Sales pipeline metrics you should track to improve your sales conversion rates
A sales pipeline is a tool that allows sales persons effectively lead prospects from the initial contact stage to the point of sales. There are some important sales pipeline metrics you need to start tracking to measure the performance of your sales pipeline. Sales pipeline metrics are crucial metrics that help you track the health of your pipeline and identify sales opportunities, failing deals, and areas of improvement.
What is a sales pipeline?
A sales pipeline is a visual overview of prospects' stages in the sales process. Sales reps use sales pipelines to categorize prospects according to their stages in the sales journey. Such categories give sales reps and managers insight into the number of deals they have at hand, how many deals are likely to be closed, and the effectiveness of their sales process. These insights often inform the sales team's strategies to move prospects down the sales pipeline. An overview of the stages prospects are in the pipeline can also be used to forecasts anticipated revenue.
Sales pipelines have different stages based on your sales process. A sales process is an outline of every step in the sales process a sales rep must take to close a sales deal. As such, the pipeline allows sales managers to track each prospect as they progress through the different stages of the pipeline.
Stages of sales pipeline
There is no one size fits all sales pipeline. Your business model or product will determine your sales process.
However, the B2B sales pipeline typically has these seven stages;
Searching for an ideal customer is the first stage in a typical sales pipeline. It involves determining your ideal customer who will be interested in your product or services.
It is called building your buyer persona. After creating your persona, you can reach out to them with an offer. Sales person may reach out to prospects through cold emailing or cold calling.
You can also get lead opportunities through several lead-generation activities such as SEO marketing, social media campaigns, press release, organizing events, deploying lead magnets, influencer marketing, and referral programs. All these initial efforts help you identify people who are interested in your business or product, whether remotely or genuinely. The people who showed interest at this stage are at the top of your sales pipeline.
The second stage in the sales pipeline is to qualify the lead you have generated to determine whether they are a good fit for your business. According to statistics, 61% of salespeople find lead qualification a significant challenge. However, it has also been shown that 67% of sales are lost because sales reps did not qualify leads before sending them down the sales funnel.
Not all leads generated will eventually convert into a customer. The earlier you realize this, the better. As such, lead qualification prevents wasting time on unlikely-to-qualify leads.
To qualify leads, you can compare each lead to your buyer's personal to see if they fit into the criteria. You can ask the following questions;
- Are they in your target market?
- What is their pain point?
- Are they really in need of your solution?
- What is the revenue of your leads?
- Can they afford your products or services?
- Is your lead the decision maker in the company?
- Can the lead influence buying decision?
Answering these questions will help you eliminate unqualified leads and focus on those likely to convert to customers.
There are different types of leads; marketing-qualified, sales-accepted, and sales-qualified.
Marketing qualified leads have shown initial interest in your business by interacting with your blog or social media post, downloading your freebies( lead magnets ), or opting for a free trial. These leads qualify to be passed to your marketing team for aggressive marketing and promotion efforts to convert them to Sales qualified leads. Sales-qualified leads are prospects that the sales team has accepted as sales-accepted leads. Sales-qualified leads are prospects who are likely to buy very soon because they fit into your buyer persona criteria and have shown a level of intent to purchase your product. Their intention may be inferred by how they interact with your marketing effort, such as email drips. Some SQLs may ask questions about your product or respond to your emails. Several lead scoring tools may help you identify Sales-qualified leads and leads that still need more nurturing.
Contact or meeting stage
After qualifying your leads, the next stage on the sales pipeline is to schedule a meeting or discovery call with your sales-qualified leads. The purpose of the meeting is to identify their needs and explain the solution and values your company has to offer. Both parties are interviewing each other. You are trying to understand their condition and willingness to purchase as much as they are trying to know if you are the best fit to solve their pain point.
It will be better to prepare and present a sales pitch to convince them and win them over. Before the meeting, you should also research the company to gain a unique insight into its status and needs. This stage will clarify whether you will likely close the deal or it's going nowhere.
After going through the meeting stage, and it is obvious they are interested in being your customer, the next step is to present a proposal that outlines the prices, terms, and conditions of the deal for consideration. Your proposal should address all concerns the prospects raised during your last meeting. The information you gathered at the previous stage should help you customize your proposal to suit the potential customer's unique need.
