22 March 2020
What is a sales pipeline?
Sales Funnel, Marketing Funnel, Opportunity Pipeline - call it what you like but a sales pipeline tracks multiple potential buyers as they progress through different stages in the pre-sales process.
A potential buyer is (of course) an organization that is pre-sales (hasn't issued an order or signed a sales contract) but could also be an existing customer that hasn't recently purchased but is prospective (looks like they might).
If you only had a few such opportunities to consider you might not need a formal means of tracking these opportunities however, when you have many potential sales "on the go" there is a need to systematically log, track, and prioritize them to ensure each receives sufficient attention to achieve a positive outcome and to ensure negative outcomes aren't due to lack of attention.
Sales pipelines are now being applied to a number of marketing disciplines and heavily to online lead generation, however they originated in the world of solution selling where after initially identifying a sales opportunity a number of processes and steps were required to progress them to a sales order. The steps could stretch over many weeks, months or years.
Sales Pipelines are used to track the results of new business acquisition activity (sales work) for a variety of reasons...
- To keep track of multiple sales opportunities
- To make decisions as to where to focus sales effort
- To provide a means of forecasting future sales revenue
- To provide data for resource planning
- Adding task oriented meaning to sales management.
Managing sales activity is often likened to herding cats, the Sales Pipeline is a device that assists sales management through providing the centre piece for sales team meetings. Walking through the opportunities listed in the sales pipeline - one-by-one - and asking pertinent questions ("when did we last talk to ACME manufacturing?") is a better question than "tell me, what's been happening?"
Digital Sales pipeline
Early in the discussion we need to differentiate between digital sales pipelines and old-fashioned sales pipelines.
Essentially they are the same concept. However, in the digital sales pipeline you can be tracking a lead without actually knowing who they are. Online marketing tools using cookies and digital finger prints can identify individuals not by their names but by their unique online identifiers. Hence, one form of digital marketing (say a Facebook Advert) might first identify a new digital sales lead, but another form of marketing (say through Google re-marketing) may prompt the user to revisit your online presence and then finally make contact and then you have a name to track.
However, in this article we are more properly referring to sales pipelines that track real people (sales leads) through the sales process after they have been identified.
The one that got away
The tracking of multiple opportunities each at different stages of progression becomes unwieldy, particularly when a sales team consists of multiple people.
Anyone who has worked in such an environment will have experienced the opportunity that seemed to have gone to sleep...
but while everyone was focused on something shinier, the opportunity came to life, slipped through the cracks to be captured by a competitor.
Sales pipeline management is a discipline that (when used properly) tracks all opportunities to monitor their current status, including those that appear to be stalled. A typical question in the sales meeting (where the pipeline forms the centrepiece for discussion) is "when did we last speak to them?" A few months without contact (because we've been busy with something else) would be a red flag.
The following example is typical of solution selling (bidding for projects that include design or development as a significant component of the project. Also known as Design and Construct projects)...
General description of the Sales Pipeline concept
The first concept to note is that sales pipelines track multiple opportunities or projects. The plurality of projects is necessary as the number of projects emerging as sales at the narrow end of the pipeline are fewer than enter the wide end.
Not all opportunities progress to a sales order, but it isn't possible to definitively pick the winners. To ensure sufficient future sales orders, it is necessary to track more than are needed.
Projects are eliminated as they progress through the various stages for various reasons...
- Not suitable: initially a sales opportunity may come onto the sales teams' radar but on closer examination is deemed unsuitable, particularly if it strays too far from matching the ideal customer profile.
- Failure to identify a project: While initially, the sales opportunity may suit the type of project work the organisation delivers, discussion with the customer fails to identify a future need.
- Failure to request a bid: The customer agrees to the need for a project and the details of a potential project are clarified however the customer is not ready to commit to receiving a proposal. This may be for budget reasons, the organisation is about to go through extensive changes "this is not a good time", or the project proponent within the organisation moves to another organisation. There can be many reasons.
