5 Metrics to Manage Your Sales Pipeline

Naturally, salespeople are obsessed with sales, for closing deals is ultimately how they’re measured and rewarded. However, close behind in the attention of revenue team professionals, particularly managers and leaders, is the sales pipeline, a forward-looking instrument for the closing of future sales.

What is a Sales Pipeline?

Your sales pipeline represents where your leads reside in your selling processes and is an aggregate total of the potential deals on which your team is working. The sales pipeline allows your revenue team to draw conclusions and forecast upcoming revenue. As a result, your sales pipeline provides a snapshot in time of the relative health of your business.

Importantly, a sales pipeline is not a sales forecast. Your sales forecast is the value of your open Opportunities you expect to advance to closed/won in a given period.

While your sales pipeline is a simple aggregate of your potential deals, it’s not so simple to calculate, as you can take several different approaches. It’s important to develop an accurate sales pipeline, not only to help you develop your sales forecast, which is so critically vital for your business but to also help you tactically manage each individual deal to advance it to closed/won status.

This post covers the managerial metrics related to your sales pipeline that will empower your revenue team to succeed. But, before you can manage your sales pipeline, you must first calculate your sales pipeline.

Calculating Your Sales Pipeline

Calculating your sales pipeline requires you to make several foundational decisions.

Some organizations segment their sales pipelines to match their prospect’s buying journey. In a very broad model, those segments include awareness, consideration, and decision. Some organizations though, particularly those with very complex solutions and correspondingly complex buying journeys, might create several additional sub-segments, like calls/meetings conducted, proposals, negotiations, and more.

Ultimately, regardless of stages in your selling process, you’ll want to measure opportunities when creating your sales pipeline.

A relatively conservative approach is to create opportunities in Salesforce only after a sales development representative (SDR) has engaged personally with a prospect and determined that a potential deal is feasible. At that point, the SDR can create the opportunity in Salesforce. But, importantly, the dollar value of the opportunity is set, initially, at zero.

The opportunity is then routed to the appropriate account executive (AE), whose responsibility is to engage in a qualifying conversation with the lead. If the AE qualifies the lead and opportunity, then a realistic dollar amount can be attached. If the opportunity is not qualified, it can be removed from Salesforce.

Adopting a conservative process like this ensures your sales pipeline is accurate — it provides a built-in “reality check” as opposed to having placeholder amounts attached from the very get-go. You’ll likely also see an increased conversion rate in moving Opportunities to closed/won.

Of course, this type of conservative approach also puts additional pressure on the entire revenue team to generate more leads and their resultant opportunities through their prospecting efforts.

Once the process of building your sales pipeline is in place, you’ll want to examine it regularly. Often, that’s daily for sales and marketing team leaders.

One thing to be cautious of is what Don Otvos, vice president of revenue operations at LeanData, calls “Zombie Opps.” Those Zombie Opps are opportunities pushed by salespeople from one quarter to the next, whereupon they rise again from the dead to appear, once again, in the sales pipeline.

A helpful, free tool on AppExchange is the Salesforce-native Opportunity Push Counter, which measures how often an Opportunity has been pushed from one month to another. If an Opportunity has been pushed multiple times, it might be an indicator that it’s not viable, and revenue team leaders should take a deeper look at its details.

With a sound sales pipeline in place, it’s now time to calculate five key metrics to help you best manage it.

Five Metrics to Manage Your Sales Pipeline

Number of Opportunities

Okay, your first metric is a bit of a gimme, a simple compilation of the total number of your open opportunities. Tracking the number of open Opportunities helps identify any seasonality in your business, and in comparing your progress year-over-year in the volume of Opportunities your sales and marketing teams have developed.

However, the true value of the number of Opportunities metric lies in its importance in the calculation of other managerial metrics, including both win rate and sales velocity, both mentioned below. Your number of Opportunities is a foundational metric — ignore it at your own peril.