This stage is fragile. The prospects are most likely considering other competitors, and they can choose them over you. As such, consider the following best practices in your proposal;
- Focus on the solution rather than your product.
- Propose different packages and price options.
- Write your proposal in simple and plain language.
- Add accurate data and statistics.
- Use visuals like graphs and infographics to make it look easier to review and evaluate.
- Add an FAQ section to answer any questions they may have.
Negotiation is another discussion stage between you and the prospect. This stage may be unnecessary if the prospect accepts the proposal and communicates the decision without asking questions.
The negotiation stage is where both parties discuss questions raised in the proposal. Negotiation may be about price, deliverables, and deliverable timeline. Here you must be very careful and bring your negotiation skills to the table. It would be best if you didn't have a winner-loser mindset, instead, hope for a common ground where there will be a win-win situation.
At this stage, you either win or lose the deal. Congratulations! If you closed the deal. The customer has either purchased your product or signed a contract with your company.
If both parties cannot compromise and you lose the deal, don't be dejected or lose hope in the client. You can still return them to a particular stage in the pipeline and start nurturing them again. Lastly, consider the steps leading to closing the deal and look for patterns and insights that can inform your future sales strategy.
The sales process does not end at the deal closure. You have to focus on delivering quality goods and services. You should make an effort to retain the customer and even upsell them. It requires more effort from your customer service and customer success team.
Benefits of a sales pipeline
It clarifies your sales process
The sales pipeline gives the sales team a clear picture of the steps that have to be taken to close each deal. Each sales team has a standard procedure to follow while handling contracts. Salespersons can easily visualize and track their progress at each sales cycle stage.
It helps track the growth of your sales team
The sales pipeline gives an overview of the deals in the pipeline. It showcases the business performance and overall sales progress. Sales pipeline provides an overview of the number of deals, the stages of the deals, and how close you are to reaching your sales goals. You will have access to prospect information, how much you qualify, those that need more nurturing, and leads that are likely to convert very soon. You will also be able to measure the effectiveness of your sales process and where there is a need for improvement.
towardYou can also track and compare the performance of sales representatives. You can discover those efficiently working towards meeting their target and those slacking off. Such insight will aid your sales and marketing strategy towards achieving your goals.
It can be used to forecast your revenue
You can easily predict your month-to-month revenue through sales pipeline analysis. It gives an insight into the deals you are likely to close each month.
It speeds up deal closure
With a streamlined sales process and insights from previous deals, sales reps can quickly work each prospect down the sales pipeline and close the deal faster.
Improves productivity and efficiency
An early lead qualification gives insight into leads that are likely to convert. With such an understanding, salespersons can focus on deals with a high probability of conversion rather than wasting time and resources on weak leads.
How to create a sales pipeline
Define stages of your sales pipeline
The first step in designing your sales pipeline is determining your sales process. Your pipeline stages depend on your business model, product, and prospects' unique buyer journey. Your sales pipeline stages must correspond with your prospects' buyer journey.
Defining your steps and categorizing your prospects gives you a clear direction. After that, consolidate your prospects' lists into your pipeline according to the stages they fit into. You will know the opportunities that lie in each step and those that are likely to convert.
Assign sales activities and resource persons to each stage
Each stage in the pipeline requires unique sales and marketing activities. Marketing qualified leads may need a strategic email drip to convert to sales-qualified leads. Who would create and send the email drips? Who would track the metrics to qualify them for sales?
Similarly, scheduling a discovery call or meeting with qualified sales leads is another activity at the next stage. Each stage requires different activities and a competent team to execute the task.
Determine the length of your sales cycle and the duration of each stage
A sales cycle is the time your salesperson takes to close a deal. It would be best if you determined how long it will take to drive each prospect down the pipeline. For instance, it may take two weeks of marketing effort to move marketing-qualified leads to sales-qualified leads. It may take additional two weeks to move through the meeting and proposal stage down to the negotiation stage. In total, your sales cycle may be 4weeks.
Defining the length of the stages and sales cycle gives insight into deals that may succeed. You can presume that deals not closed within the sales cycle will likely fail. Several factors may influence the length of your sales cycle, including your product's complexity, whether or not it requires customization, and the source of your lead.
