The Modern Sales Pipeline
The concept of the customer buying cycle was invented in 1898 by St. Elmo Lewis. He emphasized that a prospective buyer going through a buying process starts with awareness, progress to interest, then to desire, action, and eventually into reducing the number of options ending with a purchase. This idea is the basis for the modern sales pipeline.
It has been adopted and adjusted as a standard across industries for marketing. For professionals in sales, it is used as an outline of the sales cycle where all sales representatives are measured.
The Modern Sales Pipeline Stages
As sales has modernized, the pipeline stages held the same meanings but have been massaged to mirror the dynamics of the current sales landscape. The steps consist of:
During awareness, a stranger begins troubleshooting a problem, they want an improvement, or they are identifying a need. This particular stage contains prospects from visitors to marketing captured leads (MCLs). These people could be anything from strangers to visitors reading through your sales material trying to gain a better understanding of your offerings.
In consideration, a prospect has identified your product or service as a solution to their previously recognized issue. Under most circumstances, marketing qualified leads (MQLs) live within the consideration stage. They've shown interested and taken notable action towards making a decision.
Finally, within the decision stage, the sales prospect knows your organization fits the bill and are trying to determine between you and your competitors, which of you accomplishes exactly what they need. These people are considered sales qualified leads (SQLs), the individuals most ready to make a purchase.
Companies are most often good at gauging the performance of their people but find it difficult to measure and analyze the performance of the business as a whole. If companies don’t know what to look for or test, they are not able to see areas of improvement. This inefficiency makes organization-wide sales metrics essential in regards to the health of a sales team and understanding where opportunities lie with prospects. The best example is grasping where a prospect is currently in the sales process and what are the steps to get them to the next stage.
This is a visual representation of sales prospects and what stage they are in in the purchasing process. Understanding your sales pipeline gives you a better in-depth explanation of the lifecycle of customer prospects from the first connection to closing the deal.
CEO and founder of Matrix Marketing Group, George Schildge shares,
Simply measuring revenue is a classic method for seeing sales performance this only shows what is coming out of the pipeline rather than seeing more in-depth analytics and stages. With products that have a long sales cycle, it’s important to monitor the entire pipeline and look at ways on how to make the selling process more efficient and effective. By reviewing and measuring each stage of the sales cycle, you gain a broader sense of what is happening within your sales team, as well as areas that are not performing as well.
For most companies, raising the average performance is a better and stronger strategy compared to looking for new hires. Identify high-priority sales items like, what are the key metrics for improving the sales process?"
George went onto defining what he considers to be the top ten sales metrics to traffic for success:
A Sales Pipeline Template To Guide Your Buying Cycle
Sales Cost Ratio
Software companies with direct sales forces typically spend 25%-35% of their revenues on compensation, commissions, travel expenses, and related costs, plus another 10%-12% on marketing. The biggest selling costs - travel, demos, and negotiation time - usually take place late in the sales cycle. If a company’s sales expenses are high compared to the competition, it’s usually a sign that sales reps are hanging onto low-probability prospects that should have dropped out earlier in the sales cycle.
Sales Cycle Length
A good way to shorten the sales cycle is to watch how the best sales reps move prospects to a final yes-no decision. Top performers usually spend more time in the early stages of the sales process. They do a more thorough job of demoing the product and establishing the value proposition, so their customers are less hesitant when it comes time to sign a contract.
Deal Fallout By Cycle Phase
In a well-managed pipeline, a predictable percentage of deals will fall through at every step from initial customer qualification to final negotiations. It’s important to look at why deals fall out, because these reasons may uncover hidden problems with marketing messages, pricing, competitive features, or even the performance of individual sales reps. Moreover, a big spike in the fallout rate almost always means trouble for the sales forecast two or three quarters in the future.
Even if sales reps are meeting their quotas, a low or erratic close ratio is a red flag that has killed many a qualified sales team. If you’re losing a bunch of deals at the end, it could mean that your value proposition isn’t clear enough or the product isn’t what the market needs. Sometimes all it could mean is that your salespeople need additional training.
Lead Response Time
More businesses are practicing inbound marketing methods, resulting in more companies making it a priority to become focused on online tactics and generation of leads. Companies who act upon a lead within the hour of the initial query are several times more likely to close the lead compared to companies who waited longer. Having a quicker response time can boost and the overall performance of sales substantially.
If sales reps need to rely on a large team of pre-sales and post-sales support people, that’s another red flag. Though this ratio only makes sense in comparison with direct competitors. Companies with good sales-to-support ratios have usually put a tremendous amount of effort into design instead of establishing support band-aids in the field. If a product is easy to learn and use, it will inevitably be easier to sell. That's why user interface best practices are so critical.
Total Number of Leads and Opportunities
In addition to looking at the total amount of generated leads – you’ll want to consider the supporting factors: number of website visitors, number of subscribers from your blog, and the total amount of those who have signed up for notifications from your site. Have you been working with your marketing team to develop further opportunities? Sales and marketing alignment is crucial.
Sales Volume By Location, Channel, or Territory
As boosting performance is a priority for many businesses, being able to see insightful metrics that are broken down into new client acquisition per rep, per location, sales territory or channel are the best metrics to be reviewing. These insights especially help companies look at areas for opportunity and new sales channels that have the potential to be profitable.
Opportunity Win Rate
Tracking the opportunity win rate will give more detail and insight into the ability of your reps to close a deal. Closing is essential and is big for determining sales performance. Although, some reps may be competent in networking and working through the pipeline while closing the deal can be difficult and a challenge. That doesn't mean they are a bad salesperson; they just need a role that respects their hunting nature.
Ratio of Leads To Sales Qualified Leads
It's essential to be able to differentiate between leads that show potential and those that do not. You can count the number of leads over a set amount of time as well as the number of qualified leads over the same period. To get this ratio, you divide the number of qualified leaders by the total number of leads. This will give you the leads to sales qualified leads ration in a percentage. With this method, you can determine what strategies are the most effective and which need improvement.
Although this process can be redefined and adjusted in several ways, these metrics are a great starting point for helping to develop and create your forecasting model. It’s essential to view the development of the forecasting model as a process, not an event. Conversion rates and throughput times will fluctuate due to the economy, season, and the competitive landscape your company falls into.
By updating and improving your forecasting formula routinely, based on these metrics and other variables will have a bigger impact on your key metrics over time. In this regard, accurate forecasting is a historical science, the more you look to the past, the better you will become at predicting the future.