Win Rate (Qualified Leads to Sales Ratio)

Your Win rate is the percentage of Opportunities in your sales pipeline that progressed to closed/won. Win rate is calculated as:

Calculating win rate provides value for a couple of very different applications. First, your win rate delivers insight into how much sales pipeline your team needs to develop to meet established sales quotas and revenue goals. For example, if your win rate has held rather consistently at 25 percent over the past several quarters or years and you have a goal of generating $10 million in sales, your revenue team should target building a healthy sales pipeline of $40 million ($10 million/0.25).

Additionally, your win rate helps you identify performance differences throughout your business. Do win rates significantly differ by lines of business, geographic regions, salespeople, and/or other factors? Dig deeper into your win rate to identify Opportunities for continuous improvement, deploy corrective actions, and coach up your team.

Average Deal Size

Your average deal size is the simple calculation of the average amount of revenue generated by your closed/won deals. The calculation is:

Use your average deal size to analyze each individual deal and identify any variables that affect the total dollar amount. What are the factors that tend to cause any particular deal to be significantly higher — or lower — than the average? Of particular importance can be the evaluation of salespeople and the identification of coachable opportunities. If sales representatives in similar markets have dramatically different deal sizes, understand the key differences, and coach for improvement.

Sales Cycle

Your sales cycle is the average number of days an Opportunity took to reach closed/won status, and it’s a valuable metric in developing your sales forecast. Your sales cycle is calculated as:

Your sales cycle tells you the average time needed to win a deal. Consider taking an even more granular approach and dividing your sales cycle into the number of times deals tend to reside in the various stages of your sales funnel/buyers’ journey. Doing so can provide a useful map to not only identify obstacles that tend to slow deals down, but to also provide a bit of proactive guidance on current Opportunities that might be stagnant in a particular stage.

Sales Velocity

Your sales velocity measures the speed at which an Opportunity moves through your sales pipeline to a closed/won result. The calculation of your sales velocity is dependent on the four foundational metrics mentioned above, and is expressed as:

Your sales velocity shows the rate at which your go-to-market team generates revenue. Determining the speed Opportunities move through your sales processes allows you to identify where your process works well and where it might be able to be improved.

Your sales velocity also indicates the relative strength and health of your business. The sooner your revenue team converts leads and contacts at accounts with open Opportunities into customers, your free cash flow improves.

Keep an eye on your sales velocity whenever you make changes to your sales processes and growth strategies, be it adding personnel, changing territories, changing your product/solution portfolio, evolving your positioning and messaging, or another. Naturally, any changes your team makes should accelerate your sales velocity, not slow it down.

What if you don’t make changes to your sales processes and growth strategies? Well, again, sales velocity can shed insights into how external factors like competition, macroeconomic conditions, and others affect your business.

When considering your sales velocity, it’s important to note there’s no magic wand to wave to improve it. Sales velocity is the result of the first four foundational metrics mentioned. If you want to improve upon your sales velocity, you need to improve upon one or more of its dependent variables — number of Opportunities, win rate, average deal size, and sales cycle.

Manage Your Sales Pipeline to Grow Your Business

Simplistically, your revenue is determined by your conversion rate of the sales pipeline you build. To grow, increase your rate of conversion, increase your sales pipeline, or do both!

Don’t stop at simply calculating your sales pipeline. Use the metrics above to proactively manage your sales pipeline, including:

• Identifying Opportunities at risk
• Discovering the variables that characterize your biggest and best closed/won deals
• Improving the performance of your revenue team
• And, ultimately, improving the quality and accuracy of your sales forecast

About the writer: Ray Hartjen is the Head of Content Strategy at LeanData, a SaaS provider of native Salesforce applications and an industry leader in the lead-to-account matching and routing space. He’s currently finishing the book, Immaculate: How the Steelers Saved Pittsburgh. Connect with Ray on Twitter, LinkedIn, & Trailblazer.