- Capture planning rejects the opportunity: Capture planning is the process of deciding to BID or not, and working out HOW to win. The decision may be made to reject the opportunity because it fails the firm's assessment criteria. For example, it may be determined the probability of winning is too low to justify the cost of bidding, the project has uncontrollable risks, the technical requirements are not suited to the firm's capabilities, the contractual terms are too draconian, or the firm doesn't have the spare capacity to take on the project and deliver in the required time frame.
- The bid was unsuccessful: Bidding is a competitive process - there can only be one winner. Understanding why you lost is valuable intel. But, don't always believe the customer when they say "price".
Sales pipeline management
Sustainable success requires that firms regularly spit successful sales order out of the end of the pipeline to keep feeding their business operations.
Despite the reality that considerably fewer sales orders emerge out the end of the pipeline than are fed into the start, the firm must have a degree of certainty that a steady stream of orders will be generated (ideally growing over time). The future growth (or survival) of the organization depends on it.
In addition, particularly in solution selling (project work and contracting) opportunities can have long sales cycles taking months or even years to progress from first identification to signed contract. Hence, sales pipeline management ensures opportunities are continuously being identified and progressed to avoid a future drought.
Sales Pipeline Management is the process of regularly analyzing the pipeline to forecast future sales to inform resource planning and direct sales and marketing activities to ensure that the required number of projects are progressing through the pipeline to meet sales targets.
Sales Pipeline stages broad principles
The number of stages and their description is customised to each firm's view of the world but follows general themes...
- Probability of project success progressively increases: The certainty of each sales opportunity is very low at the start and increases as the opportunity progresses through the sales pipeline.
- More opportunities at the start than at the end: This is where the pipeline gets its funnel shape; the funnel concept is indicative that the firm needs to be tracking a greater number of opportunities at the beginning of the funnel to allow for the progressive elimination of unsuitable opportunities.
- Stages are clearly defined: Each stage should be devised such that a clear definition is possible. Projects sitting at each stage must conform to the stage definition.
- Progress gates are unambiguous: The criteria required to move a project to the next stage must be clear and consistent. The management team and senior executives should have an agreement about what each stage means. Effective forecasting and trust in the quality of the information are compromised if projects are listed in the wrong stage. Stage gates are often aligned with a clear and measurable sales activity. For example "qualified lead" can mean "the opportunity meet's our ideal customer definition." The required sales activity would be to gather the intel needed to inform that decision.
- Neither too many nor too few stages: The tendency to overthink the Pipeline stages must be avoided.
- Variation between firms: Not every firm uses the same Sales Pipeline. Definitions will vary. I have witnessed pointless arguments when new hires join a firm and argue about pipeline definitions. Consistent understanding within the firm is what is important. Not to say that definitions shouldn't be varied if they can demonstrate an improved process, but appreciate that the existence of a Pipeline and a disciplined approach is in itself a major achievement.
Feeding the sales pipeline
Lead Generation and Sales Prospecting: Not strictly a stage in the pipeline, however, it is implicit in the sales pipeline concept that opportunities need to be identified as a means of feeding the pipeline. There are 3 primary sources of leads...
- Existing customers: Firms that you have already done business with are by their nature already "qualified" sales prospects.
- Lead Generation: Marketing communications are used to generate sales leads that are received by the sales team.
- Prospecting activity: Sales teams should maintain "an ear to the ground" leveraging their networks to obtain early intelligence regarding possible upcoming projects and identifying firms that fit their ideal customer definition. Sales prospecting is a whole topic that is too big to go into here.
Sales pipeline management includes regular reviewing the projects sitting at various stages in the pipeline and ensuring that new opportunities are constantly being identified and added to the pipeline.
This introduces the concept of a bidding budget. If your sales revenue target is $X and your bid conversion rate is 33% then you need to be generating 3 times $X worth of bids to make your sales target.
Single sales opportunity
It is not good enough to list a single customer in the Pipeline as a catch-all for all potential projects. Each project (or single sales opportunity) should have its own position in the Pipeline. However, at the suspect stage you may not have identified a project. If more than one project is identified then you would split the customer in to each opportunity and track them individually.
