what is a sales pipeline ?
TRANSCRIPT
Sales Pipeline
What is ?Sales pipeline is a representation of various stages in the sales process of
selling your product(s) or service(s) to your customer. In a Sales pipeline, each & every activity that an organization undertakes to complete a sale is elicited commonly in the form of a graphical representation, and to provide a detailed insight of how a lead is converted into a sales opportunity, till its closed.
There are various forms and types of reports that helps to manage a Sales pipeline,
Pipeline Funnel or Sales FunnelA holistic Sales pipeline is generally represented in the form of a funnel,
which is the first look of a sales pipeline. It encompasses the total number of valid account(s) (or customer(s)) at a particular stage in the sales process; combined with the estimated total worth / amount of revenue ( in dollars) . Each stage, that is represented in the funnel is directly aligned with the sales process within an organization, every company and the industry a company belong to has its own way of defining the sales process, but the most common order is
Leadso Marketingo Lead Generationo Suspect
Prospects / Contactso Identifyo Qualify
Opportunitieso Presento Propose o
Negotiate o
Quote Closed
( became a Customer)
A Sales Funnel might represent various criteria that can be exposed or included to provide a Sales Associate a detailed report of the "current status" of each & every stage in the complete sales process. The common criteria that can be exposed are
1. Total Number of Accounts / Contacts/ Customers / Companies in that particular stage
2. Total Number of records in a particular stage3. Total Weighted or estimated revenue in each stage using the
weighted probability.4. Sales Velocity
Total Number of records :Determining this value is simply straight forward. Any usable CRM
system will have facilities to add accounts (company or customer details), and create Leads, convert them into Opportunities, then create Quotes for an opportunity and convert that into a sale. Since each sales stage is represented as a module in a CRM software , mostly the primary index of creating a record in a particular sales process is the account or the customer's information. It is reasonably simple to calculate the total number of records in a particular stage , and also the total number of accounts, a step in a sales process has. for example, when you create an Opportunity in your CRM system or even in excel , you have to primarily integrate that Opportunity with an account (a customer), this helps you to calculate the total Number of Opportunities at a particular point in time and the total number of accounts linked to those Opportunities.
Total Weighted Revenue :or estimated revenue or weighted forecast : This is also called the
estimated revenue , and calculating the Total estimated revenue can be challenging , and it purely depends on the Sales associate and the Manager, who defines a probability based on various key factors. The generic formula for calculating is
Weighted Revenue forecast = Value of an Opportunity (or Qualified / Unqualified Prospect) * Probability.
Total Weighted Revenue (forecast) = Sum(all the weighted opportunities).
The Probability percentage can be defined by various factors, like Success Rate or Conversion rate of an opportunity Success / Conversion / Closure Rate based on a Sales person or
sales team. Predefined % for a particular stage in a sales process based on the
historical data Probability based on Line Items (products) of an Opportunity
for example, John has a Lead from Acme with a deal of $100,000 , he can define a probability of wining that deal as , something like 40%. Then the weighted revenue for that deal will be $40,000 , and the summation of the weighted revenues of all opportunities managed by John will provide a total revenue forecast for John . Meanwhile John's manager might decide to apply the average of all the Leads getting converted to an Prospect by John or he might also average the success rates of his/her team as a whole and apply that as a probability. The Sales Manager or the VP of sales might decide to use the historical data and apply the average of all the conversions (commonly called as sales movement) that has happened from one stage to the another in the sales cycle.
The weighted revenue forecasts , is an estimated revenue based on how an organization is defining the best possible probability factor for them to arrive at a ballpark.
The common industrial practice, or which are used commonly by CRM applications are
calculating the weighted revenue based on the success rate of a particular deal, or an opportunity.
what a CRM can provide ?As a good practice, a CRM application should have capabilities to apply
either of these probability factors at various levels of the pipeline, since it would hard to apply an opportunity (deal) based success rate during the Lead generation or Suspect determining stage, it is a favorable choice to apply the history of how many leads have been converted to a prospect by the sales team or a sales person, as a probability factor. For instance, if the sales team on an average for the past 2 years converts 5 out of 15 leads to a Sale, then 20% conversion rate can be considered and applied to the Lead or Suspect determination stage, but at the same time for an opportunity which is governed by the value of that deal / opportunity , its more appropriate to base the probability on the success rate of the actual deal itself.
sample historical Lead / Suspects Conversions-
according to table above, the probability factor is 20% (which means there a 20% success rate sales team converting them into contacts / prospects or to a sale) . If for instance during of April 2012
Month Number of Leads
Closed
20-Jan-10 19 120-Feb-10
10 5
20-Mar-10 19 920-Apr-10 19 320-May-10
12 5
20-Jun-10 10 420-Jul-10 17 720-Aug-10
19 4
20-Sep-10
14 2
20-Oct-10 16 120-Nov-10 10 920-Dec-10
12 6
20-Jan-11 16 120-Feb-11
13 6
20-Mar-11 11 220-Apr-11 17 820-May-11
12 1
20-Jun-11 12 220-Jul-11 13 720-Aug-11
15 5
20-Sep-11
12 1
20-Oct-11 10 220-Nov-11 17 720-Dec-11
18 4
there are 22 Leads and if the average $ per sale is $50,000 the weighted revenue forecast for the month of April 2012, can be calculated as 22 * 20(%) * $50,000= $220,000.
