With the proverbial winds of change blowing the sales funnel into obscurity while the flywheel rapidly takes its place, it’s worth noting that the stages of the funnel are still relevant to the sales pipeline segment. As a prospect progresses from lead to customer, he moves through the stages from top to bottom, and this has the same impact on results. Since the way these stages are defined has a direct impact on the inbound sales cycle, both sales and marketing need to agree on the various stages in order to successfully build a pipeline based on the predictive revenue model.
How the Sales Pipeline Works
A sales pipeline is a visual representation of prospective new customers and where they are in the buying process at any given point. Pipelines also provide a picture of the potential sales the company expects during a particular period.
By assigning the various stages different weightings to represent the chance of a successful sale, you can not only predict the revenue the pipeline offers, but also evaluate whether it will achieve your goals. This type of weightings gives your pipeline more value than if it was merely a reflection of potential sales.
The pipeline makes use of quantitative data to track the number and type of prospects at every stage of the funnel, and can identify where sales methods can be improved.
The Pipeline Stages
At the top of your pipeline you have unqualified prospects, which are all the people who might need your product or service but you haven’t connected with them as yet. At the bottom, you have the people who have purchased your product or service, and who are now current customers of yours. Situations differ depending on the sales model, but a typical sales pipeline is broken up into between five and seven stages. These are:
This stage occurs when potential customers realize a solution exists that can solve their pain. This stage represents a long-term pipeline where the closing could be months in advance and the deal could come to nothing. At this point, a number of opportunities could be qualified out directly, either because there was no solid opportunity, or because the sales person declined to pursue it. Others, however, will convert into viable pipeline opportunities.
Why this stage is important: This phase is particularly crucial to enable executives to project future sales and predictable revenue.
At this point in the process, the possibility of a deal exists. The sales team is working to determine whether the customer has a genuine need for their products and services, and whether the company is a good fit as a supplier. It’s also a good time to find out if the prospect has the budget required to purchase, and if not, whether it can be found. This depends on being able to show compelling value, which may be easier with more innovative-type products.
Why this stage is important: At this point, management can decide whether it’s worth spending resources such as time and effort on pursuing the prospect. If they are only likely to purchase in the next budget year, for example, it may be worth handing the lead off to CRM for nurturing rather than following up any further.
During this phase, the prospect is trying to evaluate the solution’s efficacy when applied to his problem, and to decide whether to work with your company or not. The evaluation process could include consideration of competitors.
By now, your sales team may have given a formal quote or proposal, or just supplied approximate pricing and estimates. They may also be involved in presenting demos or arranging customer reference visits.
Why this stage is important: By now a relationship has been established and the prospect is definitely aware of the value your company offering delivers. Competitors may still be in the picture, so the deal is not yet a foregone conclusion. This stage could carry a weighting of up to 50% likelihood of getting the business.
Few sizable B2B deals are transacted without negotiation, which could apply to the buying process, pricing, features to be included, timeframe of delivery, follow up, service level agreements or quality standards. These negotiations take place before the final signing or transaction, because this is usually based on a package that includes all negotiated decisions.
Why this stage is important: This phase is critical for the long-term health of the relationship and the successful completion of services. Both parties should know exactly what they are signing up for, to avoid misunderstandings down the line.
5. Closed Won
Closed Won is when a lead reaches the bottom of your sales pipeline and has committed to becoming a customer. By this point, commercial terms have been agreed and the legal requirements met, contracts are being prepared for signature, and both parties are performing the necessary preparatory tasks. If you have written evidence of the commitment, you can celebrate. If not, it’s important to remember the deal is not yet signed and your sales team should maintain contact and momentum until the final step is taken.
Why this stage is important: This is the culmination of your sales team’s efforts to secure the customer, but it’s also the confirmation of your revenue predictions, if this applies. Until the contract is finalized, it’s not yet appropriate to hand it off to operations, and any hiccups in your workflow at this stage could still result in a lost deal. Don’t count your chickens before they hatch—it’s necessary to stay close until after the birthing.
Alternatives to the 5th stage are “Closed Lost’ and “Qualified Out,” both of which result in no purchase. Closed Lost is when you didn’t get the deal, and proactive sales managers should take a close look at the historical performance figures of the sales representative, the customer (if possible) and the process that was followed. It’s helpful to analyze these to determine how you and your team can learn from past mistakes. By grouping your lost deals by reasons you may be able to take a deeper dive to see if you can identify any trends indicating a leak in performance of your salespeople.
These stages are all important for the smooth operation of the sales pipeline, and the more closely you base them on data the better your insights will be. Your funnel could end up with more stages or less, but industry benchmarks indicate that two stages are not enough. It’s unlikely, for example, that a prospect will discover your product (stage 1) and be ready to purchase right away (stage 2). Neither will the data from two stages provide you with any useful insights.
Having more than six stages, however, is too many, because it causes the process to be diluted and you’ll find it difficult to determine drop-offs or differences between each stage. The sweet spot lies in between those numbers, with the typical 5-stage journey providing a good way to track the needs of a buyer’s during the journey.
The end goal is total visibility into every step of the buyer's journey. Once this is achieved, you can predict the ups and downs of your company's quarterly revenue reports with accuracy. We made a whitepaper on getting to exactly that point: