Sales Pipeline or Sales Lifeline?
A thoroughly planned sales process is an asset that every small business needs to survive. Without a defined set of steps for bringing initial contacts to the level of satisfied clients, there is a high likelihood of business failure due to disorganized sales resulting in lost revenue. Companies that have established these steps, however, still rely on a slightly modified version of their sales process in order to be successful and efficient— the sales pipeline.
Most business have at least heard of the sales pipeline, but many do not fully understand what it entails or how to use it properly. While the sales process delineates the necessary actions and measures that must occur in the stages of identifying contacts, qualifying leads, communicating with prospects, and converting them to clients, the sales pipeline assigns quantitative values to each step in order to create a systematic selling approach. Basically, the pipeline represents the amount of business a company attempts to close in a given period of time, such as a month, a quarter, or a year.
A sales pipeline takes into account four essential metrics per stage: number of deals, average size of a deal, average percentage of deals converting to the next stage, and average time a deal stays in the stage. The logic behind these metrics is that the combination of more open deals, increased deal size, higher conversation rates, and improved sales velocity will generate a larger amount of revenue and profit. After enough data has been compiled to analyze these metrics, a visual representation of the sales pipeline itself can be created.
One reason businesses underestimate the importance of having a sales pipeline is that they do not recognize its long-term benefits. In an immediate sense, the sales pipeline is useful for approximating how many upcoming sales will be closed, but it can also be a powerful aid in sales forecasting. Forecasting sales for months, quarters, and even years into the future provides information that is crucial for designating how a company's resources will be allotted.
Accurately predicting client metrics can help a business to stay sufficiently staffed during surges and pauses of client activity, as well as to maintain adequate levels of raw material and inventory according to client demand. With no sales pipeline in place, a company is left assembling sales forecasts from the patchwork guesses of their sales personnel. This lack of hard data frequently results in hit or miss sales tactics that carry the potential for bankrupting a business.
These guesses can even extend to the individual stages within the sales process. It is inevitable that some leads and prospects will leak from the sales cycle on the way to becoming clients, but businesses that do not have a sales pipeline usually remain clueless as to where in the cycle client loss is happening. A company whose revenue is too low, for example, might conclude that more deals must need to be closed in order to produce more revenue. This company then begins to train their staff specifically in closing deals, only to find that revenue does not markedly increase.
Had the company been utilizing a sales pipeline, it would have discovered upon analysis that the number of deals being closed by their staff was on par with their sales goals, while the amount of leads being generated was deficient. Corrective action could then be taken by training staff in how to open deals, thereby fixing the leak in the pipeline and increasing revenue.
With such weighty advantages of the sales pipeline, no business should shy away from creating one. It is not a difficult task once the appropriate amount of data is collected. To begin developing a sales pipeline, all of the steps in the sales process should be recorded; however, only the most important actions that lead to a client making a purchase should be included in the pipeline. The ideal number of stages is considered to be around four or five. Any greater amount actually has counter-productive effects. Having a lean sales pipeline is essential to being able to quickly and easily analyze data. The basic pipeline structure of companies across all industries tends to be some variation of the following five-stage model: initial contact, qualification, meeting, proposal, and close.
Once the stages have been defined, probability of closure should be calculated for each. It is the likelihood in percentage that a prospect in a certain sales step will move on to the next one. The calculations will come from a company's sales experience. If, for example, a business must make 10 calls to initial contacts in order to qualify 1 lead, that means 10% of initial contacts reach step two of the sales pipeline. On average, the probabilities of closure for the five-stage model pipeline are as follows: initial contact (0%), qualification (10%), meeting (30%), proposal (60%), and close (100%).
Every prospect in a pipeline is an opportunity, or a potential sale, and every opportunity has its own value. By devising an average opportunity value, a sales pipeline can be weighted. The weighted target of a pipeline is equal to the sum of the total opportunity value in each sales step multiplied by the probability of closure for that step. Assuming the average value of opportunity in the model pipeline is $1,000, that means 20 opportunities in the qualification step have a weighted value of $2,000.
Weighted targets can relay valuable sales information. Suppose that a company using the model pipeline has a weighted target of $10,000. In order to make quota, it is reasonable to have 3-4 times more opportunity value in the pipeline than the actual sales goal. If this company's sales goal is $5,000, they should have a minimum weighted target of $15,000. Since the actual weighed target value is only twice the sales goal, more prospecting is needed.
Additionally, monitoring individual metrics, especially time, from stage to stage is important for garnering actionable information about areas in a sales pipeline that could be improved. If it takes more days for a deal to be closed than for a contact to qualify into a lead, then it becomes apparent that staff should be instructed on deal closing skills. On the other hand, if almost all meetings produce a successful proposal but not many leads agree to meetings, then more attention should be paid to follow-ups.
After the creation and initial management of the sales pipeline, it is imperative to handle the specific steps of the sales process well in order for the pipeline to function. A critical area is proper communication with contacts. Once a conversation with a prospect has taken place, qualifying them as a lead, there are a few questions to ask before setting up a meeting.
Primarily, it is necessary to confirm whether or not a lead has the authority to make purchases, since key executives frequently make purchasing decisions. A good salesperson ensures that they are either speaking to the decision maker or will be connected to the decision maker, rather than waste time by courting a lead that turns out to be the wrong kind of contact.
Blunt questions are frowned upon, and awkward conversation about the subject of decision making can be circumvented by toning down the approach. A competent salesperson lets a lead know that his company needs executive approval for large expenditures and stays on this topic by asking the lead if this is also their company's policy.
After identifying the decision maker, questions about the size of the sale can be asked with subtlety. Sensitive topics such as how much money the lead plans to spend and how long it will take them to close the sale must be discussed through hinting. To get a sense of a lead's budget and time frame, a salesperson might ask about similar past purchases and evaluate the lead's level of urgency.
The follow-through process is highly crucial to speeding along the closing of a deal. Appointments with interested prospects should be scheduled as soon as possible, and any requests for information should be promptly answered. It is generally recommended to call or email a day before an appointment as a reminder, and if the prospect is not serious, they have a chance to cancel before a salesperson wastes time on a hopeless deal. All follow-up actions taken with a prospect should be fully documented in CRM, with a description and date of completion, for future use.
This process does not end directly after a meeting. To convince prospects who are slow to make up their minds, subtle methods of persuasion should be employed to bring about a proposal and deal close. Many companies find success with freemiums, or small, no-obligation gifts to prospects. Whitepapers and free advice offering industry-specific or product-specific tips and tricks are excellent ways to accomplish this. Free trials and demos work just as well for this purpose, since giving prospects an opportunity to use a product or service will make them more likely to actually purchase it.
With the abundance of pipeline management software and sales reporting applications on the market today, there is no validity in not having a sales pipeline. The in-depth analysis of multiple pipeline metrics assists in spotting areas for enhancement like no other business strategy can. Locating and bettering these areas is a major factor in improving conversion rates, and even incremental increases of 1-2% can have a dramatic effect on sales. Stabilizing the sales cycle by providing more reliable results and accurate future predictions truly makes the sales pipeline a sales lifeline.
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