What is a sales pipeline? Here’s everything you need to know

Getting a customer, for most of us, isn’t a one step process. It’s different for all types of businesses.

So then, what is a sales pipeline?

what is a sales pipeline

If you were to draw a map of the stages that your prospects go through — from the time they first hear about your company through consideration, talking to a sales person, reviewing a proposal, negotiation or contract review, and finally (some of them) buy — that process is what a sales pipeline is for you. A sales pipeline is all the people currently, and actively, considering buying your product or using your services.

In order to manage your sales pipeline, we need to get potential buyers to identify themselves. Sometimes we find out they are interested when they fill out a form to download our sales information. Other times, we don’t know they are “in” the pipeline until they contact a sales person! The earlier in their sales journey we can get them to identify themselves to us, the better we are able to manage the process. What offers can you make that will get your prospects to identify themselves earlier in the sales pipeline?

Managing the sales pipeline

At each stage of the sales pipeline (awareness, consideration, sales presentation, proposal, negotiation) some prospects drop out. For example, if we deliver 10 proposals in a month, and 5 of them ultimately buy, we have a 50% conversion rate from proposals to sales. If you measure from consideration all the way through to sales, you might convert 1% – 2% of your prospects into sales.

That closing ratio will vary by a number of factors, including the type of prospect, the sales person delivering the presentation, the lead source, etc. Looking carefully at all the variables will give you information to optimize your sales pipeline. If your sales team spends more time working on the sales leads that have a higher conversion rate, then your sales will increase!

For example, if we see that we convert more proposals from bigger companies than we do from smaller companies, we know we need to prioritize big company leads! When sales slow (or accelerate) we can go back to our pipeline and try to diagnose. Are we getting fewer leads? Are leads not turning into presentations?

Tracking these stages helps us to identify what might be going wrong, and focus our efforts to fix it.

Using the sales pipeline to forecast sales

The sales pipeline also helps us to forecast sales. Over time, we may learn that 20% of people who download our sales brochure ultimately request a sales presentation; and out of those, 40% request a proposal, and then half of those buy. Now we can see the future!

Working with these numbers, we know that if we get 100 brochure downloads, we can forecast 4 sales. When we track the prospects in our pipeline, we can “see” sales coming before they happen. Knowing what’s coming puts us in a better place to prepare for it. We can make sure we have the capacity and the inventory to meet the demand.

A sales pipeline report tracks each lead and identifies what stage the lead is in. According to the stage, we can know the likelihood of closing for each deal. If we know the approximate value of each deal, we can forecast the value of the sales in our pipeline.

The sales pipeline is a report that you should be able to get out of your CRM system (if you have one); or it could just be kept by your sales team in a spreadsheet. It’s important that you review it regularly to make sure there aren’t any deals that are “stuck” at one stage. When leads get stuck for too long, the likelihood that they will close decreases. Eventually, you just need to take them off the report.

Once you create the sales pipeline report, it’s easy for the sales people to see the deals that they should be focusing on; they just need to move each prospect to the next stage in the buying cycle.

But don’t forget, the best way to increase your sales is to add new leads. Once a lead is in the pipeline, you need to make sure your team works it diligently, even though–unless your process or lead sources have changed–you should already know what percentage of those leads will close. If you want more sales, do more prospecting!

What does your sales pipeline look like? How do you keep track of it?

Not sure where to start? This Sales Pipeline Report Template will help you build your own. Click below to download!

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Brad Farris

As principal advisor of Anchor Advisors, Brad Farris has experience leading businesses & business owners into new levels of growth and success. Through his work with over 100 Chicago area small businesses he has experience in guiding founders and business owners through the pitfalls and joys of growing their business. Prior to joining Anchor Advisors, Brad spent over 10 years managing business units for a family-owned conglomerate with sales of $2 million to $25 million.  When he's not working, Brad enjoys cycling, cooking and the NFL. He is married with 5 children and lives in Chicago, Illinois. Connect with him on Google+, Twitter and LinkedIn.

Comments

  1. How would you integrate sales pipeline with the supply chain?

    • Martin;

      Many manufacturing companies will use the sales pipeline to influence how much finished goods inventory they want to keep (which influences what gets bought).

      This requires some “learning” as sales people can be a little “optimistic” so the pipeline needs to be kept “real” if you are feeding it into your MRP — but we’d be crazy not to look at it at all.

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