Of course, one project may have dependency on the other. If only because the customer wants to first test you out on project A before signing-up to project B. Similarly, project A may be the construct phase, and project B is the service contract.
However, many companies don't bother tracking opportunities until a project has been identified. This is particularly true in the construction industries where early indications of potential projects are often identified years before contractors are appointed. An example would be a news report stating something like "Government proposes South Road interchange to relieve congestion." This would be entered into the Pipeline as an identified project but noting that it will be years before feasibility studies, site studies etc. have been completed. However, early sales work would include identifying the key advisors and decision makers and starting relationship building.
Sales Pipeline stages examples and explanation
Suspect: A suspect is a sales lead that upon initial inspection comes near to fit a firm's "ideal customer" definition. For example, a shipbuilding enterprise would have a fairly clear understanding of the type of customer that buys ships. "Ships" of course is a broad term with many sub-segments based on tonnage and purpose. A firm that builds prawn trawlers for example would have a clear understanding of companies that operate prawn boats and as such these firms would fit their ideal customer definition. As is often the case in B2B markets, it wouldn't take long for a shipbuilding firm to identify all of the potential customers matching their ideal customer definition. The sales task would be to maintain regular contact and relationship building with these firms to ensure the early identification of opportunities to enable plenty of time to maneuver into a strong position before the bid. The key test is that the sales prospect is a close fit with your firm's ideal customer definition. But, other than knowing who they are, little is known about their buying intentions.
Qualified lead: It's one thing to identify a potential lead (suspect) however to warrant more attention by the sales team the lead needs to be qualified. Qualification is the process of making contact with the sales prospect and establishing if they are interested in what your firm has to offer but are not ready to engage in a sales conversation about a specific project. The sales prospect may be receptive to meeting you and even be receptive to a credentials presentation. Clearly, they wouldn't invest the time unless they saw a need and were interested in understanding your value proposition. This makes them more likely to buy in the future. The key test is achieving a face-to-face meeting and receiving a positive response. The customer has a need but hasn't yet specified what they need to purchase to satisfy that need. Typically, to progress them from qualified lead to identified project, many firms invest time into helping them to put together a project scope and business case.
Identified project: Once the sales prospect has both been qualified AND has defined a potential project, the sales opportunity moves into the "identified project" stage. However, the customer is not ready to receive a proposal. The key test is the identification of a project to which a broad scope, budget and approximate timing can be estimated, and which the client has indicated is part of their future planning. Opportunities can sit at the identified project stage for many months and even years. Despite having a clear need and scope, they may have many competing requirements that all need to be funded. Other more urgent requirements that are outside of your field of interest have higher priority.
Bid request: After a period of schmoozing and encouragement, the customer strengthens their resolve and commits to becoming serious about moving forward - they have finalised a requirements specification (hopefully with your help) and request a proposal. Game on. The key test is clear; the customer is calling for proposals. If your sales team are really good and your value proposition is compelling, you may be the only bidder. Identifying potential customers before they start thinking about calling for tenders, and engaging in relationship building is sales best practice. Old B2B sales saying: "If the first time you hear about the customer is when they call for bids; you've already lost."
Bid submitted: After the bid team has slaved over the bid and in the last few days, worked through the night, the bid is submitted. Now you wait. During this time some clarification on details may be requested (a good sign). The art is to find some reason to make contact with the customer during bid evaluation to see if they have misunderstood anything or don't like your offer. A skilled sales person would persuade the customer to give your firm the opportunity to fine tune the offer. This checking process is called "sitting on the bid". Of course, many procurement processes strictly forbid any unsolicited contact after the bids have closed. But don't always assume this is the case.
Contract negotiation: In solution selling (again, depending on the value of the project) the customer will normally enter into contract negotiations with the vendors that have put forward the most attractive bids. Sometimes they are only negotiating with you. A particularly annoying practice taught in engineering procurement 101 is to ask bidders to segment their price into blocks of work. After receiving bids, the buyer then releases a bench-mark table showing which blocks your bid price is higher than the mean and inviting you to resubmit. They don't offer you the same opportunity for blocks of work where you are lower. I hate that.
