How healthy is your sales pipeline right now? And what steps are you taking to progressively improve its fitness? Just as your own doctor might measure your body temperature, heart rate and blood pressure before putting you on a personal fitness regime, a pipeline doctor would want to understand your qualified pipeline value, average sales velocity and average sales win rate - and how these factors had changed over time - before coming up with their diagnosis. Here’s why these three measures are so important…
There are three fundamental things you can do to improve your sales figures: you can generate more qualified sales opportunities, you can shorten your average sales cycles, and you can increase your average sales win rates. Improving any one factor brings obvious benefits. But methodically improving all three factors has a powerful multiplier effect on your sales performance - and could dramatically improve your revenue predictability.
Bottlenecks and Best Practice
But if you’re not regularly measuring and reviewing all three sales pipeline metrics at every level in your sales organisation - from each individual sales person through to the whole sales team - you’ll struggle to identify either where your most pressing performance bottlenecks lie or (and this is equally important) to identify pockets of best practice which if adopted more widely would enable you to systematically increase your overall sales performance and improve revenue management.
Value, Velocity and Win Rate
Proactive pipeline management involves paying particularly close attention to all three factors - value, velocity and win rate. Together they represent what we have come to regard as the essential pipeline success formula.
And just in case you wonder whether the effort is worthwhile, a series of studies have shown that organisations that take a data-driven approach to proactive pipeline management show significantly accelerated revenue growth compared to their peers.
Qualified Pipeline Value
The key word here is qualified. Measuring pipeline value without imposing a company-wide universally agreed definition of what a qualified sales opportunity ought to look like will simply generate misleading, unhelpful and ultimately useless data. And “leads” or “enquiries” 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 that address the specifics of your offering and your markets, but at minimum, a qualified sales opportunity must satisfy all of the following:
- Have they identified a clear need?
- Are they likely to buy something?
- Do we have a reasonable chance of winning?
- Would they make a good customer?
Sales Cycle Velocity
Most sales managers would acknowledge that the longer a deal hangs around in the pipeline, stuck at its current stage, the less likely they are to buy. Sales cycle velocity - the amount of time it takes for an opportunity to move from start to finish, and from stage to stage - is therefore an 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.
Given all of this, it always surprises me to see many CRM implementations that are still not set up to report on how long each deal has spent at each stage, or to throw up an exception report when opportunities have been stuck for 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.
Sales Win Rate
This seems like an obvious metric, but even here not all organisations track it with enough granularity to learn the significant lessons this metric can provide. You need to be tracking all possible outcomes. In most complex B2B sales environments, there are at least four:
- You win the deal
- A competitor wins the deal
- The prospect decides to implement an internally developed solution
- The prospect decides to do nothing
You’ll miss the opportunity for incredibly valuable learning if you categorise 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 - and that you retrospectively analyse recent sales outcomes.
Measure at Every Level
My final recommendation is that you measure these three metrics at every level within your organisation, as well as analysing outcomes by source of opportunity - including comparing different marketing campaigns. You’ll inevitably find outliers in both directions: poor performance that clearly needs to be corrected, and exceptional success that needs to be replicated.
In fact, the latter may provide some of the most valuable learning opportunities: where are you currently being most successful today, what can you learn from this, and how can you enable the rest of the organisation to embrace the winning habits you have identified?
Note: this is an updated version of an article first published in 2011. It's interesting to note how pipeline accuracy remains an issue for so many organisations even today.