What Is a Sales Pipeline?
What Are the Benefits of Creating a Sales Pipeline?
Creating a sales pipeline for your company can provide valuable insights into the health of the sales team and the company as a whole. By examining where prospects are in the sales pipeline, sales reps can anticipate how many deals are likely to close in a given timeframe. When sales reps can quickly gauge if they are on target to meet their quota, they can take appropriate action by doubling down on sales or pulling back and getting ready for the next quarter.
A sales pipeline can effectively forecast future revenue based on the number of prospects at each stage in the sales process. Because a sales pipeline includes every deal that a sales team is working on, it provides a more comprehensive picture than a standard sales forecast that focuses only on deals that are expected to close soon. Companies that have a more complex sales process can benefit from a sales pipeline by being able to better monitor the progression of prospects in early stages like project planning and design creation.
A sales pipeline also helps to create a standardized sales process by providing clear action steps for salespeople for every stage of the sales process. When sales reps have a clear follow-up action for each step, potential customers are less likely to slip through the cracks. Creating a standardized sales process may also lead to revenue growth for your business — according to a survey by the Harvard Business Review, B2B companies with a formal and defined sales process experienced 18 percent greater revenue growth than those that did not.
By using a sales pipeline to manage your company’s sales opportunities, you can boost your revenue, improve your sales process and identify areas for growth in your business.
How to Build a Sales Pipeline
1. Define the Steps of Your Unique Sales Process
The first step for building a sales pipeline is to identify the steps of your company’s sales process. If your company sells a complex or highly customized product, your sales pipeline may be longer and involve numerous steps. Companies selling simpler products may have a shorter and more streamlined sales process.
Although your sales process may be similar to other companies in your industry, it is still best to create your own sales pipeline rather than relying on a template. This ensures you do not miss any crucial steps in your unique sales process.
When defining the steps of your sales process, focus on the customer’s buying experience rather than looking at it from a seller’s perspective. Consider the actions that indicate a prospect is moving closer to purchasing from your company. For example, when a customer schedules a follow-up meeting or requests a customized demo, this indicates a greater commitment to your company and increased interest in your product.
An effective sales pipeline will mirror your customer’s purchasing process and provide action steps for sales reps at each stage. Here are the typical sales pipeline stages that can be adapted to match the sales process of your company:
- Prospecting: For companies that offer more complex products or solutions, their sales pipeline will typically begin with prospecting for potential customers who qualify for their services. Companies may develop an ideal customer profile (ICP) to determine the characteristics they are looking for in their clients. An ICP can include a variety of characteristics such as company size, what industry a company is in, the location of the company and what problem they are trying to solve.
- Initial connection: After identifying potential customers, the next step is to connect with them. For companies that do not prospect, the buyer may be the one that initiates the interaction rather than the salesperson. This initial connection may take the form of an email, phone call, online form submission, subscription or content download.
- Follow-up scheduled: The customer has already expressed some interest in your product and now agrees to schedule a follow-up meeting or phone call for more information. By scheduling a follow-up, the customer shows that they are ready to discuss the next steps and that they view your product as a possible solution to their problem.
- Follow-up completed: If the customer is seriously interested in your product or services, they will show up at the follow-up meeting and confirm their next step in the buying process. During this encounter, your sales team should provide any critical technical information and give a clear demonstration of how your product works to meet the customer’s needs. At this stage, the customer should understand your products and services as well as the value that your company offers.
- Solution proposed: If a prospect decides that your product is a good match for their needs, the next step is to create a proposal or draw up a contract for your services. At this stage, it can be tempting to believe that the sale is already won. However, the prospect is still in the determination phase and may back out of the deal for many reasons — the prospect may not receive approval from a higher up, may choose to prioritize a different project or may go with your competitor instead. By anticipating these barriers to conversion, smart sales reps can create a proposal that is impossible to refuse.
- Proposal sent: After the sales rep has crafted an irresistible proposal, it can be sent to the prospect for review. During the review period, the sales rep should remain available to answer any questions the customer has. Your sales pipeline may also include periodic follow-up calls to check in with the prospect as they review your contract or proposal.
