What is a sales pipeline?
The sales pipeline is a visual representation of the various stages in your sales process. A prospect goes through these stages as they progress from a lead to a customer.
According to Gartner, “a sales pipeline is a tool that provides sales leaders with a visual representation of the different stages of the sales process (such as when a prospect becomes a qualified lead or when salespeople should follow up with a lead).”
The sales pipeline is unique to each organization and illustrates the buyer’s journey.
What is sales pipeline management?
Sales pipeline management involves continuously syncing sales data from various sources in a single place to monitor and review the pipeline processes and KPIs.
According to HBR, “sales pipeline management includes how the sales pipeline is designed, measured, and used to drive sales rep performance.”
The same article highlights that companies with effective pipeline management grew 15 percent faster and experienced 28 percent higher revenue growth.
Sales pipeline vs. sales funnel: What’s the difference?
Sales funnels represent the buyer’s journey from lead to customer. According to Gartner, sales funnels help you identify where prospective customers are in the sales pipeline.
For instance, while sales processes are unique to each organization, there are five key phases that each buyer goes through:
The above phases make up the sales funnel, and as the lead goes through every stage, they get a step closer to becoming customers.
Meanwhile, sales pipelines represent the action to be taken to close deals. These include scheduling discovery calls, conducting demos, negotiations with decision-makers, and more.
What are the stages of a sales pipeline?
A modern sales pipeline should map the various actions involved in qualifying and closing deals. These can be considered to be sales pipeline stages.
In most cases, these stages reflect activities such as lead generation, qualification, nurturing, and deal closing. To map the processes for such activities, you can set up sales pipeline stages such as:
- Prospect: Identify the leads facing the challenges your product can solve.
- Discovery call: Understand the problems a prospect faces and evaluate whether your product can tackle those problems. This stage can be bifurcated further in terms of appointment and call status.
- Demo: If the prospect fits the bill, you can offer a demo based on their requirements. This stage can also be broken down further based on the demo date, presentation, and follow-up.
- Proposal: Once the demo’s complete, you can send your proposal and follow up with the prospects as they evaluate their requirements and other solution providers.
- Negotiations: Since the buyer journey isn’t linear, the prospect might reach out for more demos, new proposals with adjustments, more information on the product, negotiate pricing, and so on. You can bifurcate it as “ongoing” and “complete” to further organize this stage. (ongoing and complete)
- Deal closed: Once the prospect has reached a consensus and communicated their decision, you can mark the deal as won at this stage.
As mentioned earlier, a sales pipeline is unique to each organization, and as such, the above stages can be adjusted to suit your needs.
For instance, TechnologyAdvice lists the following as the six sales pipeline stages:
- Lead generation
- Lead nurturing
- Marketing qualified lead
- Sales accepted lead
- Sales qualified lead
- Closed deal
Why are sales pipelines important?
As mentioned earlier, sales pipelines help sales teams understand the actions to take to close a deal. In addition, analyzing the pipeline enables you to spot issues before they become too big to handle.
Moreover, sales pipeline analysis is vital in:
- Knowing the deal status, value, and other key information at a glance
- Visualizing the exact timeline of all deal-related interactions
- Spotting gaps in communication, follow-ups, and the overall sales process
- Identifying at-risk deals and reasons for missed opportunities
- Gauging rep performance to offer actionable, timely sales coaching
How to set up and manage sales pipelines
Before understanding how to set up sales pipelines, it’s crucial to note that modern B2B buyer journeys are complex and rarely linear. Gartner highlights that the modern B2B buying process involves the following stages:
- Problem identification: “We need to do something.”
- Solution exploration: “What’s out there to solve our problem?”
- Requirements building: “What exactly do we need the purchase to do?”
- Supplier selection: “Does this do what we want it to do?”
- Validation: “We think we know the right answer, but we need to be sure.”
- Consensus creation: “We need to get everyone on board.”
Since a sales pipeline is a visual representation of your sales process, the stages account for modern B2B buyer journeys and accurately map the various stages for qualifying and closing deals.
Sales pipeline management tips and best practices
Here are some best practices to help you build and manage your sales pipeline effectively:
1. Set up transparent sales processes
A pipeline is a visual representation of the sales process. So, defining clear steps within the sales process and the activities a rep must undertake is crucial to building a solid pipeline.
So, take stock of your existing processes from first contact to closing a deal and map the key activities that define the progress of a deal from one pipeline stage to the next.
It’s important to document the progress criteria to avoid confusion.
2. Coach your sales managers in sales pipeline analysis and management
As the HBR article on sales processes highlights, most pipeline training is limited to an overview of CRM tools and generating reports. What they need is training in making better pipeline management decisions such as:
- How to determine the ideal pipeline size for each rep
- Which actions directly increase the probability of conversions
- At which point in the sales process do certain actions have the biggest impact
- How and when to coach sales reps
So, it’s crucial to train your managers in analyzing the sales pipeline and rep performance to spot and fix issues quickly, while offering timely, meaningful feedback to their sales teams.
3. Pick the right metrics
Sales pipeline analysis requires identifying and measuring key metrics such as:
- Sales pipeline value: This is the sum of the value of each deal in your sales pipeline. So, you can track the ROI of your sales team’s efforts.
- Average deal size: Add up the revenue from all the deals in your pipeline and divide it by the total number of deals closed to estimate the average deal size:
Sales revenue ÷ deals closed
Tracking the average deal size helps you project future sales revenue and accurately set sales KPIs.
- Cycle length: This refers to the time taken from prospecting a lead to closing a deal. Calculating the cycle length helps predict the number of deals you’ll close at any given time period.
- Win rate: This metric calculates the percentage of prospects that led to closed deals. Deals closed ÷ total number of prospects
- Conversion rate: Calculating the conversion rate for each pipeline stage helps track the lead-to-close ratio or MQL-to-SQL ratio. These metrics help you evaluate lead quality, rep efficiency, and ROI of sales activities, while improving the accuracy of your sales forecasting.
- Pipeline velocity: The speed at which prospects progress through the sales pipeline. To calculate, get the number of deals in your pipeline, the overall win rate, average deal size, and sales cycle length (days).
The pipeline velocity formula is:
(Total deals X win rate X average deal size) ÷ sales cycle length
Besides these, you can also track the number of sales calls made, emails sent and follow-ups done to increase pipeline visibility and improve its efficiency.
4. Choose the right tool to consolidate all sales data
Visualizing pipelines accurately and analyzing them requires picking a sales pipeline management software that:
- Lets you review all interactions around your deals, across accounts, at a glance from a single sales pipeline dashboard
- Allows you to drill down and filter by deal stage, close date, or deal amount
- Enables you to see interactions as they happen and spot gaps (if any)
- Helps you transform that visibility into action by tagging your rep with your comments on the same page
Lastly, make sure that you regularly review your pipeline to weed out stalled and stale deals. Otherwise, they’ll affect your pipeline metrics and sales forecasting.
Effective, transparent sales pipelines are a great tool in a sales team’s arsenal. They provide a clear blueprint on activities to undertake to close deals and evaluate the sales organization’s efficiency.
However, setting up effective pipelines requires a solution that offers pipeline visibility and helps you transform the insights from your sales pipeline into action. That’s where a revenue platform like Clari can help.
Clari is your one-stop shop for all the intelligence you need to effectively review your sales pipeline, forecast sales accurately and make sure that deals close.
Interested in learning more?