David Ramos
With the idea of the sales pipeline, we sometimes use the metaphor of a funnel (wide at the top, narrow at the bottom) to monitor the sales process. At the top of the funnel you have “unqualified prospects” – the very many people who you think might need your product or service, but to whom you’ve never spoken. At the bottom of the funnel, many sales and delivery steps later, you have people who have received delivery of your product or service and have paid for it.
The metaphor of the funnel is used because people drop away at each stage of a long sales process. For example, many of your unqualified prospects may have existing suppliers with whom they’re very satisfied. Others may have needs which other competitors are better-placed to satisfy. Still others may love your products and services, but not have the budget to buy them.
Why Use a Pipeline?
By using the sales pipeline, and by quantifying the number of prospects at each stage of the process with proper metrics, you can predict the number of prospects who will, in time, become customers. It gives you visibility into future periods. In addition to this, by looking at the way in which these numbers change over time, you can spot problems in the sales pipeline and take corrective action early.
For example, if you spot that very few networking events have taken place in a month, you might expect that in a few months’ time, sales might dry up. Next month, you should make sure that more of those events are attended and more opportunities identified in the pipeline.
Use of the sales pipeline shows roadblocks and times of standstill, or if there are an insufficient number of opportunities’ at any stage. This knowledge allows you to determine where sales people should focus attention and efforts to keep sales at the desired level and to meet sales targets.
The pipeline can also point out where improvements need to be made within the sales process. These may be as simple as implementing additional sales training or ensuring that sales representatives put sufficient focus on all steps of the sales process.
For example, a manager might be pleased by the amount of early stage prospecting in the month, but might worry that there’s been a drop off in activity later in the sales process. In the next month, he or she might work with sales people to increase the effort put into solution development and negotiation.
Tip: If you’re to use sales pipeline reporting effectively, it’s a huge benefit to have an effective and properly maintained CRM package in place, with a prospect status and progression workflow in-built. Without this, reporting can be hard work and very time-consuming.
How to Use the Pipeline
The first stage in setting up sales pipeline reporting is to understand your sales process fully. While sales processes are often quite similar from company-to-company, there can be points of difference depending, for example, on the size of the order and the consequences to the client of making the wrong purchase decision. Brainstorm the sales process with your sales and marketing people to make sure that it is correct and comprehensive. Create a litmus test by which you will measure future and all opportunities entering the pipeline.
From this, identify the key sequential steps in the sales process, and from these, create status codes. Try to keep these to a reasonably small number – otherwise reporting will be arduous, and it will be difficult to see meaningful patterns within the data.
Next, classify your prospects by the status codes you’ve identified. (Again, this will be much easier if you have a CRM, and if people are disciplined about keeping this updated. Even better is if there’s a sales workflow in place, so that as key tasks are performed, status codes are updated automatically.)
Finally, work out the number of prospects of each status, yes I do mean key metrics by phase, and calculate the change since the last month.
Tip: As you build up a picture of your sales pipeline from month to month for several months, you’ll start to be able to see expected conversion rates from one stage of the process to the next.
By comparing these against the conversions other people are achieving, and comparing them against what you think you should be able to achieve, you can start to understand where you can improve your sales process. More than this, you can start making changes to the way you do things, and measuring the effects of these changes on conversion rates.
We recommend this analysis of the reports with metrics and coaching take place in a monthly review and planning (RAP) session. The objective of this RAP process is to provide your team with feedback on the areas that they are doing well—as well as the areas where they need to improve.
If salespeople understand that information makes them money through pinpoint training and coaching, improving their skills, getting them to comply with using the system and producing accurate data—even a handwritten or very basic spreadsheet system—isn’t an issue. Most salespeople want to sell more. They want to earn more. They want to excel. The pipeline is a tool to help them. For you as an organization, the key is to know that this tool gives you visibility into future periods and will allow you to refine your sales process.
About the Author: David C. Ramos is a consultant with Strategy Development, a management consulting firm specializing in sales strategy and process, advanced sales training, performance improvement strategies, (www.strategydevelopment.com). He can be contacted at ramos@strategydevelopment.com
