What is a Sales Pipeline, and why is it important?
A Sales Pipeline is a useful concept used by Sales Managers, individual sales staff and the owners of small businesses to quantify the demand for their products and services. Regardless of what you’re selling, by effectively managing your sales pipeline, you can smooth out customer demand and create a more stable sales cycle with more reliable results.
A sales pipeline works by placing cohorts of leads or prospects at the different stages of the sales process/sales cycle, and then measuring their progress through the pipeline, from unqualified lead to satisfied repeat customer.
Unfortunately for you and me, the pipeline has a tendency to leak. Leads and prospects fall out of the pipeline on the way, failing to become the happy customers we know they could be.
At a gross level, sales pipeline management is nothing more than estimating incoming cash flow. We look at our leads and prospects, make some estimates of the likelihood that they’ll eventually buy our products and services, and feed that information along with their expected spend into our projections to find out how much revenue we’re expecting to make.
But the real power of sales pipeline management becomes clear when we establish proper metrics and put processes in place to respond to changes in those metrics. To illustrate, consider the following story.
A retail sales client of ours once called us to ask if we could help him improve his company’s sales. He explained that sales revenue was not high enough, and that his staff needed training in closing sales, so that they could close more sales and therefore improve sales revenue.
When we spent some time with his staff, it became clear that there was nothing wrong with their ability to close sales. Instead, we found that staff were finding it difficult to start or carry on a conversation with a customer. Most potential customers were walking into the stores, then walking out again without really having an opportunity to talk about the products they wanted to buy.
By analysing the sales pipeline and the particular points within the sales process where more customers were “leaking” from the pipeline, we were able to determine that the biggest problem staff had was not in closing sales, but in opening a dialogue with customers.
Once we established that, we ran some training courses and created training aids designed to assist staff in opening a sale and keeping a conversation going.
Year on year sales at each store increased by up to 20%.
There are several benefits to managing your sales pipeline effectively:
- By focusing on the entire pipeline instead of taking a short-term focus on closing sales, or getting a single high-value contract over the line, demand for your services will be smoother and your cash flow more reliable.
- Making incremental improvements of as little as 1-2% in your conversion rates can increase your sales by much more; for more information read our article on boosting sales by improving conversion rates.
- An in-depth analysis of when and why your leads and prospects leak from the pipeline will pinpoint specific areas for improvement and help you get far more value for your training dollar.
- If you keep track of which prospects leak from your sales pipeline and which prospects don’t, you can construct a profile of prospects who are more likely to buy and prospects who are less likely to buy. This knowledge will help you to focus your marketing material and allow you to more accurately qualify your leads, leading to a more streamlined, more efficient and less costly sales process.
- Once you have established an accurate sales pipeline, you can use it to plan for new product launches. If you were to plug all the information about your new product into an existing sales pipeline, you would quickly get a pretty good idea of how many leads you’re going to have to generate to reach your new product’s sales target. This will in turn assist you in deciding how to launch the product, and give you an idea of how much it’s going to cost. If you’re going to need 500,000 leads to reach your sales target, you’re probably going to have to look at a mass market advertising campaign.
In the information age, it always pays to be informed.
© Change Factory 2008.
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