Your Sales Pipeline is NOT Your Sales Forecast

Understanding that no two sales pipelines are exactly the same, there’s a general flow that most follow.

Typically, pipeline models start with discovery, prequalification and qualification, before they move on to stages like solution design, customer evaluation and proposal delivery. Lastly, there’s a stage (or stages) for negotiation and closing.

Yours might follow that format exactly or it might have more (or fewer) steps but what is standard is that leads go in the top as opportunities and come out the end as wins or losses. In between, they’re nurtured and developed to improve their chances of progressing through the pipeline.

But you knew that already, didn’t you. So why am I attempting to bore you with an elementary-level sales refresher?

Because many organizations confuse their pipeline with their forecast – or don’t recognize the difference between the two at all. That’s a big problem. Because to create true sales predictability it’s critical to consider both independently and to have your pipeline numbers influence your forecast output.

A sales pipeline is a view of all of your opportunities. As such, it must show everything – from a newly identified opportunity through to opportunities ready to close.

A forecast, on the other hand, is only that smaller segment of your pipeline used to forecast expected revenue in a specific time period.

The mistake most sellers make is that they think only about the middle and latter stages (proposal delivery and negotiation, for instance) of their pipelines and ignore the top end of unqualified leads.

The reason? Salespeople don’t like to put unqualified opportunities into the top end of their pipeline because they think those opportunities must become part of their forecast and they fear committing to deals they aren’t certain about. As such, they only want to put deals in their pipeline when they’re sure that they will close.

The problem with this behavior is that it makes gauging pipeline health impossible for sales leaders and prevents you from:

  • Accurately predicting future revenue
  • Understanding lead conversion ratios
  • Objectively coaching your team and analyzing its strengths and weaknesses
  • Implementing strategies to improve your team and your pipeline.

Putting opportunities in the top end of the pipeline has nothing to do with those opportunities being certain to close. It has everything to do with revealing the true quantity of opportunities in the marketplace, and measuring your true conversion ratios between every stage in the pipeline.

Ultimately, this discipline will allow you to create accurate forecasts which are true reflections of your revenue potential from well-qualified opportunities.

One Simple Change to Make to Your Pipeline

Now that you understand why it’s critical to put all opportunities in the top-end of your pipeline (even if you’re not confident they will eventually close), here is the nuance that will help you make a meaningful change to your pipeline management process this year:

Stop talking about probability of close at each stage and start talking about percentage complete in the sales cycle.

As you move through your pipeline, every stage represents a step that’s been completed and a new step that’s beginning. As a sales leader you want to see that your team is moving deals through the pipeline, completing each stage properly, and gradually moving towards a win.

When an opportunity moves to the next stage, their percentage complete increases. And when opportunities reach the stage that you define as your “fully qualified” stage, it’s probably safe to assume that one-third of them will close.

That calculation will yield your forecast.

By arriving at your forecast number through an objective measurement of percentage of pipeline stages complete (rather than the subjectivity of “probability to close”), your forecasts will be significantly more accurate, and you’ll have an objective coaching tool to use in sales meetings and reviews.

Best of all, this pipeline model will mitigate your chances of suffering from the highs and lows that inflict most sales organizations – what I call Sales Whiplash.

If you’re using a 33 percent closing ratio on qualified leads to calculate your forecasts, you will be accurate within 5% of your forecast each reporting period and it’s certain you’re your team will never under deliver. As a plus, if you happen to have a month or quarter in which your team closes 50 percent of its highly qualified opportunities, you’ll significantly overachieve.

As a sales leader, creating revenue transparency, consistency and predictability is critical for numerous reasons, not the least of which is your – or your boss’s – sanity and stress level.