Sales numbers had been looking great over the past year — until you hit that last quarter. The sales team put up a fight but ultimately failed to meet the quota, and your quarterly revenues went way down. What happened? The problem could be that you have a gap somewhere in your sales pipeline.
Managing that pipeline is essential for keeping a strong forecast, but being overly focused on sales forecasting often overshadows pipeline management. The forecast comes at the end of the sales cycle, and once those late stage opportunities have closed, you often find that you don’t have enough early stage opportunities moving through the pipeline.
When it comes to preventing these gaps in your sales pipeline, there’s often a debate over quantity vs. quality. Do you need a larger volume of leads? Or do you need fewer, more qualified leads?
In order to hit your business objectives, you need to keep a certain ecosystem moving through your pipeline by keeping three pipeline metrics in balance:
1) Pipeline size: The size of your sales pipeline has to be the right size in relation to your expected revenue outcome. When you multiply your pipeline size by your win rate, the result should be equal to or larger than your expected revenue outcome.
It’s a simple equation: Let’s say you have X amount of business in your pipeline, an expected win rate of Y and a revenue target of Z. When XY ≥ Z, you know your pipeline is the right size to meet your revenue goal.
2) Pipeline shape: This metric looks at how sales opportunities are distributed across the various stages in your pipeline. Your marketing department’s job is to feed the pipeline by creating demand, filling the early stages with sales opportunities. From there, it’s your sales team’s job to move those opportunities through the sales stages. And when you don’t have the right proportions in your funnel shape, you end up with gaps in the pipeline.
Let’s say you have between five and seven stages. Generally speaking, you want to have 40 percent of your opportunities in the first two stages at any given time. If you have less than 40 percent in the early stages, your pipeline is drying up — a serious problem in the long term. If it’s more than 40 percent, you don’t have enough opportunities in the late stages, and you’re probably not going to hit your numbers in the short term.
3) Pipeline velocity: Finally, you need the right speed in terms of your sales process. This metric looks at sales effectiveness, in terms of how long it takes to move an opportunity from lead to close. Your ability to earn revenue depends on how fast and effective your sales team is at moving these deals through the pipeline.
This is another simple equation, and CRM systems make it easy to track. But the results are often inaccurate, because opportunities don’t always follow the orderly sales cycle. When an opportunity moves quickly through a few sales stages, for instance, the sales rep usually enters the opportunity at the current stage. As a result, the velocity metric doesn’t reflect what is actually happening. Even when the metric is accurate, if your sales process is overly complex or fundamentally inefficient, you’re not going to reach the velocity needed to move opportunities through at the necessary rate.
The third metric is especially important. You could have a pipeline of the right size and shape, delivering great prospects to highly motivated sales reps. But if your velocity is too slow, you won’t reach your quota. To increase sales velocity, you need to improve efficiency by streamlining the sales process, and provide the right information and tools that help reps negotiate from informed positions making them more effective.
Configure, Price, Quote (CPQ) software simultaneously improves efficiency and sales effectiveness by automating tasks and approvals that used to take hours and days. Research by the Aberdeen Group shows that using CPQ solutions helps reps increase their average quotes per month from 14 to 20.9 — a significant increase in sales productivity. By increasing the efficiency of the sales process, reps are able to handle more opportunities simultaneously, increasing pipeline velocity and the number of wins.
And when you combine CPQ with pricing guidance, sales velocity and effectiveness both increase. CPQ helps your sales reps with cross-sell and upsell opportunities, ensuring they give the customer everything they should from the portfolio of available products. By providing reps with the right product and pricing, they’re able to close deals with fewer, more productive customer interactions.
In the end, CPQ with pricing guidance are powerful tools that reduce the potential for costly gaps in your sales pipeline. And because this technology prepares sales reps to negotiate from an informed position, it also drives up the revenue from each deal they close.