Further more the weight of this historical data probability can be extended based on
Sales person's conversion rate or success rate. Average Days its taking for conversion or movement. Average Sale price Goal set by the business
1. Based on Sales Target - a Sales Manager can set a target on his/her sales team member based on the organization's goal. In order to compute the target for each stage , the historical data on the sales movement or closure rate is critical, for example, if 75% of the proposed opportunities becomes a Sale, then 75% becomes the key index to estimate how many proposals should be targeted to achieve the organization's revenue goal, which means that if the goal of company is to sell 150 Products for the year 2010, then it should plan to propose 200 opportunities based on the movement index / rate of 75%.
Actual :
Targeted : Average per Sale
$50,000Stage Historical
Sales Movement
Rate %
Computed Sales Target Goal / Target set on a Sales
person
Suspect 10% 1500 150Prospect 25% 600
Opportunity 50% 300
Propose 75% 200Total Weighted Revenue $7,500,000 $7,500,000 $7,500,000 $7,500,000 $7,500,000
Average per Sale
$50,000
Stage Historical Sales Movement Rate
%
Computed Sales Target
Actual Current
Numbers
Gap Weighted Estimates
deficit vs targeted
Goal / Target set on a Sales
person
Suspect 10% 1500 1000 -500 $5,000,000 -$2,500,000 150Prospect 25% 600 800 200 $10,000,000 $2,500,000
Opportunity 50% 300 250 -50 $6,250,000 -$1,250,000Propose 75% 200 225 25 $8,437,500 $937,500
Targeted Weighted Revenue
$7,500,000
Furthermore the target and KPI can be applied based on Sales person's performance or conversions Number of Days it taking for conversions per
stage Goal set based on individual products
Opportunity based Weighted Forecasts :For an Opportunity (which is a identified opportunity for a qualified
prospect) , the preferable practice is to apply the Success rate of the actual deal itself as the probability.
The Total Weighted Revenue is the sum of all the weighted opportunities,
To improvise the accuracy of the revenue forecast for an opportunity more criteria can be applied , for instance1. Based on Milestones - The Probability an be calculated automatically by
the various milestones involved in a particular opportunity. According to the above table , if to provide CRM solution for Darley Inc consists of 4 main milestones (Show Demo, Propose Solution, Negotiate and Close), and if the first 3 out of 4 milestones is completed successfully , then there is 75% change of winning this deal which implies that the Probability (Closure Rate) can be assumed as 75% and the weighted revenue will be $500,000 * 75% = $375,000.
Opportunity Name Account Value of the Deal $
Probability % Weighted Value
Supply Motherboards
Coldwaters Inc $100,000 20% $20,000
overhaul the hardware's
Coldwaters Inc $250,000 60% $150,000
Replace the network Acme Inc $150,000 30% $45,000
Design the web Moon technologies LLC
$20,000 90% $18,000
Install office Acme Inc $50,000 10% $5,000
CRM solution Darley Inc $500,000 90% $450,000
CRM solution Darley Inc $500,000 75% $450,000
2. Based on Line Items (Products) of an opportunity - Determining the probability based on the Line Item level of an opportunity and applying that to the calculation can be very challenging , but it will surely increase the accuracy of the forecast. for instance if SalesXO Co is negotiating a deal withDarley Inc to sell 4 (independent) products then determining the closure rate based on each individual product (line item)and applying that to the overall weight might yield better forecast accuracy .
According to the table data above, overall there is a 40% chance of winning the deal , this can be taken into account while calculating the weighted revenue for that opportunity.
Show Demo Propose Solution
Negotiate Close
Opportunity Name Products (Line Level)
Account Overall Value of
the Deal $
Probability%
Products & Services
X-ray Unit Darley Inc $2,200,000 20%
Products & Services
Ultrasound Darley Inc $2,200,000 75%
Products & Services
Digital Radiography
Darley Inc $2,200,000 15%
Products & Services
CT scanner Darley Inc $2,200,000 50%
About the authorDarley Stephen, CEO at Virtuous Consulting Services, is a Technology &
Innovation Evangelist, who played many key and critical roles in architecting mission critical systems and application for major corporations. His knowledge & experience in technology and R&D is so deep that even his 25 pages long CV, cannot accommodate his complete expertise. Darley is involved in designing and managing ERP (incl. Oracle EBS, SAP), CRM, seamless integration of ERP and CRM applications, SOA (incl. Oracle Fusion Middleware, SAP-SOA) , security and identity management , Business Intelligence solutions and Enterprise Cloud Infrastructure. He also does R&D in simulation using HLA/RTI and electronics. Darley is enthusiastic about new technologies that are released in the market and always wants to promptly master it, that is one reason his contributions were being used by applications catering various verticals incl. Space, Telecom, Manufacturing, Healthcare, Government, Engineering, Education, Retail, Finance and Media.