Determine the size of your pipeline
The size of your pipeline depends on your sales goal. You must determine the number of opportunities you need at each stage of your pipeline to meet your sales plan for the given period. Remember that only some initial prospects will make it down the pipeline. Many deals will rot at different stages of your pipeline. As such, your pipeline has to be bigger than your sales target.
You need a benchmark of prospects that will go through each stage and eventually lead to successful closure. Such a benchmark is called yield rate or conversion rate per stage. The conversion rate at the prospecting stage will be lower than prospects at the negotiation stage. As such, you can assign both stages 10%/90%, respectively. Once you assign a specific percentage to each step, you can use the benchmark to estimate your monthly or quarterly revenues.
To determine how many deals you need to close at each stage to reach your target, you can take the calculation step by step. First, determine how many deals you need to lock in monthly or quarterly to reach your target. You can get this by dividing your target monthly or quarterly revenue by your average deal size.
After you get your target deal number, divide it by your yield probability per stage to get the number of deals you have to close at each stage. For instance, if your target deal in a month is 180 and your conversion rate at the negotiation stage is 90%. That means you need to have 200 prospects at your negotiation stage.
You can repeat this process to reach your target for each stage. Once you get the total number of deals you need at each stage, you can divide these deals by the number of salespeople.
1. If you need to close 2500 deals to reach your sales goal in a year and you have 100 sales reps,
- 2500÷ 12= 208 deals per month
- 208÷100= two deals per salesperson in a month.
2. If you need to send 5000 proposals to reach your annual sales target,
- 5000÷ 12=417 proposals per month.
- 417÷100= 4 proposals per salesperson in a month.
You can use this method to calculate the number of deals you need at every stage of your pipeline and what your salespersons require to reach the target.
Routinely clean your sales pipeline
Regular clean-up of your sales pipeline is necessary to have a realistic sales forecast.
Only some deals in your pipeline will lead to sales; several deals will rot at different stages. However, leaving the rotten deals in the pipeline will affect your sales forecast in the long run because you will continue to estimate your revenue based on the unrealistic number of deals. Consequently, there will be a wide gap between your forecast and actual sales.
Have an established length for your sales cycle and each stage of your sales pipeline. Deals exceeding these lengths can be regarded as dead and have a very low probability of conversion. As such, they should be cleaned off your pipeline.
Measure the performance of your sales pipeline
How well are you achieving your sales goals and targets for each stage of your pipeline? After setting your sales pipeline in motion, you need a regular analysis to determine how the pipeline is helping you reach your sales goals.
How to measure sales pipeline performance
You can track several sales pipeline metrics to measure your sales pipeline's progress and success. Sales pipeline metrics will give an insight into your performance at each stage.
You will know whether your deals are stalling and whether marketing and sales strategies are working to meet your company's sales goal. The insights from these metrics will shape your strategy and sales process and will improve your sales pipeline management.
Essentials sales pipeline metrics
The following are essential sales pipeline metrics that will help your sales and marketing teams improve their conversion rates.
Number of qualified leads
Not everyone lead generated during the prospecting stage has the power to convert. Qualified leads are prospects who meet your ideal customer persona, respond to your initial promotional activities, and are likely to convert if nurtured. Qualified leads give you an insight into the number of opportunities waiting to be grabbed by your sales team.
To reach your monthly or quarterly sales goals, you need a lot of qualified leads at an early stage of your sales pipeline. You have defined your ideal customer to get more qualified leads and create a marketing campaign addressing their pain points or desires. Once you acquire more leads, employ an excellent lead-scoring tool or formula to qualify them and eliminate bad leads.
Average sales cycle
The average sales cycle refers to the time your salespersons will take to move leads from the initial contact stage to the sale. Your average sales cycle is critical to tracking the performance of your sales pipeline and forecasting your revenue. With an established sales cycle, you will have insight into deals that are rotting in your pipeline, having exceeded the typical timeframe. Rotting deals will give you insight into marketing and sales strategies that need to be fixed and how to improve them. For instance, you may send out w follow-up emails to the stagnant leads to know why they are not forthcoming and what you can do to help.
If the rotting deals refuse to convert despite extra efforts, you must wipe them off your pipeline. You will likely arrive at an inaccurate estimate if you include these rotten deals in your revenue forecast. It is essential because your revenue forecast will consider the number of opportunities in your pipeline rather than the number of closed deals.
