The Value of Measuring your Sales Pipeline

Think about the last time you bought something expensive. A car, perhaps, or a new computer. Or a home theatre system. Or even a night out at an expensive restaurant with your partner.

I’m willing to bet that you paid pretty close attention to the performance of your purchase. Would you have been disappointed to hear rattles and squeaks in your new car? Do you think you would have been disappointed if the wiring on that home theatre system was faulty? What if your romantic dinner fell flat because the service was so poor it took three hours to get your main meal?

In our own lives, we measure the performance of our purchases every single day. We hold them up against the standard to which we expect them to perform, and then we assess how well they match up. We might take a car back to the dealer and demand that it is fixed, which will tell the dealer that we were disappointed with what he or she sold us.

But what about the restaurant owner? If we don’t complain to them directly, they will never know why we left and never came back. Studies have shown that of all the people who have a problem with the service or product offered by an organisation, fewer than 4% actually complain to the seller about their experience.

If that is so, how many of your potential customers have problems during your sales process, and you never hear about it? They haven’t even made a purchase and so have no post-purchase dissonance to drive them to make a complaint—instead, they will offer vague platitudes such as, “I’ll discuss it with my colleagues and I’ll get back to you” or “we’re a bit busy at the moment, but give us a call in three months”. With Marketing and Sales being the primary avenue for attracting new customers, measuring Sales’ performance should be a critical activity; attracting a new customer costs 5-8 times as much as retaining an existing one.

Measuring Sales’ performance in the context of the sales pipeline does not have to be difficult. The starting point, as always with a sales pipeline, lies in developing a series of stages through which a buyer will progress as they move towards purchasing your product or service offering.

Whether you’re selling cars, nights in a restaurant or widgets, if you’re working in business-to-business Sales there are five fundamental stages that you should be able to recognise within your sales process:

You may well have a sales process that varies slightly on this theme. Perhaps your prospects engage in a two-round selection process where they first select a predetermined number of preferred proposals and then ask those selected parties to submit more information, in which case you would add an extra stage to the list above. Or perhaps you don’t send proposals, you only provide quotes.

Regardless of the variations, you should be able to recognise the stages above underlying your own sales process.

The next step is to measure prospects’ progress through the stages. To do that, you need to know two pieces of information: how many prospects you made contact with in the first place, and how many of them make it to each subsequent stage.

Measuring the number of prospects fed into the beginning of your sales pipeline shouldn’t be too difficult. For additional insight, you may wish to separate your prospects by the channel through which they were contacted: direct mail, phone, face-to-face, or whatever channels you have chosen to use.

The next step involves gathering information on how many prospects are at each stage of your sales pipeline.

The best way to get this data is to have a central database of prospects that is updated in real-time by the salespeople who are dealing with the prospects. This database can be as simple as an Excel spreadsheet or as complex as a module within your preferred CRM software package. However, although the database can be quite simple, the activities involved in keeping it updated in real-time are, if not exactly complex, at least time-consuming, and the chance of someone forgetting to make an update is probably higher than is desirable.

If updating a central database in real-time is too much trouble, you can always use regular meetings of sales staff to get updates on prospects, and update the same database at those regular intervals, whether it’s once a week, once a month or once a quarter. The length of time that is appropriate will be dependent on the length of your sales process.

If that also is out of reach, there’s no reason why you can’t simplify things even further by compressing the stages of your sales pipeline to the ones you know you can measure. For example, a compressed set of sales pipeline stages may look like this:

These three stages are quite simple to measure and will at least give you some insight into when prospects are leaking from your pipeline.

So what do you do with this data once you have it?

To illustrate, let’s consider an example.

The National Manager Fleet Vehicles (let’s call him Cameron) for a local automotive manufacturer is looking over his sales figures and notices that the volume of year-to-date sales has dropped 10% since the same time last year, and gross profit has dropped by 18%. On perusing the figures more closely, he is able to determine that, compared to the same time last year, more fleet buyers are selecting smaller imported vehicles over the locally-made six-cylinder car. That explains part of the downturn in gross profit, as the margin on imported vehicles is smaller. What is not explained, however, is why the volume of sales is down.

Cameron decides to consult his top Sales staff and asks them what process they go through to make a sale. After some discussion he determines that the stages of his sales pipeline are as follows:

Over the following six weeks, Cameron asks his Sales staff to update a central database once a week with information on where prospects are in the sales pipeline. After six weeks, he is able to construct the following sales pipeline:

Cameron realises that his conversion rates are lowest in two places: going from open dialogue to negotiation and going from submitting tenders and proposals to signing contracts.

Armed with this information, Cameron is now able to narrow the areas of his search for a solution. He might choose to conduct an audit of Sales staff activities. He should certainly talk to clients and prospects about what is making them uncomfortable enough that they feel they’re unable to enter into proper negotiations.

Without the information he has gathered, Cameron would be left with two options: taking a scattergun approach and trying to fix the entire sales process, or choosing where to focus his efforts based on his “gut feel” about why, how and where things are going wrong. With the information, Cameron will also be able to construct a much more compelling business case for funding, should he need to do so. With the information he can gain from talking to prospects and clients, and from observing the activities his Sales staff are currently performing, Cameron will be in a much better position to choose new tactics that will improve his sales.

In sum, there are three things you absolutely need to know about your sales pipeline before you can begin to use it as a sales management tool. Firstly, you must know the stages of your pipeline, whether you choose to view them from the point of view of the buyer or the point of view of your own sales process. Secondly, you must know how many prospects you contact. And thirdly, you must be able to measure, in one fashion or another, the progress of individual prospects or groups of prospects through that pipeline.

Whether we realise it or not, and whether we use it or not, we all make sales to prospects through a sales pipeline. It’s up to you how you choose to capitalise on your sales pipeline, but to do so in any way you must first measure it.

© Change Factory 2008.

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