Sales order: All going well, you will receive a sales order.
Average sales cycle
The fundamental concept is that the average time to progress an opportunity from first being identified to eventually resulting in a sales order takes an average length of time. This is referred to as a sales cycle. The sales cycle will vary depending on the industry and project size. For example, the average sales cycle for a shipbuilding project might be 2 to 3 years. For a software development project, it might be 6 months.
Once the average sales cycle is established firms know how to read their sales pipeline. If sales orders are looking a bit skinny the first question is going to be "what's coming down the pipeline?" if the answer is "not much " they know that intensive sales work may not result in immediate orders because the opportunity has to get through the pipeline.
Keeping the pipeline full is the key objective of sales pipeline management.
Sales Pipeline analysis and Go Get Rates
Every opportunity listed in the sales pipeline (at all stages) has an estimated value. The sales team estimates the value of each opportunity (the final invoiced value assuming that the firm wins the project and delivers it successfully).
However, each opportunity also has some uncertainty about proceeding (the potential client may decide not to proceed) and the firm is competing against other firms for the work.
To provide a more meaningful estimate of the project's future value to the firm the estimated project value is discounted by using a Go Get rate...
As each project progresses through the pipeline the GoGet rate and estimate of project value are revised based on newer, more accurate information. In general, the GoGet rate should improve at each step. Occasionally, the chances diminish.
In general, if you know the customer has called for five bids and you have minimal intelligence and minimal relationship with the customer the best you can say is that your Get Rate is 20% - in other words, it's a lottery.
This again speaks to the value of the sales pipeline as a sales management tool, the sales manager might work with the sales team to figure out how to get the estimated win rate up - what is our competitive advantage on this deal? Who are we up against? What are their strengths and weaknesses? Can we put in a non-conforming bid? What is the real problem the customer is trying to solve?
Estimating the likely order date is also part of the process. The Go Get Rate has to be related to a target (best guess) of when the customer is likely to order. Without an order date, sales forecasting is less meaningful.
Many sales people have trouble with guessing a likely order date when the customer hasn't provided one. However, the customer will often provide clues, and a skilled/experienced sales person can translate clues into a best guess.
The important thing is to continually update the order date estimate based on fresh data.
While the forecast value of each project may vary considerably in accuracy, taken as a group (you may have 10 to 20 opportunities (say) listed under Identified Projects), the total forecast value tends to even out and is a fairly reliable indicator of expected future sales revenue. Assuming of course that the GoGet rates are based on latest information. Another sales management question - "when did we last review the GoGet rate on this opportunity?" - which is another way of asking "when did we last have contact with the customer?"
Thus, sales pipeline management can be used to forward plan expected workloads to enable resource planning.
Sales pipeline software
The sales pipeline can be set up manually. In the old days, some sales offices used a large planning board with movable opportunity labels. Spreadsheets are also used.
However, many CRM software applications have built-in Pipeline capabilities.
One that is built around the sales pipeline concept is called PipeDrive which is particularly good and includes GoGet Rates and automatically totals forecast values.
However, increasingly, all CRM's are embracing the sales pipeline concept and are including this functionality.
Sales pipeline - summary
Sales (or business development) can be nebulous. Whereas other departments or functions within the business by comparison operate to more codified and measurable outcomes, sales activities less so.
However, the sales pipeline is a primary tool for providing the basis by which future outcomes can be predicated and sales activity can be directed to deliver outcomes.
The sales pipeline is a great sales management tool as meeting to review the pipeline with the sales team (either as a group or one-on-one) provides structure to the meeting, traceable results, and a rationale for setting tasks - "ACME Manufacturing has been sitting at the qualified lead stage for 6 months - when did you last make contact?"
The sales force is a finite resource. The Sales Pipeline is a tool for focusing maximum effectiveness on the most valuable opportunities most likley to produce sales success.
This provides real purpose and value to the much hated weekly sales activity plan imposed on many sales reps and the subsequent sales activity report.