What is a sales pipeline?
A sales pipeline is a visual representation of sales prospects and where they are in the purchasing process. Pipelines also provide an overview of a sales rep's account forecast and how close the rep is to making quota, as well as how close a sales team as a whole is to reaching quota. This enables sales reps and sales managers to forecast the number and dollar amounts of deals that will close in a time period.
A sales pipeline is represented visually as a horizontal or vertical bar and includes the different stages of a sales cycle. While the sales pipeline stages may vary depending on the industry being described, they usually include gathering sales leads. qualifying leads to identify likely customers, building relationships with potential customers and closing deals. The ultimate goal is to turn leads into customers.
A sales pipeline can be created using Excel or Google spreadsheets, customer relationship management (CRM) software and sales pipeline management software. Creating a visual representation of a pipeline is valuable for managing and optimizing the processes of a sales team. CRM functionality and tools and other software can also help automate certain sales tasks.
How do sales pipelines work?
A sales pipeline works by tracking the journey of an individual from sales lead to customer. It visualizes the lifecycle of various customer prospects, from initial interaction to deal close.
The sales pipeline can be broken down into the following six stages:
- Prospecting, or lead generation, which includes gathering new leads, projecting sales based on those leads and performing outreach to them. According to Gartner's 2021 "Improve Your Pipeline Generation Strategy" report, nearly half of chief sales officers surveyed consider accelerating early pipeline and lead generation to be their most critical initiative.
- Qualifying prospects into qualified leads. Online, such prospects are called marketing-qualified leads. This stage of the sales pipeline involves identifying which leads are likely to become new customers through lead scoring, a process which considers factors such as the needs and budget of a lead.
- Engaging with a lead to determine if there are enough common interests to begin building a relationship. This next stage often involves implementing email and social media campaigns, cold calling, creating strategic content such as webinars and making use of a salesperson's network.
- Building a relationship, or lead nurturing, to get to know a lead on a deeper level through scheduled meetings, product or service demos and price quotes. Leads that have entered this stage of the pipeline are considered sales-qualified leads and possible sales opportunities.
- Negotiating with the lead once they are ready to buy a product or service. This stage includes addressing questions and concerns from the potential customer and possibly compromising on price and service.
- Closing the deal to complete a deal, lose a deal or put a deal on hold. Putting a deal on hold often happens when a prospect still has purchase intent but is not ready to buy yet. In this case, company reps continue to foster the relationship.
How to measure the quality of a sales pipeline
The health of a sales pipeline is often measured by pipeline metrics. Tracking metrics such as the following lets sales team members identify areas of their sales process they may need to adjust:
- Number of deals in the pipeline. This metric is the total value of potential deals with leads in an organization's pipeline. It's used to predict revenue and identify whether a sales team is meeting its sales forecast.
- Conversion rate. This metric is also called the lead to opportunity ratio. It measures the percentage of potential leads that have become qualified leads with whom the company is pursuing deals. The conversion rate indicates whether a sales team is effective in lead qualification and engagement.
- Average deal size. This number reflects the average dollar value of the deals a sales team closes in a period of time. This metric enables companies to identify which products and services they are most effective at selling.
- Average win rate. This metric indicates how many leads are converting into customers. It's one of the most important in measuring the quality of a pipeline and can help managers assess the performance of individual salespeople and identify sales leaders.
- Sales velocity. This metric is also called sales cycle length. It is the average total time it takes a sales pipeline to convert a lead into a customer. Sales velocity can vary by product and service. It can also indicate whether there are bottlenecks in the pipeline.
How to build a sales pipeline
The five steps involved in building a sales pipeline are the following:
- Identify the target customers. The first step in any sales process is determining who the target customers are. This stage can involve market research, customer segmentation, understanding a customer's potential needs and pain points, and creating an ideal customer profile.
- Define the pipeline. Various metrics should be selected that are pertinent to the pipeline at issue. In most cases, the sales cycle length needs to be determined; it depends on the complexity and customization requirements of the product or service being sold. Forecasted sales targets are determined at this stage so a sales team can effectively plan their sales goals for a quarter. Also, the various stages of the pipeline are defined, including the activities a salesperson should expect to engage in as part of the sales process.
- Generate and qualify leads. This step involves identifying and targeting potential leads through email, social media, phone, existing networks and trade shows. Leads must be qualified to determine which ones are likely to buy a product or service. This involves using lead scoring best practices to assess potential customers' needs, interests and budgets.
- Identify where leads are in a pipeline. Engagement with a lead can result in anything from an immediate request for a demonstration, price quotes and negotiation or simply more information. What the leads ask for determines where they fit in the pipeline.
- Track pipeline metrics and performance. Sales pipelines are constantly changing. A successful one depends on careful tracking of its metrics and performance and adjusting the process as needed. For instance, not all leads convert into customers, and old and stagnant deals should be removed from the pipeline when it's determined they are unlikely to close. Stages of the pipeline should be refined, removed or even added. Finally, an accurate assessment of metrics such as conversion rate and sales velocity are crucial to projecting sales forecasts and identifying how many deals a team must close in a quarter.
How to maintain a sales pipeline
Maintaining a sales pipeline involves several key steps:
- Follow up with leads. Following up with leads is crucial to building strong relationships and increasing the chances that they become customers. A sales team should identify the most valuable leads to their business and ones that are most likely to convert. Managers should drop leads from the pipeline that are no longer moving from stage to stage. Strong customer analytics can help improve lead generation and engagement.
- Create a standardized sales process, and keep cycles short. It is important to clarify sales activities to sales teams and create a standardized process for them to follow. This helps avoid confusion, align salespeople on a common sales strategy and optimize their activity. It is important to keep the pipeline cycle as short as possible, as leads are more likely to lose interest in a purchase the longer the process lasts.
- Monitor, review and manage the pipeline. A pipeline can grow fast, and its effectiveness can change over time, depending on the particular leads and the state of the market. For a pipeline to remain effective, an organization must monitor the performance of key metrics and watch for problems and bottlenecks. CRM and sales pipeline software can help with these tasks.
- Build content. Building relevant marketing content is critical to attracting potential customers and nurturing leads. Some potential customers require more detailed information and content than others. Typical content provided to potential customers includes blogs, white papers and features that speak with independence and authority about a type of product or technology. As potential customers move further along in the sales pipeline, they might require content focused specifically on a company's own product or service.
Sales pipeline vs. sales funnel vs. sales flywheel
A sales pipeline is often compared to a sales funnel; however, they are different. A sales funnel is a funnel-shaped visualization of the buyer's journey from the discovery of a product or service to purchase. The funnel shape visually shows that only a small number of leads become customers.
Both pipelines and funnels are focused on converting leads into customers. However, sales funnels are concerned with the journey from the buyer's perspective, identifying what information potential buyers need at specific points along the way. The sales pipeline focuses on the process from the business's and marketer's point of view, identifying what they must do at specific points.
Sales funnels are frequently used to guide the creation of search engine-optimized content that attracts leads and converts them into customers. Marketing teams target the content they create at leads in specific parts of the sales funnel, targeting potential customers' interests at that point in their journey through the sales process.
Sales funnels are also often compared to sales flywheels. Unlike sales funnels, which are wide at the top, indicating the large amount of leads that do not become customers, the sales flywheel is designed to put customers at the center of the process. Flywheels focus on the customer experience and the fact that each part of the sales cycle feeds into the next part.
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