Several businesses make the mistake of defining their average sales cycle by industry standards, which can be misleading sometimes. Your average sales cycle length should be peculiar to your business, considering your historical data, the nature of your product, and the company's size.
Average sales cycle formula= Total days/number of deals won.
To get your company's average sales cycle length ;
- Sum up the total number of deals you've closed within that period.
- Add up the number of days it took to close those deals.
- Divide the total number of days by the number of deals.
You closed four deals within a given period. Each took 15:20:25:30 days, respectively. Your average sales cycle will be ;
15+20+25+30/ 4= 23days.
MQL and SQL conversion rate
MQL and SQL conversion rate, also called Lead to Opportunity Conversion Rate, is a sales pipeline metric that tracks the number of marketing-qualified leads eventually converted to sales-qualified leads. It measures the effectiveness of your marketing effort and the number of deals likely to lead to sales. This metric helps you assess the quality of your leads and the effort of your marketing team toward qualifying screening leads to maintain a high-quality sales pipeline.
Industry research of over 100 companies' pipelines found that only 13% of MQLs convert to SQL, and it takes an average of 84 days for the conversion to happen. Despite the industry benchmark, your conversion rate will depend on the source of your lead. As such, it is not encouraged to buy email lists. Instead, gain them through your marketing efforts.
MQL and SQL conversion rate: SQLs / MQLs.
Your marketing team qualified 1000 leads. Out of the 2000 SQLs, 450 responded to your marketing outreach and are authorized by your sales teams as SQLs. Your MQL and SQL conversion rate will be 450/1000= 45%.
Win rate is the sales success your sales team generates within a certain period. It represents the number of deals that ended up in sales- the number of qualified leads you could convert to customers. Win rate is an essential sales pipeline metric that reflects your team's performance, shows the area of improvement, and can be used to predict future sales performance.
According to the Rain Group Centre for Sales Research, the industry average sales win rate is 47%. This benchmark results from a survey of 472 companies' sellers and sales executives where each company's sales team strength range from 10-5000+.
If your win rate is low despite several qualified leads, you may need to review your sales process and improve your team's sales training. On the other hand, if your win rate is high, but you are not reaching your sales goal, it may indicate low-qualified leads. As such, you should improve your prospecting and marketing efforts.
You can also evaluate each salesperson's performance by the number of sales they can win within a specified period.
Win rate = (total amount of sales/amount of sales opportunities) x 100
You have 1000 qualified leads at the beginning of a quarter. Out of the 1000 sales opportunities, 250 deals were successful. Your win rate for that quarter is (250/1000) × 100= 25%.
Average deal size
Average deal value refers to the value of a deal. That is, the average revenue you can generate from a contract. Average deal size is an essential sales pipeline metric because it helps in revenue forecast and measuring how many deals you need to close to reach your sales goal. Aside from that, average deal size aids the effective allocation of resources. When sales reps know the average value of a deal, they will learn how to prioritize their effort to achieve the company's sales goal.
Average deal size also affects the sales cycle. Deals that generate higher revenue, like enterprise deals, may take more time to close than smaller deals. Concentrating on such large accounts may be a poor decision because smaller versions with faster cycles have the potential to generate more revenue toward reaching your sales goals in the long run.
Average deal size = Total value of won deals/ total number of deals( or opportunities)
Within a quarter, your total sales revenue is $50,000, and you generated the revenue from 50 deals. Your average deal size is 50,000/50= $1000. if your sales target for the next quarter is 100,000 dollars, you know you have to close 100 deals to achieve your goal.
Sale velocity, also called pipeline velocity, is a sales pipeline metric that measures how fast sales person moves deals through your pipeline and generates revenue. It shows how much your sales team generates daily from the pipeline deals.
Sales velocity reflects your business's health, your sales team's performance, where the team is slacking, and areas that require improvement to boost sales productivity and overall revenue.
As a team, it is good to aim for a fast velocity. The faster you successfully drive deals down the pipeline, the more time you will have to close more deals and achieve your goals.
Sales velocity is made up of four variables;
- Number of Opportunities
- Win rate
- Average deal value
- Length of the sales cycle
Sales velocity; the number of deals in your pipeline × the overall win rate percentage × average deal size/length of sales cycle (days).
