Whether you are the CFO of a Fortune 500 company or the only employee of your freelance consulting outfit, your cashflow is predicated on your understanding of how you turn strangers into customers. The sales pipeline is a visualization of the buyer’s journey – a place where you can organize qualified prospects according to where they are in your sales cycle and how close they are to making a purchase.
Sales pipeline analysis is the act of assessing why contacts succeed or fail in passing through the last stretch of activities before closing the deal. This analysis is done with key metrics that you can and should track with the help of a CRM or equivalent tool.
Laying a data-driven foundation for your sales pipeline
If I asked you how close a specific prospect was to making a purchase, you might give me a percentage, or a measure of time, or a hunch. Now, consider that you have 1500 prospects that your entire sales team is working. In order to scale properly, you can’t just slap a hunch on every prospect at the end of your funnel. You’re going to need some categories and definitions that your whole team can depend on and organize prospects under. That’s where deal stages come in.
Some call the sequence of stages at the very bottom of your funnel the “sales cycle”, but no matter its name, you need to divide and sequence the steps your sales team and buyers take together before making a purchase. Breaking down the specific experiences your potential buyer goes through is the first step to providing data-backed, actionable insights around the system your sales team uses to close leads.
Different companies need different deal stages
There isn’t one specific sequence of deal stages that is considered best practice. We recommend starting your pipeline out with leads that need to be nurtured more, and ending with leads that have closed, but this can look different from company to company.
If you run an e-commerce website, your sales pipeline will be simple - perhaps even transactional with just a few stages.
If you’re selling a B2B service with a complex sales cycle that includes pitching, negotiation and approval processes, for instance, the pipeline will be really handy since it can lay each of those processes out in its own phase. Below is a basic example of a sales pipeline in HubSpot using deal stages. Yours will probably look different.
A sample pipeline with deal stages and close probabilities
Every sales pipeline should follow the basic inbound funnel, in which the buyer progresses from awareness to consideration to decision. Here’s an example of a (fairly generic) B2B bottom-of-the-funnel sales pipeline, broken down into six distinct deal stages.
- Nurture awareness and interest – in which the sales rep engages an SQL on their product. 10% likelihood to close.
- Solutions Meeting Scheduled – in which the prospect learns how their problem can be solved by your organization. 35% likelihood to close.
- Proposal Built & Sent – in which the prospect is given an opportunity to make a purchase on the previously discussed solutions. 65% likelihood to close.
- Proposal in review – in which the prospect reviews the proposal, contract, scope of work, etc. with their decision makers. 75% likelihood to close.
- Closed | Won – The proposal is signed, and the money exchanges hands! Congrats! You got yourself a closed deal. 100% likelihood; closed.
- Closed | Lost – The prospect backs out of the deal. It helps to also keep a record of things like aspects like bad timing, bad fit, or not enough budget (among others). 0% likelihood; closed.
Your deal stages should be custom-made for your sales team’s process and the activities your prospects take on their journey to purchase.
Metrics to track
What is analysis without data? In another post, we go in-depth on the most important sales pipeline metrics. We’ll list them out here, but if you need more info, head to that link above. Some of these will come in handy in a sec.
- Average deal/opportunity size
- Number of opportunities in each stage
- Average sales cycle length
- Sales pipeline velocity
- Drop-off rate between each stage
- Conversion rate between each stage
- Likelihood to close at each stage (as a percentage)
Measuring Pipeline Health and Prioritizing Opportunities
Now analyze your metrics to measure the health of your pipeline and the likelihood of certain deals to succeed. Compare your averages to real items in the dataset to derive the proper next steps.
- Weighted Deal Sizes
- Multiply the deal size ($) by the percentage of its likelihood to close. This shows you a more realistic look at the potential impact on revenue that the deals in your pipeline have. Prioritize your sales team’s efforts on the highest weighted amounts.
- Opportunity age vs. average length of sales cycle
- It’s always good to keep in mind how long a deal takes to close, and if you have a deal going stale in the first stage of your process, you can make the educated decision to either part ways with the contact (move to closed | lost) or make a more aggressive push to convert them to the next stage.
- Current Average Opportunity Size vs. Average Deal Size Won
- Size refers to dollar amount. This takes the average of all of the opportunities in your pipeline and compares it to the average size of deals that you’ve historically closed. If you’re trying to close bigger deals, this is a way to measure your efforts toward that objective. If your current average opportunity size is way higher, then perhaps you need to get with the marketing/prospecting team and aim for leads that are more in your weight class.
- Overall Close Rate aka Win Rate
- You’re already able to see the percentage of prospects converting between each stage, but get a bird’s eye view by looking at what percentage of the total amount of opportunities in your sales pipeline are closed.
Seeing What Works: Attributing Success
Let’s classify “what works” as any factors or sales activities that we can attribute to a successful conversion from one deal stage to the next. A successful conversion would be when your sales rep has been working an inbound lead for some time and finally schedules a meeting to talk about their problems and solutions.
Drill down in between each stage, and pull out the conversion rates. Make note of these, and begin to think actionably about how you can improve them.
Now, find specific contacts that have converted recently. It may help to focus on the prospects who fit your ideal buyer persona. Begin to sniff out why they converted by:
- Looking into their contact records
- Speaking with your sales team
- Tracking the activities that prospects are engaging in
- Seeing which sales reps are converting the most prospects
Seeing What Doesn’t Work: Identifying Drop Offs
A “drop off” is when you lose an opportunity in your sales pipeline. In your CRM, it will look like a prospect moving from their current deal stage to the closed | lost stage.
It’s the other side of those conversion rates, and surprise, understanding what causes drop offs is the same process as understanding what causes successful conversions. From month to month, keep an eye on these rates, and try to diagnose and treat the issues that may cause a lead to drop off.
Is your sales department taking too long to respond? Is your marketing not providing leads that are truly qualified for sales? Does your opportunity not have enough information to make a confident decision?
Add another level of analysis by segmenting your Closed | Lost leads according to the relevant reasons. This is valuable data that your sales team should be recording on all lost relationships. These reasons can look like:
- Not enough budget
- Bad timing
- Lost to competitors
- Sloppy handoff
Running a Sales Pipeline Review
Meeting with your team to discuss where things are in the pipeline, what to be cautious of, and how to move forward is crucial. Some guidelines to follow for every review:
- Use the data and metrics mentioned above as conversation points in your review, but also have your team them in mind when working the deals.
- Focus on the opportunities with the highest weighted deal size first.
- Summarize where each deal is and how long it’s been in that stage.
- Recognize what factors might cause each deal to drop off and why, then solve to mitigate that risk.
- Finish up by walking out of the meeting with action items for the high-priority opportunities.
Putting all of these metrics to work takes time and effort but it stacks up to the greater goal of bringing in more sales in less time.
More sales in less time is actually the subject of our latest and greatest long-form piece: Understanding and Achieving Revenue Growth
Hit the link for over 8000 words of highly researched, highly helpful competitive advantage, all for free and all for you!
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