- The decision received: The last step for closing the deal is receiving a final decision from the prospect. After the customer signs the contract or agrees to the proposal, your company can begin production or provide your services. At this stage, the customer does not require any more contact with the sales team, and the sales process is complete.
2. Determine the Conversion Rate of Each Stage
Once you have defined the stages of your sales process, the next step is to identify the conversion rate of each step. Even in the most effective sales pipelines, some customers are lost at each stage. The highest percentage of customer drop-off will typically occur in the early stages when customers are still researching possible solutions to their problem. At the later deliberation stages, a higher percentage of potential customers will follow through to make a purchase.
To determine the conversion rate of your sales pipeline, calculate the number of prospects that typically continue to the next step and divide it by the number of prospects that entered that step.
For example, if a company connects with 200 customers and 50 of those customers request a product demo, this means their conversion rate for initial customer connections is just 25 percent. Out of the 50 customers that request a demo, 25 continue to the negotiation phase — resulting in a 50 percent conversion rate for that sales process step. In the final negotiation phase when customers have received a project proposal or contract for review, the conversion rate may rise to 90 percent. This means that out of the initial 200 connections, about 23 of those prospects will complete a purchase.
By determining the percentage of prospects that convert at each step of your sales process, you can then determine how many prospects will need to enter your sales pipeline for you to meet your revenue goals.
3. Calculate How Many Prospects You Need to Meet Your Goals
Using the conversion rates you calculated for each step in your sales pipeline, work backward from your target revenue goals to determine the number of initial prospects you need to meet your quota. Begin with your target revenue for a given time period and divide it by the average size of a deal. This will tell you how many deals you will need to close during that period to meet your target.
Take this target number of deals and divide it by the conversion rate of the last step of your sales pipeline. Work backward through each stage to find the total number of prospects you will need to engage at the beginning of your sales pipeline to meet your final target revenue.
For example, let’s say that the company in the previous example needs to close 180 deals to meet their quota. Because their sales team has about a 90 percent conversion rate in the final negotiation stage, they will need 200 prospects to enter the negotiation stage. The conversion rate for customers who receive a product demo is 50 percent, so 400 prospects will need to enter that step of the sales process. Because just 25 percent of initial customer connections lead to a request for a demo, the company will need to connect with 1,600 customers to meet their target revenue goal.
Once you have determined the total number of prospects that you need to enter your pipeline each period, divide this by the number of sales reps on your team to determine how many connections each salesperson must make. Keep in mind that different sales reps may have different conversion rates at each stage and some salespeople may perform better than others. A salesperson who is poor at prospecting but excellent at closing will need to make more initial connections to meet their quota. Leave some wiggle room when setting goals for each stage of the sales pipeline so you can meet or exceed your target revenue each quarter.
4. Adjust Your Sales Process If Necessary
After you have defined your sales pipeline and established goals for each stage, you can begin looking at ways to improve your sales process and boost revenue. If your sales pipeline analysis revealed that your sales team needs to make more initial connections to meet your revenue goals, consider ways you can reach more customers through marketing or prospecting. If you noticed that a high percentage of customers drop off after their first follow-up meeting, ask if there are ways to improve your sales strategy to boost that conversion rate.
Pay attention to which actions typically lead to conversions and make these a part of your standardized sales strategy. For example, you may observe that a salesperson who sends follow-up emails after initial client meetings has a higher conversion rate than a sales rep who does not. You can then include sending a follow-up email as a step in your sales pipeline to improve your overall conversion rate.
Common Sales Pipeline Mistakes
- Forgetting to prospect: If your company is receiving a lot of business and your sales team has several deals in the sales pipeline that are about to close, it can be easy to neglect prospecting. However, forgetting to prospect means that your sales may plummet next quarter when there are not enough new prospects entering the sales pipeline.
