Time
Most sales managers would acknowledge that the longer a deal hangs around in the pipeline, stuck at its current stage, the less likely the prospect is to buy. Sales cycle time– the amount of time it takes for an opportunity to move from start to finish, and from stage to stage – is therefore another incredibly important predictor of sales success. And if you can shorten your average sales cycles, you have the capacity – without increasing your resources – to sell more.
Be sure your CRM can track and report on how long each deal has spent at each stage and then generate an exception report when opportunities have been stuck for too long than the typical time taken for winning deals to progress. If you’re not measuring or reporting on this, do something about it today. In fact, if your current CRM system can’t provide it, I would seriously think of changing it. It’s that important.
Measure at Every Level
My final recommendation is that you measure these three metrics at every level within your sales team, as well as analyzing outcomes by source of opportunity. The source of business (marketing campaign, LinkedIn outreach, cold call, referral, etc.) has a huge impact on a salesperson’s closing ratio. When you look at his data, you’ll likely notice that referrals generate the highest closing ratio, and often quickest sales.
Cold calling, which may be a necessary strategy to increase the number of leads coming in, typically result in the lowest closing ratio and can take the longest time to close. Knowing the source of leads will help you to know how much of each type of activity the salespeople should be engaging in.