How to Maximize the Success of Your Pipeline

3 steps you can take to accomplish your revenue goals

How is your pipeline? Do you have enough business in your pipeline to sustain both your current and future cash position?

Even if your business is doing great, you could be headed for trouble if you don’t have a big enough pipeline. Understanding and improving your pipeline metric is crucial to the future success of your business.

Your pipeline comes down to “contract over capacity” — what you currently have locked in divided by what your team can produce. Let’s say your revenue capacity is $778,089 — that’s the amount of revenue your team could bring in if everyone is performing at full capacity — and your contracted revenue is currently $512,143. There’s a difference of about $265,000 in these two numbers. That is the number you want to hit in order to reach your full revenue capacity.

There are three steps you can take to maximize the success of your pipeline to accomplish that revenue goal:

1. Decrease the average sales cycle — How long does it take for a deal in the pipeline to close? Look for ways you can close deals faster. For example, if you’re responding to emails within a day or two, try shortening that timeline. According to the Harvard Business Review, “Companies that try to contact potential customers within an hour of receiving queries are nearly 7 times as likely to have meaningful conversations with key decision-makers as firms that try to contact prospects even an hour later. Yet only 37% of companies respond to queries within an hour.”
2. Reduce the average contract length — A $1M project is worth a lot more to you if you’re going to earn that revenue over three months versus earning it over the period of a year. Accelerate the timeline of projects, if/when possible.
3. Increase your average close rate — First, you need to qualify your leads. If a potential client comes to you and they’re too small or not in your target industry or they wouldn’t be a good fit for whatever reason, turn them down (disqualify them) as soon as possible. Don’t consider them part of your pipeline because they aren’t truly a good lead for you.

Looking at only your qualified leads, you then want to determine your average close rate and consider ways that you might increase that. According to Hubspot, the average close rate in the marketing industry is 11%. How does your company compare with that average?

Calculating your ideal pipeline size

As you’re working to improve the success of your pipeline, you need to know your ideal pipeline size. This will help you understand how what’s currently in your pipeline will impact your future.

Let’s say your average sales cycle is 60 days, your average contract length is 90 days, and your close rate is 50%. We always look 90 days ahead. When it gets beyond that, the results are less accurate. To calculate your ideal pipeline size, you want to take that $265,000 revenue goal we determined above:

*In this example, we set the days remaining in the period as 90 which means we’d be at the beginning of the quarter. If we were a month into the quarter, that number would be 60.

The calculation in the table above means you’ll want about $354,000 in your pipeline in order to make up that $265,000 gap. You can then compare that number to what you actually have in your pipeline. If you have $600,000 in your pipeline, you’re in good shape and on target to hit your goal. If, on the other hand, you have $100,000 in your pipeline, you’ve got a lot of work to do. If you’re in the range of $300,000 to $400,000, you’ll want to look at ways you can decrease your average sales cycle, reduce your contract length, or improve your close rate.

You need to understand your pipeline and how it affects the future health of your business. This metric is crucial to the future success of your business. Tracking these numbers and taking these steps will help you improve the performance of your pipeline and accomplish your revenue goals.

Summit CPA is a distributed accounting firm with a non-traditional approach to accounting. We have an amazing team of CPAs and accountants who provide professional Virtual CFO Services for companies all over the United States — many of which are remote companies as well. We fully understand the accounting, bookkeeping, cash flow management, and business tax nuances that come with being distributed, and we love helping our clients overcome these challenges through our own experience and expertise.