Graphically a pipeline, often called a funnel, looks like the diagram shown here. It should contain all of the leads and prospects that you generate through marketing and business development activities. These will then convert into opportunities that your team are working on and track their progress through the sales stages. The pipeline takes on a funnel shape, usually narrowing from top to bottom, as opportunities move through the sales process. Leads enter at the top, some of them will ‘fall out’ and some of them will move to the next stage. It is the reduction in opportunities that occurs as they move through the stages which creates the funnel shape.
With the correct analysis of the pipeline, we should be able to see the conversion rate as the opportunities move through the sales stages and the average time taken for the deals to move to the next stage. Generally as sales managers we would take a granular approach to our team’s opportunities, tracking them as they move from one sales stage to the other. However, some sales people will demonstrate a consistently lower conversion rate between some stages, as compared with the rest of the team, and this is a great opportunity for a coaching conversation with the individual.
The starting point of the funnel is new leads coming in to the pipeline. It is vital that we understand how many new opportunities the team needs to generate each month to create an above target amount of closed orders. Furthermore, something that has a big effect on the number of opportunities is the size of the opportunities. If the team is generating small deals then we will need more opportunities; if they are generating bigger deals then we will need fewer opportunities.
The next thing that we need to look at is the velocity with which opportunities move through the pipeline. If it takes one year for an opportunity to cycle through the pipeline, our pipeline will need to deliver target coverage at the beginning of the year. Again this is a good opportunity to coach individuals that have velocities that are slower than the team average between certain stages.
Having determined the first three metrics (opportunity number, size and velocity), we need to calculate the ratios between the key stages in the pipeline, which tends to be company specific and based on how the sales process has been developed (and any CRM system parameters). These are very important metrics to calculate as it will determine the number of leads that we need to bring into the pipeline.
So, again as sales managers we need to focus earlier in the sales process and ensure that the right things are being done early on, to ensure success. Obviously, when we get this information we need to work with individual sales people to enhance their skills in any development areas, and this is where coaching comes in.