You have 100 qualified leads in your pipeline. Your average win rate is 40%. Your average deal size is $1000. Your average sales cycle takes 20 days. You pipeline velocity = 100×40%× $1000/20 = 2000. This means your sales team is generating $2000 per day.
To increase your sales pipeline velocity, you must adjust its variables. You should aim at increasing the number of opportunities in your pipeline, win rate, and average deal value. On the other hand, strive to decrease the length of your sales cycle.
Customer acquisition cost refers to how total cost of sales and marketing team expenses it takes to acquire a new customer( to win a deal). Analyzing this metric and other metrics, such as customer lifetime value, will help you determine the profitability of your sales pipeline. Ideally, it would be best to aim for lower customer acquisition costs relative to your total revenue.
Customer acquisition cost = Total sales and marketing expenses \ total number of newly closed deals within a given period.
Your team spent $7000 on marketing and sales expenses to acquire 50 new customers within a month. The cost of acquiring each customer will be $7000/50= $140 per acquired customer.
It is a metric that measures the total revenue your business will generate from a customer throughout your business relationship. It is not just the value of a deal in the pipeline but the real value it will continue to generate after conversion.
Customer lifetime value is critical, especially for Saas companies with monthly recurring revenues. It helps salespersons and customer service teams prioritize their effort to acquire and serve high-value customers.
Average customer lifetime value: purchase value × customer lifespan
The ratio of Customer lifetime value to Customer acquisition is an important metric that helps you determine your ROI. It compares the amount you spent to acquire a customer to how much revenue you generated from the customer throughout your business relationship. These ratios will either reflect your profit or loss.
If your LTV: CAC ratio is 1:1, you broke even; with no loss or gain. A 5:1 shows you are making 5× each dollar you spent to acquire a customer. It is generally believed that Saas companies should aim for a ratio equal to or above 3:0. Anything below that is considered not a good performance.
LTV: CAC= Customer Lifetime Value) / (Customer Acquisition Cost)
A salesperson closed five years accounting subscription deal worth $500 annually. The team spent $200 to acquire the customer from deal initiation to closure. The LTV: CAC ratio will be ;
- LTV = 500×5= $2500
- CAC= $200
- LTV:CAC = 2500/200= 13:0.
Total pipeline value
Total pipeline value refers to the sum of all deals in your sales pipeline. This sales pipeline metric helps you estimate the value you expect from all pipeline opportunities and the probability of closing each deal. The knowledge of your pipeline's total value will aid in effectively forecasting your sales performance and preparation for achieving the goal.
Adding everything together at the initial stage will not give a realistic result. As the leads progress through the steps, the value of the pipeline will decline. Since only some deals in your pipeline are likely to close, breaking down the pipeline value by stages is better.
Total pipeline value; Number of deal× average deal size.
You have 100 deals in your sales pipeline. The average value of each contract is $300. The total value of your sales pipeline is ;
Deal profitability refers to the total profit you gain from deals in your sales pipeline. It is often referred to as the number of gross revenues in your bank account after a deal. To measure deal profitability, you should only include deal-specific costs. It consists of the following;
- Cost of a discovery call.
- Staff traveling expenses for a physical meeting.
- Staff and client entertainment expenses during the meeting.
- Hourly wages of staff during the meeting.
- Other miscellaneous expenses.
Deal loss reasons
In as much as losing a deal hurts, there is still some insight to gain from the circumstance. You should forget deals once they are lost. Instead, track why you fail to close the deal and identify what you can do better to salvage similar deals in the future.
Lead source is also an essential sales pipeline metric. It shows the first point of contact of each lead with your business. Prospects who willingly release their email address and other personal info on your website or any other channel are more likely to respond to your inbound email marketing than bought email lists. The lead source will determine the conversion rate of your MQL to SQL.
The lead source also gives you insight into channels that are driving the most leads so that you can intensify your effort on them.
Measure the health of your sales pipeline
The sales pipeline is an essential tool in your sales arsenal. It doesn't just help you drive your prospects to sales. It gives you meaningful insights into your business performance. The health of your sales pipeline is crucial to achieving your sales goals. You can measure the health of your sales pipeline through effective pipeline management, which involves regular review of your pipeline and tracking essential sales pipeline metrics.