- Losing leads: If your sales pipeline does not include standardized follow-up processes, leads can easily slip through the cracks. When sales reps focus on closing deals, they may forget to send follow-up emails to schedule meetings with new prospects.
- Pursuing the wrong leads: Your company’s sales can also suffer if sales reps spend too much time chasing after prospects that are not likely to convert. If sales reps pursue the wrong leads — such as clients who do not match the company’s ideal customer profile — they waste time that could have been spent prospecting new clients or tending to customers that are a better fit for your company.
- Letting your pipeline get messy: When a sales rep disqualifies a potential prospect or a prospect stops responding to follow-up emails, those prospects should be removed from the pipeline. A pipeline that is cluttered with stale deals can lead to inaccurate sales forecasts and missed revenue goals.
- Trying to “fast-track” sales: If sales reps are behind on meeting their quota, it can be tempting to try to move prospects through the sales pipeline more quickly by skipping steps in the sales process like demos or meetings. However, trying to fast-track customers often leads to lost deals or an even longer sales cycle when the salesperson must go back to perform demonstrations that were skipped the first time.
How to Manage a Sales Pipeline
1. Keep Your Sales Pipeline Updated
2. Set Follow-up Standards
Sales reps should always have a clear and actionable follow-up step for each stage of the sales process. Your follow-up standards could include a certain number of interactions that sales reps should have with clients each month or a time frame in which they should respond to emails or calls. Establishing follow-up standards prevents prospects from getting lost in the mix and ensures valuable sales opportunities are not missed.
When using a sales pipeline as part of your CRM system, you can set up reminders or alerts that notify sales reps when it is time to reach out to a certain client. Your CRM software also makes it easy to see when you last interacted with a customer and view details about that interaction.
3. Establish a Stable or Growing Pipeline
Failing to prospect is one of the most common problems in sales pipeline management and can lead to missed quotas and lost revenue. According to data from Hubspot, 72 percent of companies that received less than 50 new sales opportunities each month did not achieve their revenue goals. On the other hand, only four percent of companies that received 51 to 100 opportunities failed to hit their target revenue goals.
To maintain a healthy sales pipeline, aim to keep the early stages of your pipeline full of potential customers at all times. If you have a lot of prospects who are reviewing proposals or testing out product demos, continue prospecting in the meantime while you wait to close those deals. Your sales pipeline should always be stable or growing as you add new opportunities to your sales cycle.
4. Focus on Customers Most Likely to Convert
5. Keep Your Pipeline Clean
Instead of wasting time pursuing prospects that are not likely to result in a sale, keep your pipeline clean by periodically removing dead leads. When reviewing your sales pipeline, look for any customers who have not responded to your last follow-up message, have expressed that they are no longer interested in your product or have been lingering in a single process step for a long time. If you are uncertain of the status of a certain prospect, reach out to them one more time before removing them from the pipeline.
Keeping your pipeline clean allows your sales team to quickly assess what work needs to be done and focus on the opportunities that matter most.
6. Monitor Key Sales Metrics
- The number of opportunities in the pipeline
- The average size of deals in the pipeline
- The total value of opportunities in the pipeline
- The average time it takes a prospect to move through the pipeline
- The conversion rates of each sales process step and the entire pipeline
7. Take Steps to Improve Your Pipeline
Streamline Your Sales Pipeline Management With CRM Software From Pipeline CRM
An effective sales pipeline allows your sales team to track the progression of sales opportunities and take actions to improve conversion rates. Using CRM software to manage your sales pipeline makes it even easier to organize and manage all of your current prospects. Pipeline CRM offers streamlined and simplified sales pipeline management as a part of our CRM software to help you grow your business and increase your company’s revenue.
Our sales pipeline management software allows your company to manage multiple sales pipelines, view key sales metrics and keep track of details of each deal your sales team is working on. With real-time status updates and straightforward visual reporting, Pipeline CRM provides effective sales pipeline management for your business. Contact us for more information about our CRM software or start your free trial today to experience the benefits of choosing Pipeline CRM for your sales pipeline management software.